Five Business Essentials on this Imperative Transition
The net zero transition is core to being a responsible business and should incorporate circular economy strategies, leverage cross-sector partnerships, center justice and inclusion into plans, and demonstrate progress through the ESGs to ensure the transition benefits business and society. This is the first article of our Corporate Pathways to Net Zero series, produced by Pyxera Global.
In the last year, we have seen a wave of commitments and progress by companies to achieve net zero greenhouse gas emissions (GHG) by 2050. Net zero refers to having a balance between greenhouse gas emissions produced and emissions taken out of the atmosphere that results in a company’s yearly net greenhouse emissions being zero. In January, the World Economic Forum’s Davos 2021 agenda reported out a doubling of net zero commitments in 2020, and in February 2021, several new companies joined the Climate Pledge, committing to reach net zero by 2040. Net zero is gaining momentum as a global approach to tackling climate change and limiting global warming below two degrees centigrade, a global goal outlined in the Paris Climate Agreement established in order to prevent the most severe consequences of climate change.
As businesses consider committing to net zero, and many begin to make the transition, it is important for corporate leaders to recognize that:
- Businesses’ action on climate change and follow-through on net zero GHG commitments are core to being a responsible business and imperative for protecting our planet today and for generations to come;
- Incorporating circular economy strategies into net zero transition plans can enable the transformation of businesses to more sustainable models;
- Cross-sector partnerships and resources on net zero exist and should be leveraged to overcome potential barriers to making the transition;
- Transition plans should be centered around justice and inclusion; and
- Transparent, measurable, and comparable environmental, social, and governance (ESG) reporting will be key to demonstrating progress on reducing GHGs.
Necessary Opportunities – The Benefits of Net Zero Outweigh Costs
Climate change is being driven by greenhouse gas emissions, most commonly from the use of fossil fuels which emit carbon dioxide. Carbon emissions have already caused temperatures to increase and led to shrinking ice sheets and the rise of the global sea level. Beyond these climactic impacts, poor air quality has been linked to pollution largely caused by the same activities which are driving greenhouse gas emissions and climate change. What is more, this poor air quality is leading to negative health effects. According to the World Health Organization, air pollution leads to 7 million deaths per year from non-communicable diseases such as stroke, lung cancer, and heart disease.
Businesses and their supply chains contribute to global emissions that are leading to these changes in the climate. According to the U.S. Environmental Protection Agency (EPA), industry makes up about 21 percent of the global greenhouse gas emissions, primarily involving fossil fuels burned at site for energy. Yet this is just a fraction of what corporate emissions account for because companies engage in electricity production, transportation, and agriculture, which account for an additional 63 percent of emissions. Meanwhile, eight supply chains—from raw materials to end-product manufacturing—account for more than half of all global greenhouse gas emissions. If global efforts to reduce emissions are to be successful, businesses’ collaboration and action is critical.
If global efforts to reduce emissions are to be successful, businesses’ collaboration and action is critical.
If companies do not achieve net zero by 2050, emissions are projected to rise even higher and the goal of limiting the global average temperature rise to 1.5 degrees centigrade will not be met. The effects of climate change will worsen and result in an even greater human and economic toll than what we have seen. A network of the world’s largest cities committed to addressing climate change, the C40 Cities, reported that as many as 570 coastal cities could be affected by sea-level rise and many as 1 billion people could be displaced by environmental hazards (primarily sea level rise and natural disasters).
The business impacts of climate change are already being anticipated and experienced by companies. Eli Lily & Co, a U.S. pharmaceutical company explains how they expect climate change to impact their company and how they’ve already experienced the effects stating, “Changing precipitation patterns, droughts, flooding, and tropical cyclones could potentially damage our manufacturing, research and development, and warehousing/distribution facilities and those of our key suppliers, especially in flood zone areas…In 2017, our operations in…the US and Puerto Rico were hit by a string of devastating… hurricanes.”
Many more companies anticipate climate change negatively impacting their bottom line and recognize that while there are initial costs to changing business operations, instituting these changes will result in greater positive financial returns in the future. According to CDP, a non-profit that helps companies disclose their environmental impacts, 215 of the world’s largest 500 companies reported facing financial risks totaling nearly $970 billion USD due to climate change. A majority anticipate these risks will likely occur within the next five years. Meanwhile, 225 of these companies reported climate-related opportunities totaling over $2.1 trillion USD in new revenue from growing demand for low emission products and potentially better competitive advantages with shifting consumer preferences.
Beyond financial opportunities, companies are also highlighting how the transition is a core part of being a responsible business. The transition to net zero is precisely in line with the Business Roundtable’s definition of the Purpose of a Corporation. Net zero has the potential to generate long-term value for companies’ shareholders and will support the communities in which companies work by protecting the environment and embracing sustainable practices across the business. In speaking about why Verizon is committing to reducing its carbon emissions, Hans Vestberg, CEO of Verizon explained, “Leaving future generations with a cleaner world is core to our values as a responsible business. At Verizon, it does not stop with reducing our carbon footprint. Through our technology and networks, we’re innovating solutions for customers, increasing efficiencies and building resiliency across the company and the communities we serve.”
Leaving future generations with a cleaner world is core to our values as a responsible business. At Verizon, it does not stop with reducing our carbon footprint. Through our technology and networks, we’re innovating solutions for customers, increasing efficiencies and building resiliency across the company and the communities we serve.—Hans Vestberg, CEO of Verizon
To reap these benefits of the transition to net zero and avoid the negative consequences of climate change, it is imperative that businesses act on their commitments. As a representative of Alphabet explained, “Not only does a company need to speak to the efforts they’re making, they also need to show through their actions that they are making improvements or taking mitigation measures. Not addressing climate change risks and impacts head-on could result in a reduced demand for our goods and services because of negative reputation impact.”