The notion of environmental, social and governance (ESG) can seem very abstract. But being a responsible corporate citizen means going beyond mere concepts; rather, it’s about taking action to operate more sustainably. Doing so requires taking a hard look at your supply chain and targeting where it’s possible to reduce carbon emissions. A good place to start is by understanding net zero and other key carbon emissions-related concepts and then determining appropriate action steps.
Net zero refers to the point when the balance of greenhouse gas emissions produced and removed is zero. It’s a term often applied on a macro scale, for example, for the planet or a country. When applied to an organization, it’s frequently called carbon net zero. The formula is the same: Carbon net zero occurs when emissions produced minus emissions removed is zero. In contrast, carbon neutral refers to the balance between carbon emissions and carbon offsets. It’s frequently a term that is used on a micro scale – an organization may focus on becoming carbon neutral or a product may be carbon neutral.
One of the biggest problems with concepts such as net zero and carbon neutral is ambiguity. It often feels unnecessarily complicated – and the suspicion won’t go away that there is a degree of intent behind the ambiguity – enabling some organizations to hide behind confusing words to create an impression that’s quite different from reality. Take as an example PlanA, which says “Carbon-neutral is the new gold standard,” while the World Economic Forum (WEF) cites Senja Kuokkanen, sustainability manager at Neste, who says “Net zero is considered the gold standard for corporate climate action.”
Contradictions are everywhere. Drill down and you’ll find important differences, but perhaps the key difference is one of emphasis. Net zero emphasizes reducing carbon emissions and only offsetting emissions when reduction to zero is either impossible or impractical.
Markus Gilles, founder of Klima, which produces a carbon offsetting app, draws a good analogy with a sinking boat: “The boat has a hole in it which you clearly need to seal, but in the meantime, you need to bail out water before the boat sinks.”
With climate change, the aim is to get to zero emissions as quickly as possible – the equivalent of sealing the hole. But there is no magic wand; the global economy is configured around fossil fuels. So, while you try to achieve zero emissions by a set date, you can compensate for those emissions you are responsible for by taking proactive steps in other ways such as investing in tree planting or solar farm projects.
There is more to net zero than reducing carbon emissions because carbon emissions are not the only cause of climate change. Net zero is meant to take all factors into account, whereas carbon neutral focuses on carbon emissions. One of the big differences between carbon neutral and net zero is that carbon neutral emphasizes carbon offsets.
An organization can claim to be carbon neutral, providing it has bought sufficient carbon offsets to compensate for the carbon it emits. Theoretically, it could make no effort to reduce carbon emissions but invest heavily in offsets. But this would be the equivalent of ignoring the hole in the boat while paying for a team of people to bail out water, although the analogy is not precise as carbon offsets externalize costs. It may be more accurate to liken carbon offsetting to not worrying about the hole in your watercraft, but helping someone else build a fine boat.
Carbon neutrality is an appropriate practice provided it is seen in the above context and not as a long-term strategy. Globally, carbon emissions can only be reduced to net zero by reducing emissions; the globe cannot externalize carbon emissions by buying offsets.
In the discussion concerning net zero and carbon neutrality, greenwashing is a controversial and key topic of concern amongst regulators. A company may say it will or intends to plant trees to compensate for its carbon footprint. But do they actually plant the trees? And if they do, where? In an area that was already sucking up carbon? Or were they trees that an organization funding them thought were going to be planted anyway?
A study investigating the integrity of Joint Implementation (JI) concluded that “about three-quarters of JI offsets are unlikely to represent additional emissions reductions.” The study also found that “the use of JI offsets may have enabled global GHG [greenhouse gas] emissions to be about 600 million metric tons of carbon dioxide equivalent higher than they would have been if countries had met their emissions domestically.”
This takes us back to complexity. The greater the complexity, the greater the opportunity to mislead, intentionally or otherwise, and the greater the opportunity to make mistakes. However, while offsetting carbon emissions is complex, reducing carbon emissions is not that hard to understand.
As the recently unveiled Tesla Masterplan shows, electricity tends to be more efficient than fossil fuels. For instance, in cars with internal combustion engines, only around 30% of the energy is converted into motion, and most is lost in the form of heat. With electric vehicles, around 80% of energy is converted into motion. The plan shows how organizations can reduce carbon emissions by electrifying as much as possible, regardless of how green the process by which the electricity was generated is, including by switching to:
There is low-hanging fruit in the Tesla plan. For starters, the first three items above would reduce the burning of fossil fuels by 77%. The technology already exists even though the green hydrogen required for blast furnaces or long-haul transport is far from reaching mass market viability. If organizations focus less on complex offsetting projects that are open to greenwashing – and focus more on the above three areas – it might be possible to reduce the burning of fossil fuels dramatically and quite rapidly.
With net zero and carbon neutrality, there is an issue with poorly defined standards. This lack of consistency creates further confusion and, arguably, opportunities for greenwashing. Standards such as SBTi’s Net-Zero Standard and various apps, such as products from PlanA and Planetly, all help and are steps in the right direction. These standards are likely to evolve further and become more widespread. For this reason, understanding corporate responsibility and risk in these areas has never been more important.
When you consider the entire supply chain, an added layer of complexity emerges. Any organization, unless it is incredibly well vertically integrated, is part of a supply chain. An organization may say it is carbon neutral or moving towards net zero, but does it buy products from suppliers that emit greenhouse gasses while making them? What is the carbon cost of shipping the products?
The supply chain is long and often very complex. To understand the carbon footprint of suppliers, greater transparency into how organizations source and select their suppliers and how those suppliers source their raw materials is becoming a regulatory focus.
Net zero and carbon neutral both tie in with the concepts of Scopes 1, 2 and 3. To understand the three scopes, we need to go back 20 years to the foundation of the GHG or GreenHouse Gas Protocol, formed through a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). The GHG Protocol works with governments, industry associations, NGOs, businesses and other organizations. GHG is closely associated with Scopes 1, 2 and 3 and defines them as:
Scope 1. Look at the greenhouse gasses you are directly responsible for creating and start:
Scope 2. Lower emissions by looking at the suppliers of the energy you consume, such as electricity and power and:
Scope 3. Audit your extended supply chain in depth and undertake measures including:
Over the coming years, we can expect a large number of technological solutions to help us deliver a cleaner, more ecologically friendly set of products and services across the entire supply chain. However, there are solutions available at the fulfillment end of the supply chain, designed to address these issues today. Doing nothing is no longer an option.