As the world strives to limit global warming to the 1.5°C threshold outlined in the Paris Climate Accord and the IPCC Special Report, private businesses face mounting pressure and scrutiny to achieve net-zero targets. But why is net-zero important?
For starters, there are mounting pressures on a number of fronts. Consumers demand greener products and services, investors prioritize ESG in investment decisions, and state and federal governments enact policies and regulations to reduce greenhouse gas (GHG) emissions and address global climate change.
While companies may lack a roadmap and clear understanding of how to achieve net-zero emissions, many are beginning to recognize that acting now allows them to minimize their carbon contribution and avoid reputational and financial harm.
If your organization seeks guidance on its net-zero journey, this guide is designed to help you navigate a path to net-zero.
Net-zero vs. carbon neutrality
Before we dive in, it’s important to note that net-zero and carbon neutrality are different.
Both carbon neutrality and net-zero focus on balancing carbon emissions and carbon absorption activities; however, carbon neutrality allows that balance to come via the purchase of carbon offsets to counteract a company’s carbon emissions. Net-zero, on the other hand, necessitates deep and lasting systemic changes in a company’s direct operations and throughout their supply chain in order to eliminate emissions across the value chain to zero. This often starts with curbing energy-related activities inside an organization, with strategies focused on electrification, renewable electricity sourcing, and reducing consumption through efficiency projects. As companies look deeper and across their value chain, the path to net-zero requires deep reductions in scope 3 emissions.
As such, companies must recognize the need for independent action and collaboration for the infrastructural paradigm shifts required to limit climate change.
Setting a carbon baseline on your way to achieving net-zero
So, how do you set a net-zero target? Think of it this way: Measuring change is impossible without a reference point. Just as you could not assess financial performance without knowing a company’s historical revenue and profit figures, companies cannot reach a net-zero target without first creating a baseline greenhouse gas emissions inventory.
A carbon baseline is the starting point for measuring a company’s GHG emissions. it provides a reference point to understand their current position and progress towards net-zero goals. Establishing a baseline enables companies to gauge their current climate impact, set a target, and develop and implement strategies tailored to their emissions-releasing activities.
What are scope 1, 2, and 3 emissions?
A GHG inventory is typically divided into three scopes, each representing different aspects of an organization’s emissions profile:
- Scope 1 emissions – Direct GHG emissions from sources owned or controlled by a company
- Scope 2 emissions – Indirect GHG emissions from purchased electricity, steam, heat, and cooling
- Scope 3 emissions – All other GHG emissions associated with a company’s activities. Scope 3 is split up into 15 categories:
Upstream emissions-producing activities (everything to produce your product)
- Goods and services you purchase
- Capital goods (like buildings, machinery, tools to make your product)
- How materials are transported and distributed to your manufacturing facility
- Waste generated in day-to-day operations
- Business travel
- Employee commutes
- Leased assets
Downstream emissions-producing activities (everything to consume your product)
- How your product gets to your customers via transportation and distribution
- Processing of sold products
- Use of sold products
- Disposal or recycling of sold products
- Franchises
- Investments
Measuring scope 1 and scope 2 emissions may be challenging the first time, but internal data collection improves with practice. Scope 3 emissions—which account for 80%–90% of a business’s total greenhouse gas emissions—pose a much greater operational hurdle to measure due to their complex and far-reaching nature.
Here, the best practice is to start with your direct scope 1 emissions and then work your way to your scope 2 emissions, which are indirect and related to energy-consuming activities, and from there to scope 3, which represents all activities throughout your value chain. Scope 1 data, for example, covers any fuel—such as natural gas, gasoline or diesel—your company directly burns in its operations and is often recorded from bills. Scope 2 data reflects energy your organization purchases, which is generated elsewhere, for example, electricity, chilled water for cooling, heating, and steam.
In simple cases, tracking scope 2 can be as easy as reviewing your utility bills or submetered consumption data; however, if you don’t own the assets you occupy or use, you may need proration from the property manager who controls the building’s energy systems and data.
Consider a t-shirt company. Establishing a baseline may start with measuring the GHG and carbon emissions associated with energy consumption at the factories—the diesel to power the equipment, electricity for factory operations, heating and cooling for worker comfort, fuel to power the vehicles, etc. These elements would account for much of the scope 1 and scope 2 emissions.
Scope 3 emissions, on the other hand, require a more comprehensive approach, considering all upstream and downstream emissions involved in creating and selling a shirt.
