Intent instead of action: Why businesses need to watch out for the net-zero trap

Welcome to the finish line for 2023. We’re in that head-spinning moment where corporates and brands latch onto the flurry of marketable moments to try and make themselves stand out. Halloween, Thanksgiving (if you’re in the US), Black Friday and Christmas. The shelves and marketing change quicker than the leaves do this time of year.

According to Google search trends, the top three Halloween costumes this year were Barbie, Princess and Spider-Man. But in the climate space, we’re seeing a lot of businesses playing dress up too.

The corporate costume for 2023 was that of a “net-zero business”. Many organisations have set, revamped, or revisited climate strategies already this year, all expressing their intent to become a net-zero entity.

Indeed, the latest analysis from the Net Zero Tracker, published this week, has confirmed that the 1,000th company from the Forbes Global 2000 has now set a net-zero target – a noteworthy milestone in itself.

Businesses are being pushed by regulators and investors alike to raise the bar on climate, and the opportunities are apparent.

The transition to net-zero emissions has been labelled as a huge economic opportunity, with some research stating that it could unlock a 6.4% boost to GDP – equitable to £240bn – to the UK alone by 2050. However, unlocking these opportunities also mean overcoming risk: as the climate crisis worsens the physical, financial and reputational risks of inaction also rise, and businesses will need to redefine value propositions, embrace cutting-edge innovation and review assets, services and product lines to see if they’re compatible with a net-zero future.

Reaching net-zero is the ultimate “win, win”, but in the same way that a child dressing up as a web-slinging superhero for one night does not make them part of the Avengers, a commitment to net-zero does not account for the millions of megatonnes of CO2 emissions that need to be eliminated.

As corporate sustainability expert Mike Barry recently posted on LinkedIn: “You won’t remove 90% of today’s value chain carbon footprint by publishing a press release!”

Time to transition

Barry was referring to the need for corporates to set out steps to achieve their goals, namely through the publication of Transition Plans that the likes of Ball has set.

In our new Sustainable Business Tracker survey (full results to follow in a dedicated report later this year), we asked more than 230 sustainability professionals whether setting a Climate Transition Plan was a priority. In total, just 90 (37%) claimed that the formulation of such a plan was either a “high” or “business critical” priority.

The research echoes a similar analysis published by CDP at the start of the year, which found that less than half a percent of 18,600 companies that disclosed climate information through its platform last year have a credible climate transition plan to net-zero by mid-century.

More than one-third of all the companies covered in CDP’s report were classed as providing sufficient information on the risks and opportunities of the net-zero transition. This is likely, in part, due to the proliferation of the Taskforce on Climate-related Disclosures’ (TCFD) framework, which enables organisations to measure and report on climate-related risks and opportunities. However, Transition Plans are still a missing piece of the net-zero puzzle for most firms.

More broadly, the Net Zero Tracker found that only 37% of corporate net-zero targets fully cover Scope 3 emissions and just 13% specify quality conditions under which any offsets would be used. The Tracker warns that this signals an overreliance on low-quality offset credits, rather than emissions reductions.

Additionally, only 4% of companies with net-zero targets would comply with the revised ‘Starting Line criteria’, set out in June 2022 by the UN Race to Zero campaign.

What we are left with is both an ambition and accountability gap that drastically needs addressing. It is no longer good enough to have ambitious decarbonisation targets – that is a pre-requisite of responsible business – what the world needs now is action, and quickly.

Framework foundations

The good news is that the guidance and frameworks to help address this ambition gap continue to evolve and strengthen.

In October 2023, the Transition Plan Taskforce (TPT) delivered what it calls a “gold standard” Disclosure Framework for corporate climate transition plans, which aligns with globally recognised reporting frameworks and standards.

The TPT was launched by the Treasury in April 2022, with a pledge that large businesses in high-emission sectors would be subjected to new net-zero disclosure requirements from 2023. The requirement is around net-zero transition plans, which support long-term corporate emissions goals with interim milestones and outline the necessary steps to change business models and investment. Plans should also detail how workers will be supported and the need for upskilling and reskilling addressed.

