Banks, insurers and investors pledged $130 trillion of private capital to the energy transition at COP26 in 2021. Demands for cash were echoed in 2022 at COP27, with the Sharm el Sheikh implementation plan suggesting up to $6 trillion per year would be required to ramp up the race to net-zero.
It suggests that political and industry leaders are united around the goal of carbon neutrality. However, a 2021 report from the UK Climate Change Committee found that only five out of 34 sectors had made notable progress on reaching net-zero. The divide between rhetoric and reality on net-zero is wide and growing. Getting governments and businesses to stick to their promises – and making sure these promises are meaningfully advancing the quest towards carbon neutrality – is fraught with difficulty. New methods are needed to expedite the transition away from fossil fuels.
A science-based approach
Businesses face a problem when setting their own carbon targets. Sprawling company supply chains make emissions hard to track. Overreliance on carbon credits to bolster their credentials or carbon-reducing technologies to bail them out further down the line can introduce complacency. And, when they face no repercussions from failing to reach self-imposed targets, CEOs may let their focus wander.
In the absence of a rigorous multinational regulator, pressure from political and business leaders can help to ensure goals are not being missed. The Science Based Targets Initiative (SBTi), established in 2015 as a collaboration between CDP, the United Nations Global Compact, World Resources Institute and the Worldwide Fund for Nature, offers one example.
SBTi evaluates emissions based on the latest climate science. Its Corporate Net Zero Standard, published in 2021, is based on four key principles. First, it accounts for emissions across the entire value chain. Second, it factors in achievable short-term targets in addition to long-term goals. Third, carbon offsets are limited to cover a maximum of 10% of emissions. Finally, any other financing for climate action goes to projects beyond the value chain.
Net-zero: from rhetoric to reality
SBTi offers a blueprint for firms aiming to make good on their net-zero targets. But the time and money involved in setting steadfast commitments and adhering to them can be daunting – regardless of the reputational and environmental benefits. Yet existing industry success stories have carved out a clear roadmap for setting concrete net-zero targets that are both effective and efficient.
In 2021, global renewable energy company Ørsted became the first energy company, and one of only seven companies worldwide, to receive SBTi approval for its plan to reach net-zero emissions across its whole value chain by 2040. The plan was made possible via decisive action, starting with a commitment to make energy generation and operations carbon neutral by 2025. Rather than relying on carbon credits to pad out its net-zero ambitions, Ørsted is undertaking its own projects to remove carbon from the atmosphere – a mangrove regeneration drive in Gambia being one outstanding example.
Achieving net-zero across the entire supply chain is a huge undertaking – but Ørsted are showing that it is possible. The company has pioneered a supply chain decarbonization programme engaging with strategic suppliers – particularly in offshore wind, Ørsted’s largest business area – to crack down on emissions. In 2021, 97% of Ørsted’s strategic suppliers disclosed their emissions data to the CDP – contrasting with just 36% prior to the programme’s launch. This is particularly important in steel supply lines – indispensable in wind turbine construction, but a stubborn source of emissions.
In addition to transparency, convening industry leaders is helping to promote a culture of change. Ørsted’s work with SteelZero and ConcreteZero, coalitions formed by the Climate Group to help decarbonize steel and concrete, is proactively gathering major supply chain decisionmakers to begin cleaning up traditionally carbon-intensive materials. And the firm is combining short-term action and long-term planning to ensure no time is wasted. Ørsted’s approach to shipping is one example. Logistics are a large source of emissions – as with steel, Ørsted’s supplier engagement programme is revealing the most substantial sources of these emissions. And the firm is already rolling out transport route optimisation and biofuel deployment to get emissions down now. As breakthrough technologies enter the market to drive down emissions still further, these will be integrated across the value chain on the road to 2040.
Initiatives like SBTi, and the strides taken by firms like Ørsted to meet its criteria, shows that the gap between rhetoric and action on the climate crisis can be closed. Firms who are serious about reducing their emissions have a roadmap for doing so. They just need to take the help on offer and work with the right partners. For more information, download the whitepaper on this page.