Top 10: things to consider when setting net zero goals
Net zero is the common goal that many businesses share, but to meet such high demands for emissions reductions requires intervention. In light of insights from McKinsey and Co we present 10 things that businesses may want to consider when setting and executing net zero targets.
10. Support from consumers
As stakeholders in the net-zero transition both physically and emotionally, consumers will benefit from a strategic approach. It’s important to have the public on board and to ensure they understand these benefits, making the transition much smoother, reducing risk and ensuring technology is implemented effectively to minimise costs to the business and, ultimately, the consumer.
Businesses are missing a trick if they don’t understand the needs of their customers, but more importantly, how the transition to net zero could affect them.
9. Input from public and private sector leaders
While the internal initiatives must be in place, knowing what input to expect from public sector institutions and private sector businesses could make or break a net zero strategy. Ensure that targets are aligned with suppliers and hold them accountable, likewise engage with legislators and governments to determine common ground.
A unified approach to net zero will allow the business to take action in the interim while planning a set of goals for the future, while also encouraging transparency across all invested parties.
8. Understand where net zero sits in the market
Markets are changing and investors are looking for more insight into businesses to determine whether they are eligible for funding, particularly when it comes to their sustainability credentials. Environmental, social and governance (ESG) can be measured and standards are evolving to meet the requirements of investment firms.
Standard-setting organisations are driving ESG trends and, in many ways, acting as the catalysts for global action, by provoking accountability among businesses.
7. Net zero may require restructuring
With incentives shifting from high-carbon products to low-carbon alternatives, labour is likely to be divided differently to meet these demands. Restructuring of the organisation may be necessary to account for the increase in sustainable goods and services while whittling away the less undesirable facets of the business.
This may also require training as the workforce will be entering into new areas of development that demand different knowledge and skills. Minimising the risks to the workforce is critical for protecting the livelihoods of employees.
6. Consider technologies for carbon capture and storage
The transition to net zero is more than just sourcing renewable energy and switching the business fleet to all-electric power. Particularly for organisations that carry out carbon-intensive processes, such as large-scale manufacturing, they may require further intervention to reach net zero. Resulting from this is the demand for carbon capture and storage (CCS) technologies, which could allow more opportunities for businesses in the long term.
The implementation of CCS could result in more chances for climate finance, as well as support from upstream manufacturers, technology developers and risk-management service providers. However, it is important to weigh-up the cost benefits of this as it will likely involve significant upfront investment that will be reflected in the unit price of goods and services.
5. Assess capital and financial structure
According to McKinsey, the current net-zero goals would require around US$9.2tn worth of investment per year from the Network for Greening the Financial System (NGFS). Knowing this means that spending will increase substantially in order to mitigate a temperature rise above 1.5ºC.
The current annual spending to achieve this is around US$3.5tn less than the amount required to reach the goal and any extra funding is likely to go towards future low-emission assets. To put this into a global perspective, the incremental spend equates to roughly half of corporate profits and represents a quarter of total tax revenue.
4. How available are sustainable natural resources?
We’ve seen in various industries that while demand is heightened, the ability to meet this increase is determined by the availability of resources. The technology sector is a prime example of this as it is affected by the availability of precious metals.
We’ve also seen that unforeseeable events threaten the availability of resources and the supply chain has reared its head as a volatile component of business. Factors to consider as net zero takes precedence is the level of output required, therefore increasing the level of natural resources, and the ability for supply chains to manage demand during unpredictable circumstances.
3. Scalability of sustainable supply chains
A key characteristic of sustainability is resilience. While there are many talks of decarbonising business functions, it is also important to realise exactly what the limitations are. Large-scale implementation of low- or no-carbon solutions hinges on a few factors: the availability of resources, the ability to deploy solutions, and a resilience approach to sourcing the right components. While businesses are working hard to decarbonise their operations, the demand for more technology implementation is much greater than is currently possible. As an example, to reach net-zero, the number of solar panels in use across the globe would need to increase eight-fold.
2. Consider innovative technologies
Human intervention has resulted in climate change developments so far, but the future also involves technology and there is already a lot of scope for digital transformation in reaching net zero. Painful to say aloud, the industrial revolution and technological triumph have been reliant on carbon-intensive processes and it is time for industries to redeem themselves.
Technology development has contributed to the renewable energy solutions that are used today, the production of products while minimising waste and maximising efficiency. Digital solutions can also be used to analyse, monitor and action emissions related to certain processes within organisations.
1 . Including data in sustainability procedures
Data is everywhere. In order to carry out some of the aforementioned processes, businesses must first learn or source knowledge on how to better-use data for sustainability. ESG reporting, software development, and other technological triumphs rely on data to consistently improve against emissions-reduction targets and inefficiencies.
The use of data is critical in all areas of the business and has proven invaluable across various sustainability functions. It’s up to leaders to source expertise and determine how they can use it to their advantage.