As the climate crisis intensifies, the corporate world's response is under greater scrutiny than ever. Decarbonization plans and public disclosures are critical components of this response, yet their true value lies in the tangible actions they drive. According to Science Based Target Initiative’s latest report, as of July 2024, approximately 5,760 companies across 80 countries have set science-based targets (a ~40% increase from December 2023), with ~60% committed to Net Zero. With net zero deadlines rapidly approaching, companies must transition from declarations to concrete actions.
Many companies struggle to develop a decarbonization strategy. Reducing carbon emissions is complex, requiring knowledge of sustainable practices, regulatory compliance, and advanced technologies. Companies must balance operational efficiency with the investment in new, often costly, sustainable technologies and infrastructure. The rapid pace of innovation and evolving regulations add to the challenge. Additionally, managing the carbon footprint of a vast supply chain adds another layer of complexity. A prudent first step is understanding the three components of decarbonization.
Decarbonization 101: The Components of a Carbon Strategy
Carbon Reduction refers to directly lowering greenhouse gas emissions in a company's operations. Strategies include improving energy efficiency, transitioning to renewable energy, and optimizing supply chains to reduce waste and emissions. Reducing emissions should always be the top priority for companies, as a ton of CO2 avoided is more beneficial than a ton of CO2 removed from an environmental perspective. Still, reduction efforts are impactful because they tackle the root cause of emissions, leading to tangible and permanent improvements. Notably, every tonne of greenhouse gas that is not reduced will need to be removed annually.
Carbon Avoidance involves preventing potential future emissions. This includes adopting new, less CO2-emitting technologies, changing operational practices, influencing consumer behavior to opt for low-carbon alternatives, and preventing deforestation. While avoidance does not eliminate existing emissions, it prevents future increases, complementing reduction and removal efforts.
Carbon Removal captures and stores atmospheric carbon dioxide through nature-based methods like afforestation, reforestation, and soil carbon sequestration; technology-based methods such as direct air capture; and hybrid methods like biochar. The goal is to permanently remove CO2 from the atmosphere, reversing some emissions already made. Investing in these technologies or initiatives allows companies to neutralize remaining emissions and contribute to long-term climate solutions. Carbon removal is essential in achieving net zero, as companies will always have some residual emissions that must be neutralized. As such, companies with net zero commitments implicitly endorse carbon removals and have a responsibility to start investing in the industry today.
The Net Zero Equation: How Carbon Credits Can Add Up to Success
Carbon credits can play a pivotal role in a business's decarbonization strategy, offering a flexible mechanism to address emissions that are challenging to eliminate directly. Industries with hard-to-abate emissions, such as consumer goods, manufacturing, transport, and heavy industry, can benefit from integrating carbon credits into their sustainability efforts. However, the efficacy of this strategy hinges on investing high-quality carbon projects that provide verifiable, permanent, and long-term environmental benefits. The most sought after projects ensure emissions reductions are both measurable and lasting, supported by transparent verification and monitoring processes. Additionally, they deliver sustained environmental impact by promoting practices that continue to mitigate carbon emissions far into the future. Correct application within the corporate mitigation hierarchy is crucial. Misusing carbon credits can lead to greenwashing, undermining environmental goals and corporate credibility. Therefore, companies must implement and rigorously manage a carbon credit strategy, ensuring it complements broader decarbonization efforts and contributes to achieving net zero targets. Differentiating between high-quality carbon credit projects and lower-quality options is critical. Companies should look for carbon credits certified by reputable organizations, with transparent methodologies, clear additionality, and robust verification processes. It is recommended to follow IETA Guidance, the Oxford Principles Revised, the Science Based Targets Net Zero guidance, or the Whitehouse carbon recommendations.
Even with different perspectives on these guidelines, all recognized guidelines align on key recommendations:
- Gradually move from reduction and avoidance towards removals.
- Prioritize reduction and avoidance.
- Support the scale-up of carbon removal technologies.
Procrastination is Expensive: The Early Adopters' Advantage
Companies cannot afford to delay entering the carbon credit market. Mckinsey’s 2023 report states demand for carbon removals is expected to grow to 10 billion tons of CO2 per year by 2050. As demand increases and regulatory pressures mount, early adoption allows businesses to secure more affordable credits, capitalize on the supply of high-quality credits, and enhance compliance with evolving regulations. It can also position them as leaders in sustainability, potentially enhancing their reputation and competitive edge in an increasingly sustainability-minded marketplace.
The path to decarbonization is challenging but imperative. Companies must move beyond declarations to tangible actions that drive real progress and help mitigate financial and reputational risks. Embracing carbon removal, reduction, and avoidance strategies, investing in the carbon removal industry, and setting and achieving SBTi targets will help avert the worst impacts of climate change and position companies as leaders in the transition to a sustainable future. The time for action is now.
