The next steps for corporate net-zero targets

What should the next generation of climate goals look like, and what will be needed to achieve them?

The legal dictionary defines the term ‘reasonable’ as “fair, proper, or moderate under the circumstances”. 

And that, according to Ben Caldecott, is how corporate climate targets should be judged. 

“All we can ever expect a company to do is to get to net-zero as quickly as possible, recognising that it’s only going to do what’s reasonable,” says the director of Oxford University’s sustainable finance unit, and former head of the UK Transition Plan Taskforce. 

“Reasonableness is a well-established legal concept, so this isn’t completely unknown territory,” he adds. 

“It’s a standard designed to evolve to account for changes in technology, markets and policy.”

As discussed in previous articles in this series, there haven’t been as many of those changes as anticipated, leaving many businesses unsure if they’ll fulfil the climate pledges they made a few years ago. 

Waning political enthusiasm for the Paris Agreement, coupled with slow-moving financial and technological solutions, mean targets that seemed reasonable at the turn of the decade don’t seem as reasonable anymore. 

But this new reality isn’t an excuse to change corporate ambitions, warns Owen Hewlett, technical director for carbon markets specialist Gold Standard. 

“Good is good. Feasible is feasible. That remains the same, regardless of how incompatible those two realities are,” he tells Real Economy Progress. 

“The conversation now shouldn’t be about how to change the definition of what’s good so it moves closer to what’s feasible – it should be about what happens to global temperatures if you accept that a company isn’t able to contribute its share towards meeting 1.5°C.”

It’s not all doom and gloom, though: Hewlett, who is also a technical advisor to the Science Based Targets initiative (SBTi), thinks most companies will ultimately find ways to fulfil their pledges.

And those who genuinely can’t will be rewarded for being frank about their failures, because there’s “a real craving for authenticity at the moment”. 

“In a world of artificial intelligence and polished influencers, people are demanding uglier photos and more honest answers,” he says, adding that this will make it easier for brands to be upfront about their struggles to decarbonise. 

Last week, Real Economy Progress spoke with Susanne Etti, the climate manager of Intrepid Travel, a tourism company that did just that: it admitted it wasn’t going to hit its goals, and revised them. 

She said the “honesty really paid off”, but stresses that it’s not a free pass. 

“If you step away from the SBTi, or fail to deliver on a target, and you don’t come up with an alternative, that, for me, is a no-go,” she says. 

“You must come up with an alternative, and it should still be time-bound and challenging.”

So what does that look like? 

Valentin Pernet, global head of sustainable investment solutions at French-German bank ODDO BHF, thinks companies should start by explaining the stumbling blocks they’re facing. 

“It’s more interesting for me as an investor to understand what’s not working for a specific company,” he explains. 

“Because there are lots of variables, and they make a big difference: in some cases, it’s financial limitations, in others, it’s a lack of solutions in the supply chain.

“We need to understand what’s blocking progress.”

After that, Pernet says, businesses should identify the different levels of decarbonisation they can achieve within different potential parameters. 

“I would like to see companies provide alternative scenarios that show what’s possible under different realities.” 

This could involve the development of a range of targets – one for a business-as-usual world, for example, and another for an ideal situation – so that investors can understand what alternatives firms are preparing for. 

“We’ll gain much more knowledge by analysing that information than a convenient story about heading for net zero,” says Pernet. 

Kate Jones, director of sustainability strategy for consultancy SB+CO, says a growing number of firms are already “attempting to identify best- and worst-case scenarios”. 

While most of these discussions remain internal, they occasionally show up in public reports. 

In Agilent Technologies’ latest sustainability report, for instance, the New York-listed firm explains that, by 2030, it plans to reduce its Scope 3 emissions “by at least 30% (with a stretch goal of 40%)”.

But even with a range of targets, companies need to do more if they’re going to meet them.

For Jones, this starts with new narratives.   

“Sustainability teams are having to refine the business case for action internally, because they can no longer only rely on regulation, and the assumption that everyone is on board like they could a few years ago,” she observes. 

As a result, the discussion needs to shift from the cost of non-compliance to the value at risk from not taking action on climate change.  

“That will be what unlocks the investment needed to hit targets,” Jones believes. 

“It’s a more complicated, harder conversation to have internally – partly because it needs more support from executives – but it’s the more interesting one, too.”

For Hewlett, companies need to rethink their approach to Scope 3 emissions, which is where most of the missed targets are likely to sit.  

“Just because something isn’t under your control, doesn’t mean it isn’t under your influence,” he argues. 

“If you’re going to miss your target, then where’s the lobbying strategy or supply chain engagement plan that will help you meet it in the future?”

Caldecott thinks the next phase is down to policymakers. 

“They need to come up with safe spaces for companies to implement changes,” he believes. 

There have been some attempts at this already: the UK Financial Conduct Authority, for instance, introduced rules last year to ensure firms aren’t penalised for not achieving climate transition plans that have been made in good faith.   

“But [the interventions] could also include something closer to what you have for bankruptcy in the US,” says Caldecott, referring to Chapter 11 of the US Bankruptcy Code, which grants legal protections to struggling businesses while they restructure their finances. 

“When a company has to undertake a radical transformation, there should be some kind of government protection to allow it to get that done,” he suggests. 

“We need to do some more policy thinking about what those mechanisms should look like.”