June 28, 2023
What a company does and says about its climate actions is foundational to its future success. A company’s climate actions and the claims about them can position it to benefit from major social, economic, and regulatory shifts. And yet, most companies’ climate claims are viewed with skepticism.
In this article, TIME CO2 explores why it is important to get a climate claim right, and what it really takes to get to net zero, nature positive.
Over the last few years, every business leader has come to acknowledge the fundamental business value of earning and retaining trust. Edelman, the PR company, has mapped the critical nature of trust to business success, as well as its evolution, in the company's annual Trust Barometer. If a company talks a good game, but fails to deliver, it loses trust. And while a good reputation is important, it’s only what you’ve done in the past. It’s a rear-view mirror.
By contrast, trust is much more powerful because it is forward looking and predictive. It is a set of beliefs held by a customer, employee or investor that confers upon a brand or organization a future license to operate. Trust dictates your ability to grow your business.
What a company does and says around climate has grown to be a major determinant of trust. As a result of the climate crisis, companies and their leaders are now also increasingly being judged on the gap between their climate claims and their actions.
As the following diagram by Edelman depicts, the companies that say more than they do erode trust. By doing so, they are falsely claiming valuable social capital to increase their ability to attract talent, customers, and investors. They risk being called out for ‘greenwashing’. We need far fewer of these companies and leaders on our planet.
On the other hand, many companies are ‘doing’ but not ‘saying’ enough, sometimes out of fear of being accused of being called out for being imperfect, or not doing everything all at once. There is a new phrase for this: ‘green-hushing.’ The actions of those companies help, but by staying silent, companies are limiting their power to influence and inspire others.
In contrast, those who have a verifiable climate action plan, take real actions along that journey, and communicate it honestly, grow trust, and benefit across their business.
As a result of the increased demand for proof of action, more companies are making ambitious pledges to get to net-zero. In fact, according to consulting firm McKinsey's research, 83% of Fortune 500 companies set a net-zero claim as of September 2022.
The problem is that most company pledges (the ‘say’) are not backed up by a credible plan (the ‘do’), and even if all of the pledges turned into reality, they would still not be enough to avoid catastrophic levels of global warming. Pressure is increasing on businesses to prove how they are going beyond pledges, and for more businesses to join in.
The two most common climate goals for companies are:
Carbon neutrality, which means purchasing carbon credits equivalent to emissions released, regardless of where the company, brand, or product is in its net-zero journey. Usually, carbon neutrality is applied on an annual basis, focusing on what’s emitted in a given year. The VCMI's Claims Code of Conduct phases out the use of carbon neutrality claims going forward.
Net zero, which means reducing company emissions in line with the latest climate science (including by procuring renewable energy) and balancing the remaining residual emissions through carbon removal credits. This requires a long-term plan and annual reported progress. The net zero target is broken down into three tiers by VCMI: silver, gold, and platinum.
Defining key terms
The Science Based Targets initiative (SBTi), which has introduced a Net Zero standard, lays out three concepts:
Abatement: Measures that companies take to prevent, reduce or eliminate sources of GHG emissions within their value chain.
Neutralization: Measures that companies take to remove carbon from the atmosphere and permanently store it to counterbalance the impact of emissions that remain unabated.
Beyond value chain mitigation (BVCM): Mitigation action or investments that fall outside a company’s value chain. BVCM can be achieved through the use of high-quality carbon credits. The Voluntary Carbon Market Initiative (VCMI) is one source of guidance for companies on how to use BVCM investments to compensate for remaining emissions once SBTi requirements have been met.
While the high level guidance is clear on the goals companies should set, the reality is that most companies don’t have the resources to navigate the increasingly complex climate action and financing landscape.
The ‘how’ of actually achieving these goals is even harder than goal-setting. As a result, most companies are confused and stuck.
They risk doing the wrong thing for broadly the right reasons, including offsetting their footprint with low-cost carbon credits, or worse, doing nothing until the whole thing becomes clearer.
The good news is that every organization can put in place the right approach with a little guidance. Every company can act and celebrate high trust climate credentials. This means doing two things:
Internal decarbonization programs should always be the priority: they are most likely to deliver returns on that investment back into your company, in the form of talent retention, brand value, increased revenue and market share, efficiencies, and reduced costs over time (such as from improved building insulation, switching to electric vehicle fleets and appliances, etc.)
We recommend a number of steps to get going, drawing from the GHG Protocol, SBTi’s net-zero standard, Oxford Net Zero, and VCMI’s Claims Code of Practice:
Measure the company’s current (baseline) annual emissions across Scopes 1, 2, and 3 using credible carbon accounting software or qualified external experts.
Make a public commitment to achieve science-aligned, net zero emissions no later than 2050, covering Scopes 1, 2, and 3.
Set and make a public interim emission reduction target that includes a first near-term emission reduction target for 2025, or within two years of making a public long-term net zero commitment and subsequent emissions reduction target(s) with target dates no more than five years apart, established by the date of the preceding target.
Publish detailed information on the plans and strategies adopted to achieve your targets.
Maintain a publicly available greenhouse gas emissions inventory that follows the GHG Protocol (or equivalent) covering Scope 1, 2, and 3 emissions (as defined in the company's targets) and is updated annually.
Make a public statement declaring that the company’s advocacy and lobbying activities—either individually or through trade bodies of which it is a member—are consistent with the goals of the Paris Agreement and do not represent a barrier to ambitious climate regulation.
Bonus step: Begin to map out how climate risks and hazards (such as heat waves, wildfires, or flooding) might affect your business in the future, and identify ways to make your business more resilient.
