The Next Economy
Net Zero:
4 Signs We’re on the Verge of a Systems Change

We know the world we want. It’s spelled out in the Paris Agreement and Agenda 2030. Even before COP26, world leaders were well-versed in the dire situation at hand; so, why is it so hard to create a plan of action?

Those of us working to bring to life this concept of “business as a force for good” often find ourselves running up against the same wall over and over: Our current economic system is not designed to balance ‘people, planet, profit’ — and often works against those trying to change it.

So, how do we change the system we’re in? The pragmatic answer is to work with it. We must find a way to redefine value so that global corporate actors can harness their power, influence and potential to build a better system.

The good news is, there’s a sea change happening — which you almost can’t see unless you take a step back and start to connect the dots. This shift gives me hope, and demonstrates that a new system may already be on our doorstep:

1. Net-zero commitments now cover two-thirds of the global economy

Net-zero commitments now cover two thirds of the global economy; and while we can argue about whether these are ‘good enough,’ what is certain is that this flurry has created a totally new playing field.

The rise in commitments will lead to more scrutiny, and in turn, more action — shaping new business models that will ultimately drive drastic reductions in emissions, especially Scope 3/supply chain emissions. The recent launch of SBTi’s Net-Zero Standard is evidence of this, and will lead to a new paradigm in the way companies measure performance.

2. Executive pay tied to progress on sustainability goals

Earlier this month, Mars CEO Grant Reid publicly called for a ‘transformational redesign of the business supply chain.’ In order to achieve this, he said, a mix of approaches will be required; including ‘tying executive compensation to GHG emission-reduction targets.’ Other consumer goods companies including Ralph Lauren, Microsoft and Danone are already doing this.

Linking executive remuneration to greenhouse gas targets is also becoming common practice among fossil fuel companies. It’s tempting to view such moves cynically. Executives in these companies earn millions of dollars a year to keep fossil fuels central to the global economy. What difference can one incentive make compared to a whole compensation package?

If profit is really what these executives are after, then these ‘green’ incentives can help to ultimately transition fossil fuel majors to clean energy producers. Moreover, tying executive pay to sustainability targets is not only the demonstration that those goals are core to a company’s strategy, it also gives executives a compelling reason to become serious about monitoring and reporting performance towards these goals.

3. New measurements to account for the ‘true cost’

In 2020, food giant Danone created a new metric to report on the cost of carbon emissions: a so-called ‘carbon-adjusted earnings-per-share,’ paving the way for a new measurement of success across several dimensions — including climate action.

Under this new metric, the theoretical cost of the company’s greenhouse gas emissions — estimated to be 27 million metric tons in 2019 — is deducted from its earnings.

The company expects its carbon-adjusted EPS to increase at a faster rate than its earnings per share, showing an improvement in its overall environmental performance and a decoupling of economic growth from carbon emissions.

This move is supported by a range of academic institutions who acknowledge the need to redefine companies’ performance success. The Harvard Business School’s Impact Weighted Accounts project, for example, states that ‘the legitimacy of a business depends on its ability to create value for society,’ and proposes an alternative way of assessing performance across multiple dimensions.

4. Growing demand for third-party verification of environmental claims

Under pressure to deliver on their climate commitments, executives are looking for solutions to measure environmental performance the same way that they measure financial performance — increasing demand for third-party verification of environmental claims as this can unlock trust, recognition and ultimately commercial value.

One of the key barriers to accelerate action, as evidenced by recent University of Augsburg research, is that corporate emissions data from third-party providers is currently not good enough to make sound investment decisions. Without good data, businesses can’t make good decisions.

SustainCERT and organizations such as Persefoni, for example, are rapidly ramping up efforts to deploy systems that can provide trust and credible data, in line with globally agreed reporting frameworks. To achieve scale at the necessary pace, digital technologies are there to track, allocate, report and transfer environmental claims between actors. And with the increased use of third-party verification, we will be able to trust the claims made by companies and see if real progress is happening.

Gaining the courage to challenge the way our decisions are made

The roadmap and momentum are there; so, the big issue now is acceleration. While the lengthy negotiations process at COP26 is frustrating, we might just be on the cusp of a reinvention of what it means to drive a successful business.

We have the capacity to build a better future — and right now, some leaders are driving a fundamental redefinition of value by adopting new metrics. What we need now is courage — to embrace this new economy emerging before our eyes; to use these new metrics to guide decisions, shape new business models and drive the change we need to see in the world.

It’s the only choice we have.

---

Marion Verles is CEO at SustainCERT, provider of next-generation certification solutions. This week, SustainCERT — along with The Gold Standard Foundation — launched the world’s first and only multi-stakeholder initiative to help companies deliver on Scope 3 commitments and meet their science-based targets.

The Value Change Initiative has evolved from a program launched by Gold Standard in 2018 with a core working group led by Danone, MARS, WWF, WRI and CDP; and now includes over 60 organizations across eight sectors and more than 130 technical representatives and partners.

With clarity and confidence in claims made by companies towards their Scope 3 targets, businesses and investors can understand where to scale their efforts. Hear more about the Value Change Initiative from over 20 participating organizations at a free online event, Making Net-Zero Value Chains Possible — Wednesday, Nov. 17 from 3-7pm CET (9am-1pm EST).