Destination net-zero: how to build a credible neutrality strategy

2020 is upon us. They’re calling it the Super Year for sustainability — the year we could change it all, as major global decisions are made on climate and biodiversity. With the European Parliament declaring a climate emergency last month, the ramp-up is palpable. Despite uncertainties around COP25 outcomes, almost half of global GDP is covered by net-zero commitments. The corporate sector, too, is keeping climate change the top sustainability priority, answering ever-rising pressure from investors and consumers. 

Eager to position themselves as leaders of the corporate climate pack, a growing number of businesses are upping the stakes and committing to the destination climate science leaders have set: net-zero greenhouse gas emissions by 2050 to cap global warming to 1.5°C. What comes next is ensuring that these “carbon neutral,” “net-zero,” even “climate positive” commitments are translated into action plans that will actually reach net-zero. 

Net-Zero and climate neutral

A credible net-zero strategy first reduces emissions as much as possible, then balances residual emissions with carbon removals. Corporate leaders getting this priority right — and channeling capital accordingly in the coming decade — will determine whether we reach our 2050 destination.

We often get questions about whether a carbon neutral strategy demonstrates ambitious climate action. The answer depends on what the strategy entails. “Net-zero” is reached when the activities of a company’s value chain result in no net GHG impacts. Companies achieve this by reducing GHG emissions and balancing with carbon dioxide removals (CDR). The effectiveness and legitimacy of a business’ net-zero pathway hinges on how a company prioritizes GHG emissions reductions versus carbon dioxide removals.

Carbon credits: silver bullet or red herring?

Some companies have set their hopes on carbon credits to reach carbon neutral. These credits are seen as a “silver bullet,” a simple solution to a complex problem. But rushing to them can become a “red herring,” distracting companies from the real transformation they need to continue thriving in the years ahead. A credible net-zero strategy is a long-term strategy. Companies should first invest in building a robust climate impact reduction strategy rather than consuming capital on annual carbon credits to rush to zero.

“It can be attractive for a company to ‘jump to zero’ by offsetting all of today’s emissions through buying carbon credits and declaring having reached carbon or climate neutrality,” states Quantis Climate Strategy Expert Pierre Bloch. “But if companies invest in annual carbon credits at the expense of building a science-based net-zero strategy, they could end up in a more precarious position in five or ten years from now — financially, environmentally and reputationally.”

Defining credible net-zero targets

At this time, corporate “neutrality” targets vary widely in terms of the scope of the activities covered, the climate impact of those activities, mitigation approaches and time frames. While the details of science-based net-zero targets are still being worked out, the framework is clear: first, reduce emissions as much as possible, then balance residual emissions with CDR. Corporate leaders getting this right — and channeling capital accordingly in the coming decade — will determine the world’s ability to reach our 2050 destination.

In September 2019, the Science Based Targets initiative released a robust foundational paper, Towards a science-based approach to climate neutrality in the corporate sector, based on definitions from the Intergovernmental Panel on Climate Change. As the SBTi prepares to release final guidance and criteria on corporate goals by mid-2020, three key elements have already emerged from this paper:

+ Clarify the ambition of your goal

When companies set a neutrality target, it’s important to follow the IPCC’s definitions of the different concepts of neutrality to delimit the scope of climate impacts the corporate goal covers. 

  • “Carbon neutral” refers to net-zero carbon dioxide emissions.
  • “Net-zero emissions” includes other greenhouse gases (GHGs) beyond carbon dioxide, such as methane, nitrous oxide, etc.
  • “Climate neutral” encompasses all GHGs and “regional or local biogeophysical effects of human activities” — it is especially relevant for the aviation sector. 

+ First things first: science-based reduction targets

The backbone of a credible net-zero goal is a science-based reduction target. Companies demonstrate credible climate ambition by first setting a science-based target to decarbonize their value chain emissions. Prioritizing a reduction plan is more ambitious because it requires engaging internal stakeholders and transforming business models. Investments to reduce emissions can seem complex and costly compared to an external offsetting plan. But reduction strategies have a permanent effect, whereas carbon credits are an annual cost: one ton of carbon offset in 2020 will need to be purchased again in 2021.

+ Carbon dioxide removals: that’s for what’s left-over

Carbon dioxide removals should be used “to some extent to neutralize emissions from sources for which no mitigation measures have been identified.” They should be used in addition to reduction efforts, not as a substitute to decarbonization. Not all emissions balancing solutions are created equal, and criteria are still being defined. The most effective use of CDR is when it happens within a company’s value chain.

“It can be attractive for a company to ‘jump to zero’ by offsetting all of today’s emissions through buying carbon credits and declaring having reached carbon or climate neutrality. But if companies invest in annual carbon credits at the expense of building a science-based net-zero strategy, they could end up in a more precarious position in five or ten years from now — financially, environmentally and reputationally.”

Pierre Bloch, Quantis Climate Strategy Expert

So does a carbon neutral strategy demonstrate ambitious climate action? A recent news report by leading media outlet FranceInter highlighted that 82% of France’s largest companies did not have a carbon-neutral strategy in 2018, and used this criterion to assess how serious a company’s climate ambition is. As we’ve seen, we can’t tell much from this criterion alone. Clearly, short term strategies such as “carbon neutral in 2019” do not guarantee any profound change of business models required to be aligned with a 1.5-degree future. 

To determine climate ambition, a better question would be, “has this company committed to develop 1.5°C-compliant business model aimed at net-zero by 2050?” That’s exactly what the recently-launched UN Global Compact Business Ambition for 1.5 campaign is calling for. To date, 177 corporate leaders have pledged to pursue sustainable transformation in a credible and science-driven way. 

At Quantis, we’re ringing in Super Year 2020 with the hope and expectation of seeing many more courageous corporate climate leaders step up and rally their businesses around this shared vision, and we look forward to making this trip together: destination net-zero by 2050. Cheers!

Quantis Team

Ready for a net-zero commitment? Let Charlotte be your guide.

Charlotte Bande
Climate Strategy Lead
Quantis

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