First Steps in Setting a Net-Zero Target

This blog was coauthored by Matthew Banks.

The corporate sustainability world is abuzz with net-zero targets. But what are net-zero targets, and how do they differ from other science-based targets? Read on to learn how to start developing a net-zero target for your company.

This blog is the second blog in a series on net-zero targets by Guidehouse’s decarbonization experts. Check out the first blog and look for upcoming blogs on residual emissions, carbon removals, the strategic advantages of net zero, the effect of net zero on value chains, and Guidehouse’s Supplier Leadership on Climate Transition platform in the coming weeks.

Net-Zero Targets Are the New Standard

Science-based targets (SBTs) started gaining momentum leading up to COP 25. Guidehouse was involved from the start, codeveloping the widely used SBT methodology, the Sectoral Decarbonization Approach. Now, over 1,000 companies are committed to setting SBTs through the Science Based Targets initiative (SBTi).

Following the Intergovernmental Panel on Climate Change's 1.5°C Special Report, Larry Fink’s 2021 letter to CEOs, and mounting pressure from NGOs, the business community is focusing on net-zero targets. Besides being driven by external stakeholders, companies see the strategic advantages of mitigating transition risks and better understanding their impact. 

Net-Zero Targets Are a Type of Science-Based Target

Net-zero targets are based on climate science with more ambitious and often longer-term end goals. Since COP 25, robust SBTs have evolved to require deeper greenhouse gas (GHG) reductions to meet global goals of 2°C to well below 2°C to 1.5°C of global temperature increase above preindustrial levels. Current SBTs are medium-term goals (5-15 years) that can put a company on the road toward net zero but don’t necessarily have that end goal.

The world will reach net zero when any GHGs that aren’t eliminated (i.e., residual emissions) are balanced by removing an equivalent amount of carbon from the atmosphere (i.e., carbon removals). To avoid the worst impacts of climate change, we have to achieve net zero by 2050 to limit the global temperature increase to 1.5°C and meet the more ambitious goals of the Paris Agreement.

Crafting a Meaningful GHG Target

The tricky part is disaggregating the global goal to individual company goals. While the specifics are the focus of current debate, here are some target-setting basics to keep in mind:

1. A target needs a target year. Ambitious companies are aiming to achieve net zero before 2050. Others simply state that they will achieve net zero without saying by when. As goalposts shift, companies with target years earlier than 2050 will likely be more resilient. 
   
2. Set a medium-term 1.5°C SBT. A net-zero target alone only communicates a state achieved in the target year. For example, “net zero by 2050” doesn’t necessarily indicate any action between now and 2050. But cumulative emissions up to this long-term goal contribute to climate change. Reducing emissions at the pace required by 1.5°C scenarios toward a medium-term goal guides a company on a pathway to achieving net zero. 
   
3. Set a meaningful boundary. A robust target won’t just list a few key departments or activities; rather, it covers nearly all operational emissions and drives change across the value chain (Scope 1, 2, and 3 emissions).
   

There are two main steps in a decarbonization strategy:

1. Abate. Net-zero targets require deep decarbonization consistent with the abatement in pathways that limit warming to 1.5°C. 
   
2. Neutralize. Permanently remove the volume of atmospheric CO2 equivalent to residual emissions by the target year. Start exploring carbon removal solutions to implement soon, such as nature-based carbon sequestration. SBTi is considering a carbon removal phase-in target in the medium term.
   

Driving Change in the Value Chain

Every company is in another’s value chain. As companies set net-zero targets, intersecting value chains and rising climate ambition provide the framework to explore new collaborative opportunities. Concurrently, prepare to be on the receiving end of data requests from customers and suppliers. It’s a two-way street.

A best practice example of engaging suppliers is Guidehouse’s Supplier Leadership on Climate Transition platform. This collaborative platform helps standardize supplier decarbonization and educate, reward, and recognize supplier climate progress. 

Overall, strive for ambition. The ante may be upped again before long.