New standards and public procurement requirements forcing companies to turn their net zero targets into ambitious, yet achievable decarbonisation plans.
Today, more than 74 countries, representing over 80% of the world’s GDP and almost 70% of global CO2 emissions, have announced net zero carbon commitments. Moreover, more than 3,000 companies have set their own targets as part of the United Nations’ Race to Zero campaign, in recognition of the fact that the rules of corporate competition are changing, and that the level of global collaboration between companies and governments needs to increase.
Most of the commitments share a 2050 deadline. This may seem very far away, but 30 years isn’t much when it comes to decarbonizing a company’s entire operations, and regulators know that. For this reason, governments are starting to align their own net zero targets with their purchasing strategy.
A major public tender milestone in the United Kingdom
In September 2021, the UK added environmental criteria to its public tender selection process for contracts of more than 5 million pounds. The measure applies to all departments in the central government, as well as executive agencies and public organizations.
Among the selection requirements is the delivery of a carbon reduction plan, which must include a detailed breakdown of where the bidding company’s CO2 emissions come from, and what environmental and carbon reduction measures it plans to implement.
Several large corporations are already reporting their Scope 1 (direct) and Scope 2 (own indirect) emissions as part of their energy and carbon reports, particularly since 2018. But the new rules go beyond that, requiring not only a commitment to achieve net zero by 2050, but also the reporting of parts of Scope 2 (value chain) emissions. These must be calculated according to the GHG Protocol recommendations, and include business trips, employee commute, transportation, distribution and waste, for the first time. Scope 3 emissions are a significant proportion of an organization’s carbon footprint, yet they are often the hardest to calculate and reduce.
For the UK government, understanding, reporting on and reducing these three scopes of CO2 emissions will play a major role in the decarbonization of the government’s supply chain, and of the overall country’s economy.
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First international standards around companies’ net zero strategies
At the same time, the recent launch of the Science-Based Targets Initiative (SBTI) corporate standard aims to put an end to ambiguous “net zero” targets that don’t put words into action.
With this methodology, SBTI is giving companies the tools and guidance they need to build a credible and independently verifiable strategy. The goal is also to align short and long-term climate action with the target of limiting global warming to 1.5°C.
In practice, the standard aims toward a 50% reduction of corporate emissions by 2030, and 90-95% by 2050. To achieve net zero, the emissions that can’t be eliminated (the remaining 5-10%) will have to be offset through the purchase of carbon credits.
The standard requires companies to focus on rapid and thorough emissions reductions, to establish short and long-term targets, and to stay away from large-scale communication on their net zero goal until long-term objectives involving their entire supply and value chains have been achieved.
The standard will help large companies elaborate concrete GHG reduction plans that can be verified by third parties, which is very likely to become a requirement from investors as well.
Institutional investors demand greater ESG transparency
Pressure is also growing to comply environmental, social and governance (ESG) requirements from institutional investors (such as BlackRock, Vanguard, State Street or sovereign pension funds), particularly for large, listed corporations. In 2020, 85% of investors implemented ESG criteria in their portfolios.
These investors have noticed a correlation between ESG performance and value creation for shareholders. Additionally, ESG criteria are a tool to identify and mitigate environmental, social and governance risks. It has become apparent that companies with a strong ESG performance tend to be more efficient and productive, spend less money, create less waste and enjoy a stronger commitment from employees, which makes them more attractive to both capital and talent.
Capital markets and increasingly considering emissions risks in the price of assets, and venture capital in transition technologies is at its highest point.
ClimateTrade’s digital solutions to help companies achieve net zero commitments
As seen above, investors’ and governments’ requirements around decarbonisation are becoming more stringent, and at the same time, consumers’ sustainability expectations are also growing. In the coming years, products will be compared according to their CO2 footprint, and this will influence purchasing decisions. Carbon-neutral products and services are a necessity, but achieving them is no easy task.
It requires the automatic calculation of carbon footprint, and a reliable platform that can give clients complete visibility over where and how carbon credits are generated. ClimateTrade helps companies achieve their sustainability and carbon offsetting goals, strengthening their corporate social responsibility strategies through innovative digital solutions.
Having noticed the demand for carbon-neutral products and services, we have developed the ClimateTrade API, the first API REST that can be integrated easily and safely into companies’ systems, so they can allow their own customers to acquire carbon-neutral products and services at check-out.
In November 2021, we also launched the ClimateTrade Widget, a solution which presents similar functionalities, but with an even simpler integration process, which makes it perfect for SMEs and organizations with limited IT resources.
The ClimateTrade API and Widget give clients information about the carbon footprint of their purchases, and allows them to invest in sustainable projects to offset it. We have already integrated these solutions into the systems of various international corporations. Check out our case studies.
Want to find out more? Contact our experts.
Article written by Miguel López, Carbon Credits Manager, and Francisco Martín, Head of Engineering, both at ClimateTrade.