Where possible, and practicable, companies should aim to have these activities confirmed and verified by a credible, independent third party. These steps are increasingly mandatory for large companies in Europe, Canada, and the UK, and some version of these may be phased in by the US Securities and Exchange Commission (SEC) for publicly listed companies starting in late 2023.
Small- and medium-sized companies are not expected to adopt the same level of rigor or investment in planning, measurement, and verification as larger enterprises. Streamlined processes are being worked out for small- and medium-sized enterprises, including focusing on Scopes 1 and 2 (and not Scope 3), and less resource- and cost-intensive approaches to carbon footprint measurement and reporting.
We know that climate change is a broad, systemic problem. Alongside the necessary internal work of abating companies' own emissions (including in their supply chains), we also need deep shifts across multiple additional areas.
Every company has an opportunity and a responsibility to contribute to high-impact projects outside of their business value chain, especially:
Lobbying for change to outdated policies and subsidies that support old ways of doing things, including fossil fuel subsidies in developed markets
The incubation of new technologies to provide viable alternatives to today’s carbon-intensive options
The funding of nature programs to protect our remaining biodiversity, and counteract the damage we are doing to the planet’s ocean, soil, plants and animals
The support of vulnerable populations who are disproportionately impacted to support a just transition.
Historically, one of the dominant mechanisms for companies to support beyond-value-chain programs has been through the voluntary carbon market. This approach can be an effective and powerful component of a climate action plan, but only if:
Carbon credits are not used as a cheaper or easier alternative to emissions reduction. The priority focus must be on internal and supply chain emissions reduction.
Carbon credits are of high quality, as audited and measured by a credible third party.
These principles of using high-quality credits for beyond-value-chain mitigation align with the VCMI's Claims Code of Conduct and its three claims tiers for enterprises:
Silver - buying and retiring high-quality carbon credits equivalent to 20%-60% of remaining emissions once the company has demonstrated progress towards its near-term climate targets
Gold - buying and retiring high-quality carbon credits for 60%-100% of remaining emissions
Platinum - buying and retiring high-quality carbon credits equal to or greater than 100% of remaining emissions
We recommend the following approaches for companies to join the broader fight:
For companies that have met the six prerequisites above: supplement science-aligned decarbonization efforts by purchasing high-quality carbon credits (read more here) to achieve carbon neutrality. Ideally, these carbon credits should be compliant with ICVCM’s Core Carbon Principles.
For companies that are just starting on their decarbonization journey, and are not yet aiming for a climate claim: opt to use a climate budget approach. Here is a proposed process to do so:
Establish a budget for spending. Two approaches are: (i) set an internal carbon price at your company ($/ton of CO2 emitted), and multiply that by your company’s actual emissions, or (ii) establish your budget as a percentage of revenues or profits, such as 1-3%. The best proxy for an internal carbon price is the social cost of carbon.
Spend your budget on internal decarbonization programs. Internal decarbonization programs should always be the priority. Companies should double check that they have exhausted all worthwhile programs that meet their business’ internal cost targets/return expectations, including reducing emissions in their value chain.
Spend the remainder on high quality climate programs beyond your company’s value chain (carbon, nature, and community). These investments should prioritize programs that have been scientifically verified not just for their approach, but also for their ongoing impact through ongoing performance monitoring. Programs should focus on three areas:
CO2 removal and reduction
The protection and restoration of nature
The support to communities impacted by climate change.
An effective way to think and talk about this kind of spending is as a ‘contribution’ to global climate, nature, and community impact.
Pretty much every business on the planet is early in its climate journey. For many, that means they haven’t started and are struggling to figure out what to do. The best way to think of this is a journey. It starts with a first step. So long as you are making honest, trustworthy progress forward, guided by what science tells us we need to do, you are doing well.
In parallel, significant investment and expertise is focused on ways to make every component of the journey easier. Much still needs to be done.
To move millions of businesses along this journey, we need to make it easier to do carbon footprint measurement, to identify decarbonization actions, and to connect them to business value generation. Businesses need clearer, easier-to-understand “how to” guidance, including:
More detailed guidance for enterprises from the VCMI and ICVCM on climate claim on-ramps and carbon credit quality delineations (coming out in Q3-Q4 2023)
More detailed guidance for small and medium-sized businesses (coming out in Q1 2024)
Simpler guidance on how to access subsidies (e.g. IRA / EU Green Deal subsidies)
Stories of companies who are already making great progress and connecting climate action to business value
Tools that make it easier for boards and senior leaders to understand what to do
While it might appear to many that getting to ‘net zero’ is simply an accounting problem, easily solved with cheap carbon offsets, the reality is vastly different. Every business needs a credible climate claim that establishes how seriously your business sees both the opportunities in the post-fossil fuel economy, and the benefits of robust climate trust.
Climate confidence is achieved through real, tangible action toward net-zero, nature positive, and climate justice impact. These actions not only help your company directly, but the story of these actions also inspires others in your industry, stimulating innovation and action outside of your business.
These steps form a robust approach to positioning your company as a climate leader. The steps are necessarily broad in acknowledgement of the complexities and uniqueness of every business.
TIME CO2’s Climate Action Portfolio is designed to comply with the carbon market's most rigorous standards, including the ICVCM and VCMI, and to supplement any company’s climate action plan that aligns to the framework above. We are also beginning to build products for companies to help them at various points in the climate journey.
Join us in this new era of corporate climate leadership. Let’s build climate confidence together.
CEO of TIME CO2 and President, Sustainability, TIME. Former exec at Salesforce & WEF, and British Army Officer. MBA from Columbia, LBS and INSEAD.