This includes the energy consumed in the harvesting and processing of cotton fibers into a textile, fuel burned to transport the textile, dyes and other materials from suppliers to the manufacturing facility (upstream emissions). It also includes emissions from the energy consumed in customers’ homes to heat the hot water and power the machines used to wash the t-shirt throughout its useful life, as well as the decomposition of the t-shirt in a landfill once it’s disposed of (downstream emissions).
Collecting this data is burdensome, and translating it into an emissions output even more so—fortunately, carbon accounting software, like Sustain.Life takes much of the guesswork out of this process.
Establishing an emissions baseline
How do you establish an emissions baseline? This process includes:
- Determine your emissions boundaries – Your first task is to determine which activities you will include in your emissions boundary. At a minimum, this should include scope 1 and scope 2 emissions and, wherever possible, Scope 3 emissions. Software tools like Sustain.Life can help identify the most relevant activities based on your sector and company details, making it easier to create an emissions inventory and visualize your company’s carbon footprint, impact, and problematic areas.
- Collect relevant data – As mentioned, this process will be simpler for scopes 1 and 2 as the data required is usually more readily available on internal documents like bills and invoices. Scope 3 requires extra work and collaboration from internal and external stakeholders, including your suppliers and employees.
- Run the numbers – Calculate your GHG emissions and then convert the activity data into CO2 equivalent (CO2e) emissions. Also, take note of your baseline year which will act as the reference point going forward.
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Setting a target and reducing your emissions
Having successfully established a baseline, an organization can then begin to set actionable, science-based emissions reduction targets as defined by the Science Based Targets Initiative (SBTi).
Typically, it provides two methods for setting targets:
- The Absolute Contraction Approach – A one-size-fits-all method that involves a direct and absolute reduction in emissions, such as cutting emissions by 50%.
- Sectoral Decarbonization Approach – A subsector-level approach that focuses on carbon intensity reduction, where carbon dioxide emissions become more efficient and are reduced relative to a specific metric, like production or revenue.
As such, many of the top environmental and sustainability leaders have previously established guidelines and frameworks businesses can follow to establish targets, including:
Collaborating and engaging
Because an organization has limited control over its scope 3 emissions, it must collaborate with various stakeholders along its value chain. Naturally, this is no simple task. As the WEF notes, some of the common challenges when addressing scope 3 emissions include:
- Aligning all suppliers around a singular goal when companies are at various stages of their sustainability journey.
- Educating partner companies on the basics of how to report emissions and provide accurate data.
- Templatizing that data and information to ensure consistency and working with partner companies to create goals that match your efforts.
For that, Sustain. Life’s supplier assessment tool provides a centralized hub businesses can use to manage all supplier contacts, request data, and capture scope 3 emissions, alongside broader ESG performance data.
To account for the inherent challenges involved in reducing scope 3 emissions, stakeholder buy-in is essential. Various entities along the value chain, including suppliers, customers, and employees, need to also share these values and commitments. You must be a willing partner to accomplish that, providing continued support, education, guidance, and resources that reinforce positive action.
Sustain.Life—your tool to achieve net-zero
No matter the size of your company or sector, achieving net-zero emissions requires concerted effort and systemic change. And it won’t happen overnight. It may take years to fully understand your carbon footprint, set science-based targets, and take meaningful action.
There’s no doubt this will be a massive undertaking. That said, each step toward net-zero GHG emissions is a step in the right direction.
Sustain.Life’s sustainability management software provides automated scope 1, 2, and 3 measurement, management, and report features, making it easier for your organization to understand your emissions profile, streamline the emissions management process, and develop a plan to reduce your impact.
Contact us today to learn more about how we can help your organization achieve its sustainability goals.
Sources
1. IPCC, “FAQ,” https://www.ipcc.ch/sr15/faq/faq-chapter-1/
2. SBTi, “SBTi CORPORATE NETZERO STANDARD,” https://sciencebasedtargets.org/resources/files/Net-Zero-Standard.pdf
3. United Nations, “For a livable climate: Net-zero commitments must be backed by credible action,” https://www.un.org/en/climatechange/net-zero-coalition
4. ISO, “Net Zero Guidelines,” https://www.iso.org/netzero
5. WEF, “Tackling Scope 3 Emissions,” https://www.weforum.org/agenda/2022/09/here-s-how-companies-tackle-scope-3-emissions-value-chains/
