What are the benefits of decarbonisation for companies?

Decarbonisation is quickly shaping up as the buzzword of our era, with its reach extending from the corridors of power to the trading floors of Wall Street and into the heart of civil society. It's the strategy everyone from governments to corporate behemoths and societal advocates is banking on to pivot us toward a sustainable future. While visionaries like Bill Gates champion innovative technologies to temper global warming, Elon Musk's foray into electric vehicles underscores the private sector's pivotal role in this transition, evidenced by Tesla's billion-dollar windfall from carbon credits in 2020.

Beyond the energy sector's embrace of renewables, industries across the board, from steel to agriculture, are being called to redefine their processes and products for a low-carbon future. The mission is clear—rapid, comprehensive carbon reduction is paramount. Yet, the question looms: Are these efforts enough to stave off climate change's direst outcomes, or are they just the first steps on a long road to sustainability?

What is corporate decarbonisation?

Decarbonisation is the strategic removal or reduction of human-made carbon emissions released into the atmosphere. Corporate decarbonisation is achieved through cross-cutting measures to decrease or eliminate carbon emissions from organisations’ activities. Unlike the broader concept of climate neutrality—which can be completed by purchasing carbon credits to offset emissions—decarbonisation is focused on the absolute reduction of carbon emissions and their intensity. This distinction highlights the proactive approach of decarbonisation over climate neutrality, emphasising direct actions over carbon compensation.

In short, corporate decarbonisation emerges as a critical strategy for businesses aiming to mitigate their environmental impact. It is a holistic strategy to decrease or eradicate the carbon dioxide (CO₂) emissions associated with their operations. Corporate decarbonisation is all about authentic, impactful changes that address emissions directly at their source. 

For businesses, decarbonisation involves a shift in every operational facet—from energy use to manufacturing, supply chain logistics, and product design. It necessitates broad and granular changes, encouraging innovation and a deep-seated commitment to sustainability across all business operations. Corporate decarbonisation is a strong, proactive approach extending beyond compliance, embedding itself as a core principle of environmental responsibility and corporate leadership in the 21st century.

Why is decarbonisation important for companies?

Decarbonisation gained momentum following the 2015 Paris Climate Agreement, which set decarbonisation targets to limit global warming to below 2°C above pre-industrial levels, with the ultimate aim of achieving net-zero emissions by 2050. Achieving this goal necessitates a swift and significant reduction in greenhouse gas (GHG) emissions. This is characterised by a phase of 'drawdown' where emissions must shift from an upward to a downward trajectory. 

The imperative for decarbonisation extends across governments, businesses, and societies at large, as it is essential for mitigating the dire impacts of climate change. Despite numerous companies pledging to achieve net-zero by 2050, recent findings indicate that our collective progress is insufficient to meet the Paris Agreement objectives, necessitating more rapid and comprehensive action. 

Recent research highlights a concerning oversight in European corporate decarbonisation efforts: while 92% of disclosed emissions by EU companies in 2022 were classified as Scope 3, only 37% are actively being addressed through current decarbonisation strategies. Moreover, although there has been a 14% reduction in companies' direct emissions from 2019 to 2022, the pace must accelerate to address the more elusive Scope 3 emissions effectively.

It's encouraging to note that nearly half of the firms analysed have committed to near-term science-based targets. Yet, only 8% have established net-zero goals that encompass their entire value chain by 2050, underscoring the need for a more integrated approach to decarbonisation. Most importantly, decarbonisation strategies do not impede the ability to generate profits. The research highlighted that companies simultaneously achieved an 8% revenue growth, demonstrating that sustainability and financial growth can go hand in hand. 

The momentum in technological innovation, as observed by the International Energy Agency, with a surge in new patents for key technologies such as batteries, hydrogen, intelligent grids, and carbon capture, significantly exceeds developments in traditional energy sectors. This innovation is crucial for enabling the transition to a low-carbon future and underscores the vital role of cutting-edge technology in achieving decarbonisation objectives.

