Thinking of going Net Zero, here are 4 simple leadership ESG questions to test your plan by before you give your corporate agreement.
New targets will require the UK to bring all greenhouse gas emissions to net-zero by 2050 (possibly earlier). The ambition is there, and its announcement has encouraged many boardrooms and government agencies to rush out their own organisational net-zero plans. In fact, there seems to be major competition amongst several multinationals to claim the net-zero status first. Positive news indeed.
I have now reviewed several net-zero plans, not from a technology or emissions counting perspective – I leave that to other carbon experts. No, my work has been with the senior leadership team and sustainability teams helping them clarify what Net-Zero is, ensuring that they understand and can positively commit to the leadership challenge ahead, and how they move forward from concept to reality. Going net zero is as much about improving energy efficiency as it is about generating or buying in green energy. The first steps are easy and have a fast payback – retrofitting in LED lighting systems and improving insulation. These simple steps can show a real reduction in your ESG/Sustainability report carbon footprint section in the first years – they also add to the reduced energy costs. It looks like a great start to going net-zero!
Net-zero, however, requires a radical strategic review across the entire organisation, doing away with fossil fuels, reviewing all those established production techniques, the total energy flows across your business and how they can be offset through alternative carbon routes. It will require long-term partnerships with suppliers who can guarantee carbon stability – so detailed consideration before you procurement hop from one supplier to another in response to a short-term price hike. Never mind all those associated carbon releases you discover along the way. All the best ESG charts have a rise in them after two or three years as everybody gets better at carbon monitoring.
For those unavoidable emissions, for every ton of CO2, you agree to retain within your organisational processes and emissions must be equally matched by a ton of CO2 removed from the atmosphere. It is these negative emissions where much of the challenge will lie when organisations start to compete for external routes to meet their net-zero target. Businesses will need a new sector of service providers guaranteeing solutions that will literally suck CO2 out of the atmosphere and store it in long-term carbon sinks.
So, it is 2020 now, and we still have 30 years to make it to net-zero?
If national governments and businesses are all chasing net-zero carbon status, it is going to be competitive as an efficient and accessible low-carbon economy with a wide range of low-carbon service providers will take time to establish itself. The deadline is just over 30 years away, by then your whole operation, processes and assets must have moved across to sustainable (and auditable) systems – did I mention that the construction of the new plant will also have to be low-carbon construction with a longer operational life?
The good news is that most of what net-zero plans and targets require are already technically possible and available. However the longer an organisation takes to move actively and aggressively in its strategic planning for energy efficiency, the less it is likely to have to rely on the more dubious business of offsetting and the physical extraction of carbon from the atmosphere.
The Future is uncertain, both in terms of climate change impacts and business growth, but if your ambition is for the organisation to be there in thirty years, any inial debate in going net-zero needs hard-edged Board level debate and understanding of the commitments it will lay across the leadership team, business investment and critically the required changes within the organisational culture. To date, I have reviewed a 2050 net-zero strategy for a critical infrastructure delivery group that was light on detail and reliant on annual offsetting (uncosted); and called after an ambitious 4-page 2030 net-zero plan went through under the Board’s AOB section without comment in a large transport haulier, before the panic button was hit after a subsequent proposal to invest in a new fleet of diesel vehicles caused someone to remember their Net-Zero Plan ‘ambition’.
Luckily some clients want to explore the issue and understand the deeper ramifications of their decisions and what it will mean for their successors around the Board table. In many cases getting to grips with climate change, the myths and facts and the fundamental needs for change must proceed any future debate on a net-zero policy.
Further discussion is also required on the implications for leadership, change management and how to get all internal parties on board, and importantly identifying their carbon footprint and backcasting from 2050 (or whatever target date is chosen in a realistic matter). I see far too many steeply dropping sigmoidal graphs depicting Dec 31st 11.59 pm 2050 AD finishing points. The last part will be hard and published ESG reports fed into databanks will have long memories of promises made by CEO’s to ‘explore’.’ achieve’ or ‘actively pursue’ etc., etc. plans to become, by 2050, an absolute zero organisation!’
When leading a Boardroom debate or workshop on net-zero plans, here are 4 of the most crucial that have to be explored, there are a couple of others. Still, these immediately start to direct attention and challenge the thoroughness of any proposal placed before the Board by an operational, energy or sustainability manager. Here they are:
The Greenhouse Gas (GHG) Protocol introduced the concept of emission scopes 1,2 & 3 into carbon reduction planning.
According to one GHG Protocol corporate standard, a company’s greenhouse gas emissions within Scopes 1 and 2 should be mandatory reporting within ESG documentation, whilst Scope 3 should be voluntary for the time being as it is harder to monitor than Scopes 1 & 2. However, as either the 2050 or self-imposed deadline approaches, only those that are accurately reporting across all three scopes will truly be considered as having achieved net-zero.
