How does a company set a Net Zero Strategy?

The Net Zero Challenge: focus areas for a business

Emerging from COP 26, the awareness and commitment to Net Zero commitments have increased—a fact to be welcomed.

If the government wants businesses to commit to net zero and ESG strategies, it must make it easier.

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Martello is a transition capital firm. We work with the innovating entrepreneurs of tomorrow and today’s companies who recognise the markets are changing and system change valuation is central to their response.

We demystify, Simplify and Navigate the economical and capital markets transition, driven by carbon, climate and the rise of ESG investing strategies.

https://www.themartelloadvisory.com

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Progress from net zero to meet the 1.5 climate limit will require focusing on four areas. Establishing the capital and investment at pace and ensuring a united approach is critical to success.

However, success is currently blocked by five key issues which must be addressed.

The top five challenges for boards with Net Zero
1. Instead of focusing on innovation, net zero has become a compliance exercise.
2. Lack of clarity from governments and regulators leaves boards and investors in the dark and listening to ‘well-meaning’ consultants discussing disclosure and ESG ratings.
3. The science around net zero remains muddy and disputed; how can markets and boards get behind a strategy when the future is uncertain?
4. Greenwashing and litigation risks from buying poor, inadequate or non-existent carbon credits.
5. Lack of focus on science-based innovation and government tax breaks for companies and investors willing to invest in new start-ups that will drive the transition.

Size of the net zero challenge
The world must achieve a 45% reduction in total emissions by 2030. Over 130 countries have committed or are in the process of committing to carbon reduction targets by 2050. While several of the published targets at the country level have raised questions or have little detail, we should welcome this first step.

Top ten nations
The largest countries responsible for 68% of GHGs are Canada, Iran, Indonesia, Brazil, Japan, Russia, India, the EU, the USA, and China regarding carbon. The top three (EU, USA, and China) contribute 16 times the emissions of the bottom 100 countries. This is before we price’ in the macro carbon economic factors of the current energy and inflation crisis.

Substantial commitment from companies.
As it stands, more than 3,000 companies have made net-zero pledges. Yet PWC recently reported that 64% of CEOS and boards in the UK have still developed firm plans and are making commitments. Capital markets are building in emissions risks. Investors increasingly seek evidence of company behaviour in ESG commitments, materiality mapping, investment in technology and net-zero targets.
All these factors contribute that achieving a GHG reduction at the rate and pace required to meet planetary targets will still be challenging, even with national and corporate commitments. However, there are things we can do.

Increase the commitment from the public, private and capital markets.
Despite fiscal pressures on the public purse emerging of COVID, and the energy crisis, rising governments must find the capital to follow through on Net Zero Commitments. In addition, the government needs to tilt the policy framework to drive the speed of EE measures in the commercial and domestic sectors.

If this requires fiscal expansion and the creation of dedicated sovereign funds, then it should be done. On a country level, energy efficiency in the commercial and domestic sectors is the path to long-term energy independence and economic activity.

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