More than 70% of emissions are now covered by a net-zero pledge.
Over the last few years, corporate and government pledges to decarbonize have rapidly picked up pace. Net-zero pledges are no longer just the demands of environmental activists. Promises to minimize pollution and sequester the remaining emissions are now table stakes for doing business around the world and remaining in the good graces of investors. Nearly 70% of all worldwide emissions are now covered by such pledges, most aiming to hit this milestone by the IPCC target of 2050. Most of these pledges have materialized within the last five years. Despite this movement, over 30% of worldwide emissions still have no associated pledge to reach net-zero. In 2050, there will still be over 22 GT of CO2 emitted, leading to over 2°C of warming by 2100. As the International Energy Agency’s recent landmark report, Net Zero by 2050: A Roadmap for the Global Energy Sector states, turning intent into action is the key to beating climate change.
Pledges don’t automatically translate into decarbonization. Credible plans are key.
Despite net-zero pledges, there’s significant uncertainty among organization rank-and-file about what they can do to reach these targets. Modern organizations are complex, with operations spanning multiple continents, mission-critical systems proven over several decades, and customers with exacting requirements. A pronouncement is not enough to spur change to a complex organization, in the same way that digital transformation requires more than a statement about the importance of digital systems in the business. Investing in cleaner technology, changing the way a supplier operates, or even shutting down heavily polluting parts of the business can all have significant effects throughout the entire organization. Credible, well documented plans which take into account the complexities of your business operations, consider the needs of supply chain partners, and leverage the capabilities of available and relevant technologies are key to driving organizational change. Plans empower your employees, partners, and vendors by clearly defining the option space they have available to make key operational, procurement, and contracting decisions. Credible plans also help overcome organizational inertia, highlighting specific steps that need to be taken, and more importantly, highlighting changes in direction that are not only acceptable but necessary.
Credible, achievable plans reduce your cost of capital.
Large investors are pushing for increased action on the part of corporations, and governments are starting to engage in specific, pointed rulemaking in an effort to meet these emissions targets. As a result, an organization’s cost of capital is directly influenced by the quality and strength of its environmental plans.
- Companies without plans to eliminate emissions will be dropped from supply chains as their customers grapple with meeting pledges of their own.
- Consumer preferences are shifting dramatically towards companies that can demonstrate adherence to good environmental practices, leading to lower revenue for companies which don’t take action.
- Supply chains and physical assets face significant disruption from natural disasters which are more frequent, more severe, and new to an area. Companies without plans to adapt to the changing environment will face increased costs of operations.
- New climate positive technologies tend to have much lower operating costs, improving profitability relative to companies relying on legacy systems.
- Inevitable environmental regulations can have an adverse impact on an organization’s ability to operate, and those that have future-proofed their facilities and operations are less likely to face disruptions, fines, revoked licenses, forced changes to their boards, and other adverse judgements.
As investors look to understand an organization’s risk as part of determining its cost of capital, actions taken to minimize direct and indirect environmental risks have a significant impact on the cost of capital.
Up until now, an organization’s pledges have been enough to reduce its cost of capital, with the strength of its commitment directly correlated with the reduction. Because the existence of an environmental pledge is clearly having a material impact on a company’s finances, regulators like the SEC are starting to enter the picture. While financial regulators don’t directly concern themselves with an organization’s specific climate goals, they are starting to verify that these goals are met since pledges to meet these goals affect the financial health of the organization.
Making a pledge is no longer enough. Decisive action is necessary. And if regulators don’t hold you accountable, investors will.
Thankfully organizations can follow a few key steps to achieve their net-zero targets.
An Impact Platform is essential for decision-makers to create credible and actionable plans
Actual’s Impact Platform provides key decision makers at large organizations with:
- The tools to create rationalized plans which take into account the complexities of supply chain, location, available technologies, and local regulations
- A clear path to create OKRs for employees and performance metrics for suppliers
- The ability to roll up plans and actuals for board and investor management
- Traceability and audit capabilities, enabling clear and straightforward regulatory compliance and reporting, and continuous process improvement
A plan will ensure that your organization can begin to act. The technologies needed to meet the IPCC emissions targets for 2030 already exist today. By deploying these technologies immediately, it becomes possible to achieve net-zero emissions while improving lives for everyone. By dramatically reducing pollution from existing activities, it becomes possible for everyone on Earth to enjoy a higher quality of life. For well positioned companies which are proactive about meeting their commitments, this can also mean a significantly expanded market.
Equally as important as hitting net-zero goals—the E in ESG—is ensuring a just transition for workers in your organization, the S in ESG. While certain roles in an organization will likely be eliminated as a result of changes to facilities, supply chains, and equipment, other opportunities will open up. Highlighting these openings and being able to retain and retrain your workforce to enable a just transition is key. A plan allows you to get ahead of this transition and prepare a pathway for these workers, empowering them to aid in decarbonization knowing they will have a secure future ahead.
Demands from investors and governments for actionable plans to meet ESG compliance are just going to get louder as the need for emission reductions gets more urgent. Right now, the leaders making these commitments lack the tools to make plans, both because these are extremely complex organizations with a huge amount of inertia, and the plans require a huge amount of analysis to develop. Actual’s Impact Platform is how these leaders can quickly assemble credible plans, share them with the employees and vendors doing the work and align them in a forward-thinking direction, then track outcomes and share with stakeholders.
Copyediting by Danica Sachs, a writer and editor based in San Francisco.
Illustration by Stefan Gustafsson of Stefangus Design.