Globally, organisations are increasingly committing to net-zero targets. Net Zero Tracker (NZT) reports that 929 companies from the Forbes 2000 list have set net-zero targets, marking an increase of 417 in December 2020 and 702 in December 2022. However, the upturn in corporate target setting comes with a warning from NZT that “the integrity of company emission reduction targets should urgently improve if they are to be met on time”.
The latest Risilience paper, Quantifying your net-zero strategy: a balancing act between decarbonisation, risk and opportunity, a collaboration with global insurance broker and risk advisor Marsh, and launched at the Sustainable Futures 2023 conference, presents a practical approach to transition planning. Using an illustrative case study of hypothetical global food and beverages company Avocado, the paper sets out steps organisations can take to consider the associated risks and opportunities of the transition to a low-emissions business model.
Based on analysis by Marsh of over 400 companies throughout 2022, only around 23 per cent have completed a transition plan in line with the Science Based Targets initiative (SBTi). Without a transition plan organisations risk being left behind in a world that is decarbonising and face potentially costly transition risks, including: policy impacts resulting from a raft of new climate and nature legislation and the escalating price of carbon; reputational damage driven by changing consumer preferences or investor priorities; and technological risks associated with implementing decarbonisation initiatives.
However, as companies identify their net-zero ambitions, there is a growing recognition of the complexity and challenge in developing plans to achieve them. The Quantifying your net-zero paper sets out how taking a quantitative approach to transition planning can achieve great clarity of the cost-benefit of different strategies, provide views of the return on investment and consider the decision-support tools that stress test transition risks and opportunity.
Quantify baseline risk
For a company with a large emissions footprint, understanding the most carbon-intensive parts of the business to prioritise decarbonisation efforts across operations is a strong starting point. Also, identifying risks that could impact the organisation financially and, using sustainability-intelligence analytics, quantifying these transition risks as potential losses to its earning value. This approach enables assessment as prescribed by the Task Force for Climate-related Financial Disclosures (TCFD) and makes clear the quantified baseline risk to the company.
Set goals and targets
Having identified earnings value at risk, the organisation is able to set tangible emissions targets to reduce some of the company’s transition risk. Setting achievable targets requires a robust set of analytics to determine which investments will best achieve the necessary reduction of emissions to reduce transition risk.
Quantify bottom-up strategies
Defining a strategy requires a number of components that an organisiation can continually adjust, improve and re-align. Principally, these components are:
- Establish an emissions trajectory
- Identify decarbonisation initiatives across operations and emissions scopes
- Quantify decarbonisation-emissions reduction for each initiative
- Adjust reduction in emissions trajectory
Optimise the cost-benefit roadmap strategies
Crucially, once an organisation has quantified its initiatives, it is also useful to re-evaluate the transition earnings value at risk. This can identify additional benefits beyond emissions reduction, which are useful to make the business case for pursuing a net-zero strategy.
Implement, monitor and report
The previous steps will put an organisation in a strong position to implement the net-zero strategy underpinned by the selected initiatives. The rollout of the strategy will require involvement from departments across the organisation, so communicating the transition strategy to win the understanding and support of all stakeholders is key. The plan will also be refined over time as circumstances require.
Counting the cost
Taking a quantitative approach early in their net-zero journey gives organisations the opportunity to fully explore decarbonisation initiatives. This leads to a more informed and robust net-zero strategy – one that can be communicated more effectively to key internal and external stakeholders, and contribute meaningfully to the global transition to net zero.
- Download our latest paper, a collaboration with Marsh, titled Quantifying your net-zero strategy: a balancing act between decarbonisation, risk and opportunity.