How can companies decarbonise?

Corporate decarbonisation is a significant opportunity for innovation and growth. Companies aiming for true decarbonisation need to embark on a comprehensive journey, encompassing everything from data collection to implementing a net-zero pathway. Here's how businesses can structure their decarbonisation strategies:

1. Data collection: Begin by gathering detailed data on all aspects of your operations that contribute to carbon emissions. This foundational step is crucial for informed decision-making.

2. Emission accounting across all scopes: Evaluate your emissions thoroughly across Scopes 1, 2, and particularly Scope 3, which often holds the largest potential for reductions.

3. Emission and ESG reporting: Establish a baseline by reporting your current emissions and ESG performance. This transparency is vital for tracking progress.

4. Target setting: Commit to clear, ideally science-based targets (SBTs) for reducing your company’s emissions. These targets should be ambitious yet achievable, aligning with global standards such as the Paris Agreement.

5. Review of potential decarbonisation levers: Identify and assess the various strategies and technologies available for reducing emissions across your operations and value chain. This step may include exploring renewable energy options, energy efficiency measures, and alternative materials.

6. Implementation of selected levers: Act on the identified decarbonisation levers, integrating them within your operations and across the value chain. 

7. Development of corporate net-zero strategy: Craft a comprehensive strategy that outlines your path to net-zero, incorporating immediate actions and long-term goals. This strategy must be embedded into your overall business model.

8. Annual emission accounting and reporting: Continuously monitor and report your emissions, comparing them against your targets to evaluate progress and adjust strategies as needed.

9. Neutralisation of excess emissions: Invest in high-quality carbon offsets to neutralise any remaining emissions as part of your commitment to achieving net-zero.

10. Implementing a net-zero pathway: After achieving your initial decarbonisation goals, continue to innovate and adjust your strategies to maintain a net-zero status, fostering sustainable growth.

The corporate decarbonisation journey requires commitment, innovation, and strategic planning. By following these steps and viewing decarbonisation as an opportunity rather than a burden, businesses can unlock new avenues for growth and competitiveness.

The 5 key benefits of decarbonisation for companies 

1. Enhanced financial performance and cost savings

Decarbonisation is more than an environmental imperative—it's a strategic investment that can yield significant financial returns and operational efficiencies for companies. By transitioning to energy-efficient operations and renewable energy, businesses can curtail their reliance on unpredictable fossil fuels, thereby enhancing financial stability and potentially reducing operational costs.

Strategic financial benefits: Integrating cost reduction with carbon emission cuts can lead to significant economic improvements, with research suggesting the potential for up to a 40% reduction in emissions and a 15% increase in financial performance by 2030.

Industry-specific advantages: The impact of decarbonisation varies across sectors, with specific industries able to reduce emissions by 60 to 80% while still achieving positive financial outcomes.

Economic and adoption incentives: The current economic landscape favours decarbonisation, enabling early adopters to capitalise on financial incentives and establish market leadership in a shifting global economy toward net-zero emissions.

2. Improved brand reputation and customer loyalty

Decarbonisation is a powerful lever to enhance a company's brand reputation, fostering trust and loyalty among consumers who prioritise environmental sustainability. By implementing green practices, businesses can differentiate themselves in the marketplace, appealing to a broad demographic that values eco-consciousness.

Brand value enhancement: Companies actively engaging in decarbonisation initiatives often experience an uptick in brand perception, translating into increased customer loyalty and a robust brand presence in competitive markets.  

Increased consumer trust: Transparent and genuine decarbonisation efforts build consumer trust, a critical asset in today's market where customers increasingly scrutinise corporate environmental practices.

3. Getting ahead of regulation

Staying ahead of the regulatory curve is crucial in an era where environmental regulations are becoming increasingly stringent. Proactive decarbonisation positions companies favourably in the regulatory landscape, mitigating risks associated with non-compliance and capitalising on the benefits of early adoption.

