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10 Ways to Demystify the Business Case for Net Zero

The energy shift in the world is now inevitable. To sustain life and livelihoods for 9 billion people by 2050, even if we didn’t count on living well (which we do, of course), we have 35 years to transform the global economy in order to decouple economic growth from high-emissions energy use. Phasing out emissions, especially those from carbon (CO2) - the primary cause of warming today - has to be a priority for business, as well as governments. There is growing evidence that a pathway to rapidly decarbonising the value chain goes well beyond ESG and reporting – it’s also a pathway to long-term growth, innovation, jobs and value creation.

Getting from emissions growth to ‘carbon neutrality’ or ‘net zero’ emissions by the middle of the century is the new race. Respected economists show that phasing out is affordable; experts have shown it is feasible to achieve the shift with technologies available already and the science shows that acting faster offers lower-cost solutions in the long run. Everyone understands the concept of ‘zero’ and it unifies all sectors in a transparent framing of action on climate and sustainability.

But what exactly does the zero goal mean for companies of all sizes? Why are global business leaders including Paul Polman of Unilever, Richard Branson of the Virgin Group, Guilherme Leal of Natura and many others calling for a goal of ‘net zero emissions’ by 2050? Can actions that mitigate future disasters offer business growth strategies today?

Here are 10 key points to demystify the business case for net zero.

1. Science is directing the economy and investments to zero

The Intergovernmental Panel on Climate Change (IPCC) asserts that to reduce the human and the economic costs of climate change, surface temperature rise cannot exceed 2ºC compared with pre-industrial levels. All 195 Parties to the UN Framework Convention on Climate Change (UNFCCC) have agreed to policy that limits warming to the 2ºC threshold. Embracing a goal for net zero emissions is needed to direct how to shift investments, products and services to be 2ºC compatible. The November 2014 IPCC Synthesis Report states that all greenhouse gas emissions (GHGs) must be near zero before 2100, with radical reductions in CO2 sooner (around mid-century), and this offers a 66 percent or better chance of remaining below 2ºC. Many businesses leaders prefer the lower-risk scenario and are basing their strategies on the more progressive scientific recommendation that for an 85 percent chance of keeping temperature rise below 2ºC, GHGs should peak globally by 2020, CO2 emissions from fossil fuel combustion and industry should be zero around 2050 and all GHG emissions should be zero before the end of the century.

2. Zero emissions is the inevitable direction of policy and regulation

In December 2015, a new international climate treaty will be signed in Paris. Support for a long-term goal of net zero emissions (which can be framed almost interchangeably as ‘carbon neutrality’ or ‘decarbonisation’) in the new treaty continues to gather momentum. Almost 120 countries are in favour of including a long-term goal in the treaty. Cities and sub-national governments are frequently acting faster under pressure from citizen groups and business to provide low-pollution, clean air and zero-waste local economies. Nobody is immune to the impacts of climate change. Already the cost of extreme weather is affecting global supply chains, productivity and deliveries, and causing revenue disruptions, with impacts on shareholder value. Policymakers everywhere are considering regulation that shifts investment direction to low-carbon business action in order to protect national, sub-national and local economies. China, the EU, the USA and even India are creating policies to fuel renewable technologies, already proving cost-competitive with fossil-fuel-based energy.

3. Adopting the zero goal makes sense of near-term sustainability targets

Delayed commitment and fragmented actions in the past sent global emissions soaring in the wrong direction. A 2050 horizon sets the strategic direction for business to align short-term investments with long-term global economic, political and investment shifts. 2020 and 2030 actions and investments are essential to ensure a 2ºC world is possible. With US$90 trillion to be invested in long-lived infrastructure in the next 15 years, companies contextualising their near-term actions with a net zero by 2050 horizon are demonstrating leadership and enabling predictability. The fact that business cuts or reduces emissions, especially CO2 from energy use, is central to a holistic new approach to economically beneficial circular models, alongside zero deforestation, zero waste and more.

