Carbon neutrality goals can be expensive, ineffective, and even impossible. Here’s how we think businesses can achieve maximum climate impact.
Lucia Simonelli, PhD, & Dan Stein, PhD
August 08, 2022
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Pressure is mounting for businesses to take climate action, but the question of how they should take action is far from obvious. Net-zero frameworks have become the convention, and consequently, resources are channeled toward greenhouse gas inventories, methods to demonstrate emissions reductions, and cursory accounting for unabated emissions. But there is growing skepticism over whether or not such a focus on hastily claiming neutrality is the highest-impact strategy.
Emphasis on ton-ton accounting (which is necessary for companies to claim they are “carbon neutral” or “net-zero”) has resulted in an over-reliance on low-quality offsets and encouraged the practice of using avoided emissions credits as neutralizing factors in climate math. While credible resources do exist to rigorously guide corporations to net-zero, like the Science Based Target Initiative (SBTi), implementation of this guidance remains impractical for many. In particular, while emissions reductions should undoubtedly be prioritized when possible, substantial reductions will require systemic change and robust policy – well beyond the reach of most businesses.
We at Giving Green encourage companies to move away from immediate neutrality goals and to instead consider options that maximize climate impact. Given that these approaches are varied and relatively new to the discourse, very little guidance exists. However, a number of forward-thinking companies provide promising examples; in what follows, we describe a few of these examples as well as other ideas for businesses interested in thinking beyond net zero.
1. Taking the high (impact) road
We first consider a scenario relatively free of constraints, where a company could, within budget, simply allocate its resources to whatever efforts would maximize climate impacts. This generally consists of two types of strategies: catalytic investments in technology in the company’s sector, or making donations to high-impact charitable organizations. This may sound idealistic, but there are examples of pioneering companies following this route.
Klarna, a Swedish financial technology company, has partnered with Milkywire to develop (and donate to) the Climate Transformation Fund. Described as an “impact-first approach,” the fund’s ambition is “to achieve the greatest long-term impact possible.” The fund takes the form of a portfolio to reflect a global, holistic vision for climate action, supporting a variety of projects such as carbon removal, ecological restoration, and even policy advocacy.
Google has committed to run entirely on 24/7 carbon-free energy by 2030. To achieve this goal, Google has partnered with Sustainable Energy for All and the United Nations to create a coalition of companies, policymakers, investors, and organizations to promote and enable 24/7 carbon-free energy to accelerate the decarbonization of the energy sector.
The Australian iron and ore company Fortescue Metals Group has embarked on a mission to produce “green steel.” Its plan includes developing alternative manufacturing technologies, pivoting resources to create renewable energy infrastructure to produce green hydrogen, and providing specialized training to the workforce in preparation for the transition.
These may not reflect the realities of most businesses, but they can help give an idea of different mechanisms to leverage resources in unique and highly effective ways. If businesses are open to considering unconventional, high-impact climate strategies, we encourage them to take into account the power of contributing to policy. Our analysis indicates that the most effective giving opportunities are organizations working to enact policy change, and to this end, we have put together recommendations for efforts in the United States and Australia.
2. Investing today for neutrality tomorrow
Many businesses may not find an “impact maximization” policy feasible, and would prefer to conduct activities that are at least related to their own net-zero ambitions. Some businesses plan to meet future targets through emissions reductions and carbon removal, but carbon removal is too young and expensive for this to be possible in the short term. While net-zero goals may not be achievable at present, catalytic investments today could enable neutrality in the not-so-distant future.
Microsoft has pledged to be net-negative by 2030 and to remove all of its historical emissions by 2050. It recognizes that these goals are not achievable at present and that targeted investments must be made to ensure its objectives are met. In service of these goals, it has established its Climate Innovation Fund to accelerate carbon reduction, capture, and removal. Stripe, an Irish-American financial tech company, has led the charge in establishing Frontier, an advance market commitment for carbon removal funded in collaboration with Alphabet, Shopify, Meta, McKinsey & Company, and businesses using Stripe Climate. Carbon removal has been identified as critical to achieving climate goals, but the sector is relatively new and needs substantial investment to reach the necessary scale. Frontier’s mission is to create a strong demand signal to promote and accelerate the development and deployment of carbon removal. Swiss Re has developed its CO2NetZero Programme with the slogan “do our best, remove the rest” – it plans to cut emissions as much as possible and use carbon removal to compensate for what remains. To enable this goal, they have made investments to help grow the carbon removal market; they partnered with Climeworks to sign the first ten-year purchase agreement for carbon removal.
We think that investments in carbon removal are among the most effective options in terms of ensuring that future net-zero targets are met, and we will be making some recommendations on how to do this even at a smaller scale.
3. Ordering (better) offsets with a side of removal
We recognize that some businesses will remain constrained to more immediate net-zero strategies that will necessitate the purchase of offsets; there are ways to maximize impact within this approach too.
Giving Green recommends that purchasers view buying offsets as philanthropic contributions to pro-climate projects rather than as vehicles to neutralize emissions. The quality of offsets in the voluntary carbon market varies widely, and it is difficult to guarantee that an individual offset purchase leads to the advertised emissions reduction or avoidance. That being said, there is a wide range in offset quality, and we encourage companies to purchase the best possible offsets – even if they are more expensive. Through research at Giving Green, we have found a few offset options that we deem to be among the highest quality.
Just as in the case of Mapbox, we also encourage companies who purchase offsets to allocate additional funds toward policy advocacy or carbon removal. As the market grows and matures, it will become more viable for companies to increase carbon removal purchases and decrease reliance on offsets, in line with recommendations from the Oxford Principles for Net Zero Aligned Carbon Offsetting.
In summary, while the examples included in this post may not be broadly applicable, they demonstrate that there isn’t just one way to craft a strong climate strategy. Businesses are well-positioned to influence change in innovation within their sectors or even in the climate space at large, and we strongly encourage them to think creatively about what will truly make the largest impact.
Do you work for a company that is considering a “beyond net zero” climate strategy? We’d love to hear from you! Get in touch with us here.
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