Climate change is increasingly taking centre stage in strategic business planning. The transition towards more sustainable, and inclusive ‘net zero’ emission models – once seen as a secondary issue for businesses appealing to niche Environmental, Social, and Governance (ESG) markets – is now central to strategic business planning and risk management and essential to take into account when looking to the future.
Emissions must be halved by 2030 to limit further rises in global temperatures and avoid catastrophic impacts, this can only be done with all businesses on board.
Recently, with a renewed political focus on reducing carbon emissions and greenhouse gases (GHGs), the UK Government has committed to a legally binding target of net zero emissions by 2050. Further commitments were made in April 2021 to bring national emissions down by 78% compared to 1990 levels by 2035, with smaller businesses pivotal in the race to net zero.
Smaller businesses are currently a major contributor to emissions in the UK, with research finding that smaller businesses account for 50% of all UK business-driven emissions. Whilst 57% of smaller businesses reported they were aware of the government’s 2050 net zero targets, the same research found that 76% of smaller businesses have yet to implement any decarbonisation strategy.
Costs, lack of appropriate technology, infrastructure or vehicles, and an inability to find information on net zero were cited by smaller businesses as some of the barriers to preventing action.
While achieving net zero for your business is not mandatory (yet), there are significant benefits to getting ahead of the curve.
What does net zero mean for smaller businesses?
Net zero is defined as a reduction in overall emissions as much as possible, with any remaining emissions being offset through projects funded by carbon credits.
Depending on your businesses purpose, such as providing either products or services, net zero activities can encompass a range of different operations and practices. It is essential to begin the journey to net zero with a holistic overview of your businesses emissions in order to create a strategy to reduce them. Many companies rely on the Greenhouse Gas Protocol for this, which divides business functions into different categories, or scopes.
Examples of ways to reduce emissions include using low-carbon energy solutions and lowering energy waste by making improvements, such as ensuring workplaces are well insulated. Employees can be encouraged to use public transportation, and distribution and shipping can be optimised, such as by using packaging made from recycled materials or making deliveries via electric vehicles.
Even the smallest businesses can reduce their carbon emissions, and nearly half (47%) of smaller businesses state that carbon reduction is a high or very high priority.
There are plenty of benefits for your business embracing net zero – from boosting your reputation, reducing costs through wastage, eligibility for investment from value-driven investors, and protecting your business from over-reliance on fluctuating fossil fuel-based energy supplies.
How going net zero can help your business
Aside from helping improve the world’s environment, adopting net zero strategies help businesses grow, save money, and boost business resilience.
Studies by Deloitte have shown that 55% of consumers have chosen food and non-alcoholic beverage brands that have environmentally sustainable values and practices. Also in the report, it was highlighted that 32% of consumers would be prepared to pay more for goods and services if it ensured brands reduced their carbon footprint.
Adopting net zero practices can enhance your reputation as a business.
Research conducted by the Carbon Trust found that customers increasingly expect companies to make the correct ethical decisions on their behalf, with green businesses in particular attracting new customers.
Examples of small business sustainable behaviours include participating in carbon offsetting schemes such as tree planting or supporting community projects in developing nations, sourcing materials from local suppliers, reducing emissions from food miles, and tackling waste destined for landfills.
Simply examining how energy is used in your business may lead to reducing energy consumption and costs.
The Carbon Trust helped one Scottish manufacturer to save £170,000 per year – equivalent to 2,000 tonnes of annual emissions – by simple changes to its ventilation system.
Other business costs can be reduced too, such as switching to electric vehicles if your business routinely enters low-emission zones in major cities.
Becoming a net zero business is attractive for investors and shareholders seeking companies with a long-term sustainable strategy.
Investors are increasingly attracted to smaller businesses that are less reliant on fossil fuels, as business operations are less likely to be disrupted in the event of supply problems.
Aiming for net zero can make your small business more resilient against market or national disruptions. For example, electric vehicles can help protect your business from rising fuel costs and disruptions in petrol supply chains. Similarly, adopting alternative energy supplies such as solar or wind helps shield companies from unexpected increases in the cost of energy.
A recent British Chambers of Commerce survey found that only 11% of respondents measure the carbon footprint of their business. The study suggests that knowing your carbon footprint and reducing it could give you a competitive advantage over other businesses, with some customers increasingly interested in a business’s sustainability credentials, from the packaging of products to the carbon footprint of produce.