It issued its first proposal for a ‘gold standard’ for net-zero transition plans six months later. The proposal consists of a framework, recommending how companies should develop plans and the key elements they should include; and an implementation guidance document.

The TPT is proposing that companies should publish one transition plan this year, and then an update in 2026. In 2024 and 2025, information material to the plan should be included in financial reporting.

The TPT recommendations build on the global baseline of disclosures developed by the International Sustainability Standards Board (ISSB) and the TCFD and draw on the work of the Glasgow Financial Alliance for Net Zero (GFANZ).

These sweeping new frameworks are targeted at the businesses with the biggest impacts, but developments continue to shape how every organisation can play its role in reaching net-zero.

At the start of the month, the Science Based Targets initiative (SBTi) announced an updated definition of Small and Medium-Sized Enterprises (SMEs) that qualify for the initiative’s SME target validation route.

Starting from 2024, any business that meets the new SME eligibility will be able to undergo the SME target validation route. While the submission costs for SMEs have increased slightly, the initiative is reducing the threshold for SMEs to qualify for fee waivers, namely if they’re based in developing countries.

We’re also seeing welcome examples of sector-based certification and accreditation that can help industries with unique challenges share learnings on the road to net-zero.

Just this week, 10 prominent UK accountancy firms, including Prager Metis and Harrisons Accountancy, earned the ‘On the Road to Net-Zero’ certification from the Net-Zero Accountancy Initiative, based on targets submitted to the SBTi.

The Net-Zero Accountancy Initiative has been developed in collaboration with the Institute of Chartered Accountants in England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), the Association of Accounting Technicians (AAT) and the Association of International Accountants (AIA).

The initiative empowers accountancy firms to measure and reduce their emissions through tailored reduction plans, unlocking multiple business benefits such as cost savings, enhanced client engagement and a motivated workforce.

With the SBTi having also launched a framework for firms needing to account for land-based emissions, it is clear that the blanket approach to net-zero corporations is starting to diversify in a bid to unlock innovation and provide guidance for overcoming the biggest hurdles on the road to net-zero.

Looking ahead

The private sector has essentially reached critical mass for net-zero targets. Collectively, businesses have formulated a baseline that can act as a launchpad for climate action. Getting sign-off on net-zero targets is no easy feat in itself, but now the hard yards are required.

It’s an easy trap to fall into. In the same way, a friend may encourage you to commit to running a 10k, saying you’ll do something is easy, but if you don’t get off the sofa and pound the pavement, does anything really change? Well, in the case of corporates, yes. Trust is a finite resource and we are seeing more and more cases of corporates being hauled over the coals for net-zero greenwashing, either by setting unambitious targets, or relying too heavily on offsetting. If you don’t act, you will be punished, either by impending regulations or by customers and investors who will turn their back on you.

Through aspects like the TCFD’s scenario analysis and the TPT’s Transition Plan Disclosure frameworks, though, businesses can view themselves in a new light. The road to net-zero and a prosperous planet will fundamentally change business, and “business as usual” will cease to exist.

Instead, we will have a coalition of the willing that can move away from short-term mindsets to forge a long-term path to resiliency and profitability, using net-zero as their guiding North Star.

These new frameworks call on businesses to examine their operations, customers, stakeholders, products and services and value chains through the lens of compatibility. Is what your organisation doing now compatible with a net-zero future? If it’s not, then it won’t be profitable in a net-zero future.

The last five years have delivered unparalleled disruption. The coronavirus pandemic has crippled economies and dealt an even great blow to societies and public health. Subsequent economic crashes have seen some Governments turn to tried and tested profits (which are quickly becoming stranded assets) in the form of new oil and gas licensing, and all the rhetoric about striving to achieve net-zero has seen numerous national governments taken to court for failing to back these claims up.

Understandably, businesses don’t know which way to face. Corporations want certainty in the markets which they operate in. One thing that is certain is that investors want long-term data and plans on climate and net-zero action. A press release about a net-zero commitment does not provide certainty for businesses – only long-term ambitions plans and strategies with tangible steps to deliver them will enable businesses to strive in the future.

The road to net-zero is paved with good intentions, but it’s about to get very bumpy for those unwilling or unable to act on their pledges.