Issues: Kraft Foods have identified that in its desire to go net-zero they had identified that over 90% of their total emissions fall under their value chain (Scope 3). Apple that is competitively seeking to be net-zero has had to make decisions that will deliberately pass their emissions burden onto their consumers and other organisations. Their new iPhone 12 range will be sold without headphones or charging bricks. The reason being that by eliminating these items from the product box, Apple will cut out direct responsibility for over 2 million metric tons of carbon emissions annually (equivalent to offsetting emissions from 450,000 vehicles).
Does the plan clearly describe and articulate the point at which the organisation stops pursuing energy efficiencies under its scope of activities and start purchasing offsets to meet its net-zero target? This is a critical ESG and financial tipping point for the organisation, and who will be accountable for any fall out in terms of ESG or greater financial burden, as well as the hopefully continuing desire to achieve net-zero.
If the energy efficiency component is delayed by organisational inertia or proves to be more challenging than predicted, what will be the impact of greater (uncostable at present) offset costs and in year business liquidity. Additionally, it is important to understand which areas require prioritisation in terms of investment and human resources that need to be funnelled into the various scope partitions.
The great thing about goal setting is that it involves plan makers coming before you to actually develop an Action Plan designed to identify a codex of targets that are both motivating and act as an achievable guide towards a desired….goal! Goal setting is not just about identifying what they propose the organisation should achieve but critically how the organisation will achieve net-zero (process goals) with the verifiable measurement of that ESG objective.
Backcasting is a useful business tool and can be helpful when considering a deadline challenge, such as net-zero planning, which is organisationally complex and which will need to be passed through several generations of leadership in a systematic and coordinated way, It also helps in the early identification of short term targets, when action needs to be accelerated and allow for a change in the face of opportunity (i.e. new carbon-efficient technology). To that end, backcasting should be performed to help identify time-dependent stages within the plan that are specific enough to be helpful in the achievement of the overall plan, as well as to cover the key Scope 1 and 2, and especially Scope 3, activities that need to be identified, quantified and acted upon.
Boardrooms reviewing and debating Net-Zero plans need to carefully examine the timelines set out in front of them, and decide whether to demand a harder focus on the achievement of SMART goals for Scope 1 & 2 activities to allow a greater future understanding of how they will achieve their harder Scope 3 objectives or amend the plan to balance progress across Scope 1, 2, 3 activities and offsetting options.
Beware setting an all or nothing December 31st 11.59 pm 2049 target date for us to believe in; you need to account for future growth and market opportunities that will alter the existing 2020 carbon footprint. Note the lesson of businesses that completely changed their market sector over a decade – Nokia started off selling rubber boots; Shell used to import and sell actual seashells, and Nintendo began its life as a maker of playing cards!
The endpoint is clear – Net Zero or even hopefully net negative! But with interest in your ESG progress, validation of your claims by NGOs and impact investors, and for your own corporate sake, how will you know when you have achieved net-zero? Never mind the data, you will need to review in determining the alternative routes that can be taken, and if the pace of corporate change is adequate.
Boardrooms need to understand what they need to be measured and how it then feeds into further strategic decision-making that enables action. Keeping track of progress against growth will be key in determining the pace of change, the advantages of new technology or innovative supply chain approach, and how hard future decisions will be if the pace falters. The organisations that will succeed in their Net Zero goal will be those that have been able to identify, capture, utilise and lead in data management as they progress in a business model that integrates business and customer objectives with their Sector 1, 2 and 3 decarbonisation objectives.
Stating that you are going net-zero is a simple legacy action to take if you retire as CEO in 3 years. The term meets the desires of ESG and masts and in itself carries a promise of strong action orientated leadership, openly embracing humanity’s need to address the climate crisis, and is viewed by many as adding the mantle of climate and sustainability leadership to an already impressive CV. At a time, when the public and consumers are demanding more visible leadership by organisations, setting out a comfortable 2050 target date become an attractive PR and ESG ambition statement.
In the presentation to the Board of Net-Zero Plans, or ideally in the corporate decision by Boardroom members to address the climate impact of the business activities, Boardroom leaders must demonstrate action. Action not only to seek the minimisation of their energy costs under the attractive ESG banner of carbon reduction but the real desire as a leadership team to examine the opportunities that lie in examining how a net-zero objective will deliver a competitive advantage in ‘Where’. ‘What’ and ‘How’ the organisation develops or retreats from specific market sectors.
I applaud any Board that currently seeks to make a Net Zero commitment and enjoy working with such individuals as a sustainability specialist. In taking the first serious steps, there can be great interest around the Boardroom table in discussing the trajectory for carbon reduction the organisation will have to take, the development of understanding about the challenging complexity of their Scope 1, 2 and 3 activities, the anticipated ratio of reductions to carbon removal, and exploration of the Business model pathway that moves the organisation forward.
To discuss how a facilitated debate or worksho[ on the ‘getting it done’ leadership aspects of a net-zero plan can help your strategy, inform your decision making and help keep you on the delivery track.
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