The concept of net-zero has taken off over the past year in particular with companies across the globe committing to net-zero targets. Generally, these targets should aim to align with a 1.5°C degree pathway and kerb the growth of greenhouse gas emissions, however, this is not always the case and can be a nightmare for stakeholders to navigate.
The Intergovernmental Panel on Climate Change (IPCC) defines net-zero emissions as “anthropogenic emissions of greenhouse gases to the atmosphere ... balanced by anthropogenic removals over a specific period”. In 2018 the IPCC announced that globally, all emissions must halve by 2030 and hit net-zero emissions by 2050.
Just last week, the Science Based Target initiative (SBTi) released a conceptual report to help guide companies to set net-zero targets in line with a science-based approach and limit warming to 1.5°C based on the Paris agreement.
There are three guiding principles that a net-zero target should follow:
1. Reaching net-zero emissions for a company involves achieving a state in which its value chain results in no net accumulation of carbon dioxide in the atmosphere and in no net-impact from other greenhouse gas emissions.
2. In line with the Paris Agreement and the Sustainable Development Goals (SDG’s), companies should transition towards net-zero in line with mitigation pathways that are consistent with limiting warming to 1.5°C with limited or no overshoot.
3. The mitigation strategy followed by the company should inform long-term strategies and investments that mitigate exposure to climate-related transition risks, ensuring that the business model of the company will continue to be viable in a net-zero economy.
In addition to the guiding principles, there are three areas where stakeholders should take care, because 'net-zero targets' can be defined differently by individual companies. Take particular note of:
· The range of emission sources and scope of activities included,
· How they are planning on achieving the targets,
· The timeline to achieve their targets.
Key Dimensions in corporate net-zero targets SBTi (page 14).
Some company targets have focused solely on carbon net-zero, whilst others cover all greenhouses gases, and a few are set beyond a company's value chain to remove more emissions than they produce (including wider climate impacts). Stakeholders need to be sure of the boundary and scope, to easily compare and contrast companies and their net-zero targets, ensuring they align with the global net-zero goal by 2050. For example, an agricultural company that sets a carbon net-zero target but is not factoring in methane, does not align with the three guiding principles. To have a material net-zero target they should include all seven greenhouse gasses as part of their strategy.
What I found interesting is the number of references that the SBTi made to the value chain. Historically, companies have only focused on Scope 1 and 2 emissions as they have had direct control over these sources. As we head into the 'Decade of Action', the SBTi have signalled that all material sources from the value chain should be included in a net-zero target. Companies that have only focused on their area of operational control (Scope 1 & 2) will have to expand their reach across their value chains.
I have observed mixed messages regarding the use of offsetting, and carbon removal and sequestration when it comes to setting targets within industry. Some companies have set net-zero targets, adjusted their business models and started to decarbonise via abatement - right across their value chains. Others rely heavily on minimal abatement reductions and significant offsetting to meet their targets. SBTi have clearly signalled in this most recent working document that companies can reduce emissions via compensation (reducing emissions outside of their value chain) or via neutralisation (removing carbon from the atmosphere within or beyond their value chain). These two measures do not replace the need to reduce value chain emissions. Companies who do not abate emissions from their own value chains are still exposed to transitional climate risk.
To reach the goal of net-zero, the timeline of the target needs to be net-zero by 2050. Stakeholders have been pressuring companies to bring this forward and some have even set net-zero goals by 2030.
The table below overviews five net-zero strategies and how they align to the three principles. You can read the five examples in the guidance document here if you wish.
Summarised assessment of corporate net-zero strategies SBTi page 31.
In addition, the SBTi have ten recommendations for corporate net-zero target setting:
1. Boundary: A company’s net-zero target should cover all material sources of GHG emissions within its value chain.
2. Transparency: Companies should be transparent about the sources of emissions included and excluded from the target boundary, the timeframe for achieving net-zero emissions, the amount of abatement and neutralisation planned in reaching net-zero emissions, and any interim targets or milestones.
3. Abatement: Companies must aim to eliminate sources of emissions within its value-chain at a pace and scale consistent with mitigation pathways that limit warming to 1.5°C with no or limited overshoot. During a company’s transition to net-zero, compensation and neutralisation measures may supplement, but not substitute, reducing value chain emissions in line with science. At the time that net-zero is reached, emissions that are not feasible for society to abate may be neutralised with equivalent measure of CO2 removals.
4. Timeframe: Companies should reach net-zero GHG emissions by no later than 2050. While earlier target years are encouraged, a more ambitious timeframe should not come at the expense of the level of abatement in the target.
5. Accountability: Long-term net-zero targets should be supported by interim science-based emission reduction targets to drive action within timeframes that are aligned with corporate planning and investment cycles and to ensure emission reductions that are consistent with Paris-aligned mitigation pathways.
6. Neutralisation: Reaching net-zero emissions requires neutralising a company’s residual GHG emissions with an equivalent amount of carbon removals. An effective neutralisation strategy involves removing carbon from the atmosphere and storing it for a long-enough period to fully neutralise the impact of any GHG that continues to be released into the atmosphere.
7. Compensation: While reaching a balance between emissions and removals is the end goal of a net-zero journey, companies should consider undertaking efforts to compensate unabated emissions in the transition to net-zero as a way to contribute to the global transition to net-zero.
8. Mitigation hierarchy: Companies should follow a mitigation hierarchy that prioritises eliminating sources of emissions within the value chain of the company over-compensation or neutralisation measures. Land-based climate strategies should prioritise interventions that help preserve and enhance existing terrestrial carbon stocks, within and beyond the value chain of the company.
9. Environmental and social safeguards: Mitigation strategies should adhere to robust social and environmental principles, ensuring amongst others, protection and/or restoration of naturally occurring ecosystems, robust social safeguards, and protection of biodiversity, amongst others.
10. Robustness: Compensation and neutralisation measures should: (a) ensure additionality, (b) have measures to assure permanence of the mitigation outcomes, (c) address leakage and (d) avoid double-counting.
The SBTi will develop detailed guidance documentation through a stakeholder engagement process to support companies in setting net-zero targets. The document here is the first step in that direction. Criteria for the creation of science-based net-zero targets and a validation process to review targets against such criteria will also be created by the SBTi for the corporate sector.
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