The UN Climate Change Conference of the Parties (COP26) in Glasgow saw a welcome spate of commitments being made to address global warming. There, among many other agreements, 191 countries finalised the Paris Rulebook, which sets out a framework for reducing greenhouse gas (GHG) emissions to zero. In concert, a diverse group of business leaders voiced pledges around biodiversity, deforestation, renewable energy and much more, reflecting the escalating sense of responsibility within the business sector to tackle climate change.
The central question now is this: how well do these commitments translate into action?
Europe’s place in the race to net zero
Seeking to learn more about what it will take to go from commitment to achievement, Accenture Research has studied the efforts European businesses are taking to meet the targets outlined in the 2015 Paris Agreement. Its primary goal: limiting the average rise in global temperature to well under 2°C, and ideally to no more than 1.5°C, to try to avoid severe climate disruptions and the resulting damage and suffering.
Achieving this aim requires halving GHG emissions by 2030, and eliminating them by 2050. To assess progress against goals, we analysed the net-zero targets of Europe’s largest listed companies, looking at 1,022 companies on the FTSE, Deutsche Börse and la Bourse de Paris (Euronext Paris).
What we found was both promising and sobering. On the upside, as of August 2021, almost one-third of the 1000+ largest European companies had outlined net-zero targets. Promising headway, given that, only two years ago, the idea of net-zero emissions often slipped under the radar of discussions in the global business community.
In addition, 9 per cent of European companies have been able to cut their own emissions in half over the past decade. This is the rate of emissions reduction that all companies need to achieve in order to align with the Paris Agreement. These exemplary frontrunners show that reductions at the scale and pace required is attainable with the right strategy and investment.
On the downside, this group of companies on track to achieve a climate-neutral world by mid-century is clearly still very small. Most companies will need to rapidly ramp up efforts to reduce GHG emissions – doubling the pace of reduction in the next decade, with further acceleration beyond. For some industries, becoming carbon-neutral will require no less than a reinvention of the core business.
What is net zero? The Intergovernmental Panel on Climate Change (IPCC) defines net zero as: “Net-zero emissions are reached when anthropogenic (so human-caused) emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals over a specified period.”
A reduction roadmap
There is no single route to net zero; different industries must find different pathways to meet the targets. But we do know that European businesses must urgently accelerate the pace of emissions reduction to bridge the “opportunity-action gap”. Learning from the experiences of the companies who are meeting net-zero milestones, we have identified three actionable practices to consider and adopt:
1. Set science-based targets
Targets work. Our research found that European companies with a net-zero goal reduced their emissions by 10 per cent on average over the past decade, while those without targets saw their emissions increase.
We also see that targets are most effective when guided by science and supported by concrete action plans and intermediate milestones. At COP26, the Science-Based Target initiative (SBTi) launched the world-first net-zero corporate standard. Committing to science-based targets certified by the SBTi is a marker of credibility. Its requirements – for setting intermediate targets, focusing on short-term emissions reduction and taking action beyond the value chain – encourage focus and momentum.
The SBTi also helps businesses home in on the different types of emission reduction they need to address. To meet SBTi standard criteria, reductions must occur across all scopes of emissions to zero or a level consistent with reaching net zero in 1.5°C-aligned pathways. The SBTi criteria also suggest a starting point for robust data collection and analysis, so that companies can assess progress and take action accordingly.
Danish energy company Ørsted had its 2040 net-zero full-value-chain decarbonisation plan verified by the SBTi, making it the first energy company with a validated net-zero target. Starting in 2008, the company has changed its entire business model, transforming from a fossil-fuel-intensive energy utility to a renewable-energy company focusing on wind farms, solar electricity panels and bioenergy plants.
At Ørsted, operations and energy production (scopes 1 and 2) are on track to be carbon-neutral by 2025, and net zero across the value chain (scope 3) by 2040. Ørsted has also realised strong financial performance as its work progresses, reporting an increase in earnings in 2021 compared to a year earlier.
2. Apply carbon intelligence
Increasingly, companies realise that decarbonisation is key for their competitiveness going forward. Our analysis shows that a moderate increase in the price of carbon, to a global average of $40 per ton, would have a significant impact on operating margins for many companies. In energy-intensive industries, more than half of the operating margin could be at risk.
To best manage progress toward targets, companies can benefit from investing in their capabilities to track, trace and manage the right data. Next to understanding income, revenue and costs, companies need information on their environmental impact, including data about GHG emissions and carbon flows across their value chain, to inform business decisions.
For example, “internal carbon pricing”, when monetary value is attributed internally to GHG emissions and becomes part of the budgets of different departments, is a useful tool to incentivise low-carbon behaviour and decision-making. One company implementing this tool is the insurer Swiss Re. To reach net-zero operations, Swiss Re compensate unavoidable emissions through carbon-removal certificates, each carrying a levy of US$100 per tonne of CO2; for example, departments can buy carbon offsets, within the limits of their monetary budgets 2.
3. Collaborate across value chain
A company’s relationships across its supply chain have to be increasingly collaborative in order for it to achieve net-zero emissions. For many companies, scope 3 emissions represent the majority of their emissions, while being the most difficult to address, as they are beyond the companies’ direct control.
The good news: one company’s scope 3, is another’s scope 1 or 2. So by leveraging influence and collaborating across the value chain, scope 3 emissions can be reduced.
Consider, for example, coffee and milk. Dairy is vital for coffee brand Starbucks, because its consumers guzzle it. In fact, dairy accounts for 22 per cent of the company’s global carbon footprint. The company purchases milk from dairy cooperative Arla, so it falls into Starbucks’ scope 3 remit.
For Arla, however, the carbon associated with dairy production is classified as scope 1 emissions. Arla aims to cut emissions by 30 per cent over the next decade, and to be carbon-neutral by 2050. If this is successful, Starbucks will also be 7 per cent closer to its net-zero target. The companies are now working together to innovate new ways of working and develop new products that will reduce both their carbon footprints.3
Reduce emissions and increase value
The push for emissions reduction offers enormous opportunities for growth. Markets for low-carbon solutions – for renewable energy, electric mobility or sustainable fabrics, for instance – are growing rapidly, and low-carbon alternatives are expected to overtake today’s incumbent products as the dominant products in many markets. And there are opportunities to reduce costs, for example by switching to renewable energy and optimising energy use in buildings.
An Accenture 2021 research project identified new sources of value at the intersection of digital technologies and sustainability, and found that companies delivering this “twin transformation” approach are 2.5 times more likely to be among tomorrow’s strongest-performing businesses 4.
The countdown to zero
The European business community is increasingly committed to achieving net-zero emissions. Yet the majority of European companies remain off the pace needed to meet the 2050 global net-zero goals. And there is little time to get on track, as GHG emissions need to fall by 50 per cent by 2030 to do so.
But those 1 in 10 companies that are on target prove that it is possible. COP26 demonstrated that the business community and their stakeholders are aligned on the need for urgent action on climate change. We must learn from those leading the pack and share and build on best practice.
Through collaboration and by decisively implementing tried and tested solutions, businesses throughout Europe can pick up the pace and start hitting crucial milestones in the race to zero.
About the Authors
Jean-Marc Ollagnier is the chief executive officer of Accenture in Europe, with management oversight of all industries and services in Europe. Based in Paris, he is also a member of Accenture’s Global Management Committee.
Sytze Dijkstra is a senior principal at Accenture Research for European and Sustainability Thought Leadership in Amsterdam, Netherlands.
Monique de Ritter is a research specialist at Accenture Research for European and Sustainability Thought Leadership in Frankfurt am Main, Germany.