The Race Is On: 3 Leading Practices to Prepare Businesses for a Net Zero Future

The following article by AccountAbility's Daniel Metzger, Manager, and Lidia Garces Marcuello, Research Fellow, was originally published by Climate Action.

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We are at the precipice of a landmark decade for securing a Net Zero emissions future, with Nationally Determined Contribution (NDC) climate action plans to be submitted in February 2021, nine months ahead of the Cop26. Beyond government NDCs, achieving “Net Zero” – an equilibrium balance between the carbon emissions produced and taken out of the atmosphere – relies on active contributions from the private sector, which accounts for a significant majority of the world’s greenhouse gas (GHG) emissions.

Corporate climate action has emerged as more than an environmental necessity, but rather is increasingly recognized as a business imperative – as companies that fail to take responsibility for their GHG emissions risk seeing business performance suffer as a result. Leading investors, wealth funds, and asset managers have also made it clear that companies failing to proactively address their GHG emissions will face serious consequences.

Fueled by investor pressure, coupled with rising consumer expectations and mounting regulatory requirements, many companies have been quick to respond. This summer alone, over 900 of the world’s leading companies have joined the Race to Zero business campaign and other climate commitment groups like Transform to Net Zero and Business Ambition for 1.5°C.

There is more work to be done, however, as this corporate climate action must continue and evolve for the future – particularly when considering around 75% of the cumulative reductions in carbon emissions needed to achieve international energy and climate goals will come from technologies that have yet to reach full maturity.

AccountAbility – a consulting and standards firm and pioneer in the sustainability arena – has identified the following practices exemplified by industry leaders to serve as good guideposts for companies grappling with GHG management expectations and related business requirements.

1. Climate-aligned governance mechanisms provide a necessary foundation for effective GHG emissions management

When company leadership at the board and executive levels recognize climate issues alongside other business risks, they are more likely to address them with an appropriate and strategic level of urgency.

Climate-aligned governance mechanisms, such as GHG management systems, protocols, and processes, can successfully integrate climate risk management into wider enterprise risk management approaches, such as:

• Setting, reporting, and disclosing GHG targets
• Tying executive compensation to GHG metrics
• Formalizing board oversight of GHG management policies
• Engaging with stakeholders about climate commitments
• Educating management about current GHG science and relevant market trends
• Establishing dedicated, cross-functional groups responsible for ensuring Net Zero alignment

2. Commitments to reducing GHG emissions are reinforced through climate pledges and Science-Based Targets

Participation in the flurry of climate commitment groups and pledges that have recently gained steam requires more than a signature and the intention to act. Rather, as a condition of joining, companies are often expected to set science-based targets – the “gold standard” for GHG emissions reduction goal-setting.

By setting science-based targets, companies visibly affirm their climate commitments and directly connect them to the tangible actions required to meet those targets, such as energy efficiency projects, renewable energy sourcing, carbon capture strategies, and fossil fuel divestment.

Companies that take science-based action on their GHGs report increased regulatory resilience and are better prepared to meet regulatory requirements driven by the Net Zero commitments of their local or national governments. While today Europe has some of the world’s most robust and stringent GHG policies – including the European Green Deal and the Renewable Energy Directive – the US is expected to drive more GHG action in the near future, particularly at the state and local levels.

3. Sustainability reporting, communications, and disclosure must be aligned to recognized and relevant frameworks

Disclosing GHG management practices, reporting quantitative sustainability data, and communicating progress to stakeholders is quickly shifting from a voluntary practice to a responsible business requirement.

Investors increasingly expect companies to complete the Carbon Disclosure Project (CDP) questionnaire, disclose science-based target progress in their annual reports, and showcase alignment with the Task Force on Climate-related Financial Disclosures (TCFD). What’s more, annual reports with a page or two on climate change priorities are becoming insufficient, as it has become a leading practice to fully integrate sustainability practices as corporate business priorities and report on these actions/related performance with a dedicated sustainability report that includes assured non-financial data.

Sustainability data is not just of interest to investors, but is also seen as critical to ESG ratings and rankings agencies that “score” companies based on sustainability practices and performance. Businesses that align with these voluntary frameworks will also be better prepared for new regulations, as investor appetite for climate risk data is intensifying. The UK government, for example, is set on making TCFD reporting mandatory and the SEC is facing pressure to do the same in the US.

With market demands, stakeholder expectations, and regulatory requirements around sustainability commitments certain to increase globally in the years ahead, now is the time for companies to establish a corporate sustainability strategy that places these environmental, social, and governance (ESG) issues at the center of their business operations.