4. Low-carbon growth is sustainable and puts risk under control

The assumption that economic growth needs high-carbon energy has been wholly disproved. It is in the direct interest and control of business leaders to (a) reduce the energy intensity of their value chains; (b) radically cut overall emissions through profitable innovations that address lifestyle and end-user emissions and (c) invest in renewables to offset any remaining fossil-fuel based energy use, transitioning to 100 percent clean energy as rapidly as possible. Every business outside of the power sector is an energy buyer. Action that reduces energy in line with the long-term goal for net zero is increasingly a pathway that fuels the bottom line.

5. Net zero actions offer a savings buffer to businesses of all sizes

The energy sector, which supplies all other sectors, is reliant on a complex range of subsidies that cannot survive the policy directions of countries, regions and cities. This will make energy from fossil fuels increasingly expensive, whilst wind and solar power, already cost-competitive, are growing rapidly and attracting private and public investment. The International Renewable Energy Association (IRENA) has shown that investing 25 percent of the value of fossil fuel subsidies will enable a doubling of renewables in the energy mix by 2030. Furthermore, carbon pricing is here and it’s adding accounting headaches. Put simply, the less carbon a company emits, the less exposure it will have to carbon pricing. Paying for carbon through taxation or other instruments will bring about new and additional costs to doing business. In fact, the European Parliament has just voted to reform the European carbon market, removing available credits and effectively increasing the price of carbon.

6. Committing to net zero is a positive signal to investors

Long-range investors seek predictability. A decisive statement by a company that it is committed to the net zero goal, demonstrated by linking 2020 and 2030 targets to a 2050 horizon, makes the company’s intentions clear and in turn attracts investor confidence. Many progressive investors are withdrawing from companies invested in coal and other inefficient fossil-fuel sources, with vocal encouragement from political leaders, youth and even the United Nations Secretary-General.

7. Net zero stimulates innovation, growth, jobs and value creation

So far we’ve pointed to the risk- and cost-mitigating aspects of the business case. But there is a range of other incentives. Businesses of all sizes that have placed net zero at the heart of their strategies are showing commercial success through innovative products and services, new revenue models, new customers and exciting partnerships. These leaders - from large, transformational corporations; people-powered sharing economy businesses; and entrepreneurial new ventures - are redefining sectors, assuring long-term profitability and topline growth. Their products and services improve customer productivity or consumers’ quality of life, and forge low-carbon consumption habits through their use. Moreover, investing in low-carbon solutions leads directly to retaining and creating sustainable employment and value growth, which improves quality of life and economic potential, even in slower growing developed economies.

8. Zero unifies all stakeholders and demonstrates shared value

Empowered and connected better than any previous generation, the public is well informed on global challenges. Expectations that companies will play an active role in accelerating solutions to these issues run high; in fact, people assign equal responsibility to companies and governments for their future quality of life. Aiming for zero is easily understandable and signals a company is committed to real change and clarity. By demonstrating their actions are aimed towards a net zero emissions goal, in the timing compatible with the 2ºC limit, companies authentically enhance their reputations and create purchase preference for products and services that improve people’s own footprint through their buying behaviour.

9. Phasing out emissions to net zero signals leadership in the movement for a sustainable future

By 2050, 70 percent of the 9.6 billion people in the world will live in urban areas. Governments alone can’t ensure that food, water, energy and health systems can meet basic needs. Emissions reductions by business, aligned with government efforts, contribute to eradicating poverty and ensure future generations’ health and wellbeing. The poor need access to energy to develop, but should not be locked into generations of health-threatening carbon pollution. Our youth and subsequent generations will need to sustain larger populations with lower impacts on resources. The transition to a low-carbon future is necessary to sustain resources for future generations. This is not only a moral argument; business too needs affordable resources today and in the future.

10. Net zero aligns business with people power

NGOs, campaigners and not-for-profit organisations are increasingly important partners for progressive companies. The tools, organising capability and intelligence of civil society groups influence the media, the general public and political decision-makers. Leading civil society groups promote the phase-out to zero by mid-century as an ambitious, fair pathway. Their calls for divestment, decarbonisation and the transition to 100 percent renewable energy have changed the conversation on climate change globally and nationally. These groups have the mandate for corporate scrutiny and can catalyse citizens to censure companies and pressure investors. Businesses aligned with civil society can benefit from people-powered movements for sustainable consumption and a clean, bright future.

The complete Track 0 synthesis report on the business case for net zero is available here.