Guest Blog: When is net-zero really net-zero? 24 Sep 2020 SOURCE: Barbara Nebel, CEO, thinkstep-anz While the spotlight last week was on the climate change risk reporting announcement from the Government, there was another significant announcement that went overlooked in New Zealand, but will change how you set credible and meaningful net-zero targets. Barbara Nebel has the details.Even in the midst of an ongoing global pandemic, the list of companies, investors, universities, and cities leading the Race to Zero continues to grow. For some, this translates to setting ambitious carbon reduction targets, while others opt for a net-zero target. But how can a net-zero claim based on offsets move the needle on climate change? What criteria does it have to meet?Last week the Science Based Targets initiative (SBTi) published “Foundations for Science-Based Net-Zero Target Setting in the Corporate Sector” to address these questions. Below are my key takeaways from the 50-odd pages.Five years after launching the framework for emission reduction targets based on science, SBTi have now launched the process to set a global standard for science-based corporate net-zero targets.Three guiding principlesCompanies need to follow three guiding principles to translate their net-zero visions into tangible action:Include emissions of the company and their suppliers and customers (value chain)Reduce emissions consistent with limiting warming to 1.5°C (Paris Agreement)Consider climate-related transition risks and ensure the company will continue to be viable in a net-zero economyWhat does net-zero mean in the corporate sector?Net-zero generally refers to balancing emissions by permanently removing the equivalent amount of carbon from the atmosphere. Technically this means one can be net-zero without taking any action to reduce emissions by simply purchasing carbon credits. However, this would not be sufficient to achieve the goal of the Paris Agreement.In other words, being net-zero is only good enough if it is coupled with a reduction target in line with science to set you on the path to 1.5°C. It is not a case of choosing one or the other — neutralising and reducing must go hand in hand.The role of offsettingOffsetting can play two roles in a zero-carbon journey. Firstly, in the transition to net-zero and secondly in the neutralisation of all unavoidable remaining emissions. Offsetting in the transition period means to neutralise emissions that are in the reduction plan but are not yet eliminated. Once the emission reduction target is achieved, all remaining emissions that cannot be avoided can be offset.The value chain mattersThe paper clearly states that a company on a net-zero journey needs to take a holistic view of their emissions. All material sources of greenhouse gas emissions within the value chain need to be included.It is not enough for a company to make its own operations more efficient and switch to renewable energy for their own emission reduction. It must also take into account and mitigate the emissions created by suppliers and customers or related to investments.Not all net-zero targets are created equalCurrently about a quarter of global carbon emissions are already covered by net-zero goals. This sounds encouraging, but are these “net-zero” targets in line with science? The SBTi paper finds that “corporate net-zero targets are being approached inconsistently, making it difficult to assess these targets’ contribution to the global net-zero goal”. A close examination shows that corporate net-zero targets to date differ across three important dimensions: the range of emission sources and activities included; the timeline, and most importantly; how companies are planning to achieve their target.Beyond net-zero with climate positiveIt’s an opportunity to move on from ‘doing no harm’ to ‘doing good’. “Climate positive” essentially means a company has done three things:Reduced their emissions in line with the Paris AgreementNeutralised its remaining emissions to be net-zeroCompensated emissions outside their own value chainPrepare your business for net-zeroBeyond reducing and neutralising remaining emissions, companies need to shift to a business model that is compatible with a net-zero economy. A well-rounded understanding of climate related financial risk is a key prerequisite. Disclosures such as the Task Force on Climate-related Financial Disclosure (TCFD) help to both focus on long term strategies and to prepare for a viable business model.New Zealand is well set upAll pieces of the net-zero puzzle in line with science already exist in New Zealand. The businesses that have signed up to the Climate Leaders Coalition or have an approved science-based target like NZ Post, Contact Energy, Auckland Airport, SkyCity, Fletcher Building, Fisher & Paykel Healthcare, Toitū Envirocare and ourselves at thinkstep-anz, are already in a good place because they have set the right level for a reduction target. Some of these companies, including New Zealand Post, Toitū Envirocare and thinkstep-anz, have gone one step further by setting a net-zero target or already offset their remaining emissions through Ekos or Toitū Envirocare.10 recommendations for science-based corporate net-zero targetsThe paper concludes with the recommendation to consider the following 10 points when developing robust net-zero targets:BoundaryTransparencyReductionTimeframeAccountabilityNeutralizationCompensationMitigation hierarchyEnvironmental and social safeguardsRobustnessFor more detail, read a longer version of this blog or download the SBTi report.