Promoting your carbon footprint with customers helps them recognise your reliability and makes them more likely to return to your product or service. YouGov found that customers are increasingly willing to pay more for environmental products with younger customers in particular willing to pay extra for sustainable products.
Understanding the risks
The pressure for businesses to reach net zero is only going to increase as deadlines for countries draw closer, and not doing so generates risks and missed opportunities.
Political and regulatory changes will continue to drive major carbon pricing developments. Liability risk could increase, with firms facing potentially large financial consequences. Then there’s demand derived from the market and behavioural changes resulting from evolving consumer preferences and behaviour, pressure from investors for greater accountability, and clearer environmental reporting.
And that’s on top of the direct and physical risks posed by climate change: impact on organisations’ infrastructure and assets, employees, and the natural ecosystems that they’re reliant on. These risks increase in line with emission increases and failures to transition to a low-carbon economy.
Seeing the opportunities
The race to net zero is not just about survival. Climate action can help improve operational efficiency, customer loyalty, the attraction of talent, capital market attractiveness, and resilience.
Firms that adjust their business models to the transition to net zero worlds will be rewarded handsomely. Those that fail to adapt will cease to exist.
There are potential market opportunities with brands often prioritising a commitment to sustainability and reporting up to four times average sales growth, not to mention sustainable leaders showing stock market returns 24% higher than the overall market.
Mark Carney former Governor of the Bank of England said: “Firms that adjust their business models to the transition to net zero worlds will be rewarded handsomely. Those that fail to adapt will cease to exist.”
So, just where should you start your net zero journey?
Understanding your footprint
The first fundamental step to any net zero business strategy is understanding the problem, your footprint. This is where it’s vital to recognise how your footprint is measured, but also how it relates specifically to net zero as opposed to carbon neutrality. All of which boils down to Scope 1, 2 and 3 emissions.
Scope 1 is direct emissions from operations, owned or controlled sources, for example, company vehicles and emissions produced from manufacturing processes.
Scope 2 is indirect emissions from the generation of purchased electricity, steam, heating, and cooling and the purchase and use of electricity, heat, steam, or cooling.
Scope 3 includes all other indirect emissions that occur within a company’s value chain, such as upstream emissions (related to purchased and acquired goods and services) and downstream emissions (emissions related to sold goods and services).
Don’t be surprised if your Scope 3 emissions outstrip scopes 1 & 2 significantly, in fact, a Kraft Foods value chain assessment from 2021 reported the company’s scope 3 emissions accounted for approximately 95% of total emissions.
The boundary of a net zero target generally includes global Scope 1, 2 and 3 emissions of the company, whereas carbon neutrality only requires Scope 1 and 2, with Scope 3 emissions encouraged but not mandatory.
Therefore, it is vital to measure the impact across the whole value chain and not just energy usage, for example, which is just one component of an overall footprint.
Seek expert advice
A common mistake made by many businesses starting out their net zero strategies is to second-guess what they can actually achieve. According to on-site renewable energy solutions provider Ongen many firms underestimate their site potential by not making thorough scientific analysis across their entire portfolio.
“Some businesses go through a process almost subconsciously of deciding which sites, which properties and which technologies should work,” says Chris Trigg, MD at Ongen.
One example of where businesses can receive advice is The Science Based Targets Initiative (SBTi) which helps companies set and validate net zero strategies, in line with the 2015 Paris Agreement goal to limit warming.
The SBTi assists organisations by having them submit a commitment letter to indicate that said company will work to set a science-based emission reduction target. Upon committing, the company has 24 months to submit targets.
The target will then be validated against the target validation protocol, finally, upon confirmation, the target will be announced on the SBTi website and needs to be made public within six months. This will then be recalculated every five years in line with the latest science on required emission reductions to remain consistent with 1.5 °C.
More recently, the UN and the International Organisation for Standardisation (ISO) launched a set of guidelines and guiding principles to help organisations construct credible net zero emissions plans across the public and private sectors.
There are also companies providing direct support through both carbon accounting and reporting services, helping your business efforts to decarbonise. Examples include Persefoni, Greenly, ENGIE impact, and Climate Partner.
Understand your targets – and their rewards
The business benefits to applying science-based targets across your organisation are wide-ranging: from kick-starting innovation around energy and resource management to applying a consistent, measurable approach that increases accountability, improves investor confidence, and helps ensure resilience to regulatory change – vital necessities in an age of heightened transparency.
With the risks to companies who fail to act on climate change so great and the benefits of setting a course so many, for any business that has not begun its net zero strategy: now is the time to get ahead of the curve and act.