Regulatory compliance: Early decarbonisation efforts prepare companies to meet or exceed emerging regulations, avoiding penalties and establishing a reputation for corporate responsibility.

Policy incentives: Companies leading in decarbonisation may benefit from governmental incentives designed to promote green practices, providing financial and operational advantages.

Risk mitigation: By anticipating and adapting to regulatory changes, companies can avoid the financial and reputational risks associated with lagging behind compliance requirements.

4. Competitive advantage in the market

Decarbonisation is an essential differentiator in the market, granting companies a competitive edge. By prioritising sustainability, businesses can attract eco-conscious customers and partners, securing a pivotal position in their industry.
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Market differentiation: Adopting decarbonisation practices sets companies apart, enhancing their appeal in a marketplace where sustainability is increasingly valued.

Partner appeal: Companies reducing their carbon footprint are more attractive to potential business partners and collaborators sharing similar environmental values.

Industry leadership: Leading in decarbonisation establishes a company as a frontrunner in its sector, influencing industry standards and practices.

5. Operational efficiencies and reduced overheads

Investing in decarbonisation leads to greater operational efficiencies and reduced costs, particularly in energy consumption. Streamlining operations through green initiatives can significantly lower overheads, improving profitability and sustainability.

Energy efficiency: Implementing energy-efficient technologies and practices reduces energy consumption and costs, offering direct financial savings.

Process optimisation: Decarbonisation often involves optimising processes and resource use, reducing waste and enhancing operational efficiency.

Cost reduction: In minimising reliance on energy from fossil fuels, companies can shield themselves from price volatility and enjoy more predictable operational expenses.

The move towards decarbonisation offers companies a pathway to bolster their financial performance, reduce operational costs, attract investment, and enhance their market positioning, all while contributing positively to global sustainability efforts. By embracing this transition, businesses can secure a competitive advantage in an increasingly sustainable market.

What is the future of decarbonisation?

1. Increased regulatory pressure: Governments worldwide are tightening regulations around emissions and sustainability. For instance, the European Union aims to reduce its greenhouse gas emissions by at least 55% by 2030, setting a direct trajectory for corporate compliance and further action.

2. Technological advancements: Emerging technologies such as carbon capture and storage (CCS), advanced renewable energy solutions, and green hydrogen are expected to mature and scale up, offering new avenues for decarbonisation.

3. Shift in investment patterns: The finance sector's pivot towards sustainability is projected to continue, with ESG assets on track to exceed $53 trillion by 2025, representing more than a third of the projected total assets under management globally.

4. Consumer demand and market forces: As public awareness and demand for sustainable products grow, companies will face increasing market pressure to decarbonise. This shift is expected to drive innovation and the development of new, low-carbon products and services.

5. Scope 3 emissions focus: Companies will increasingly address their value chain emissions (Scope 3), which for many sectors constitute the majority of their carbon footprint. Strategies will likely include enhanced supplier engagement, product life cycle assessments, and circular economy practices.

6. Net-zero commitments: The Science Based Targets initiative (SBTi) reports a surge in companies committing to science-based targets, signalling a robust trajectory toward widespread corporate net-zero commitments.

7. Cross-sector collaboration: The complexity of decarbonisation challenges will necessitate unprecedented collaboration across industries, governments, and civil society, fostering shared innovations and solutions.

8. Adaptation and resilience: Companies will need to adapt to the impacts of climate change on their operations and supply chains while contributing to global mitigation efforts, emphasising the dual focus on adaptation and mitigation in corporate strategies.

The future of corporate decarbonisation is dynamic and interdependent, requiring holistic strategies and collaborative efforts. Companies that proactively navigate this landscape will likely emerge as leaders, well-positioned to thrive in a low-carbon, sustainable economy.

Decarbonisation requires accurate carbon accounting and efficient reduction pathways, to ensure sustainable decision-making. We support companies in their decarbonisation journey. Get in touch with us.