When it comes to corporate sustainable transformation, decarbonization measures are on top of the list of activities used to measurably improve a company’s sustainability. While the term sustainability contains much more than decarbonization, especially this part of a sustainable transformation appears to be en vogue. Hence, in the last years many companies came up with a publicly well-placed decarbonization strategy and thus communicated more or less clear ambitions to their stakeholders and the public. While, on first sight, most of them seem like a highly welcomed future-oriented step into the direction of green economy, there are tremendous differences in quality and effect. While I will not elaborate the reasons behind the increasing arise of decarbonization strategies such as legal regulations and external pressure, I would like to dive into the qualitative differences in the following, by examining corporate sustainability commitments, their extent and their meaning within the overall strategic sustainability objective.
Looking into the DAX40 companies’ current sustainability ambitions a wide range of terminology is used to define the companies’ decarbonization commitments. Most of the companies state their intentions as reaching either 1) carbon-neutrality (see Continental) and climate-neutrality (see Beiersdorf, E .ON, Adidas, BMW) or 2) their net-zero emission goals (see Airbus, Allianz, Bayer). All these commitments do usually also contain a set date of target achievement, which occurs within the time span between 2030 and 2050. But why is the used terminology relevant?
While both climate-neutrality or carbon-neutrality and net-zero approaches aim to reduce an entity’s carbon footprint, there are huge differences in their effect on the holistic amount of carbon emissions. A company’s climate-neutrality approach follows the objective to actually reduce the generation of emissions and minimize the company’s negative impact. A net-zero based approach on the other hand does not require actual reductions within the company’s emissions because it includes possible offsetting mechanisms in the equasion and thus allows to report on the amount of emissions including the amount of offset emissions. Hence, there can be neutrality on paper due to the net amount of emissions (emissions made - emissions offset) without reducing the emissions made within the company’s operations. Furthermore, also an increase of emissions would be covered, presuming the company invests into the corresponding offsetting. Within the context of carbon off setting, it is important to note that the available methods such as for example reforestation are controversely discussed and not impeccably quantifiable.
What seems like a slight difference in terminology and phrasing at first sight turns out to be pivotal in the real effect on climate change and global warming. Thus, the difference of the given decarbonization commitments and the supporting methods to reach the defined target differ in their impact on our planet. CO2-emissions are a global problem, endangering the state of our planet and living and causing global warming. Since this effect is caused by the amount of emissions which go into the atmosphere, it is a matter of reaching the maximum. Through the continuous inflow of generated emissions and the little natural outflow of CO2, the stock within the atmosphere increases. Thus, the amount of stock can, one day, reach a critical tipping point and the underlying system loses its stability. From there on regenerating a regular stade is more difficult than before and a point of irreversibility may be reached. In addition to this alarming prospect, there is an uncertainty regarding the moment of occurance, which make counteractions even more urgent.
Consequencely, the level of emission reduction matters and also the timing of reduction is of importance due to two factors. First, as stated above, the timing of tipping points is not definitely predictable. Furthermore, the moment of target achievement within the committed time span can be decisive. Following the idea, that the overall amount of generated CO2 stock within the atmosphere can reach a maximum level before tipping points are reached, it is indeed a question of time. If, for example, a company’s goal is to be carbon neutral until 2050, there are various ways to reach this goal. If the progress goes rather slow and emissions are continued until the very end of the set timespan, throughout the years, the cumulated emissions are much higher than those of a company that reduces its emissions quickly and continues its operations with a decreasing amount of emissions from year to year until reaching the final deadline.
Assuming most corporate decarbonization targets are the result of complex deliberation, the quality of the sustainability commitment is not randomly chosen. Rather, they offer informative value on the company’s approach on sustainable development. There are different levels of sustainability management within organisations, which are based on the level of ambition involved. Starting at reducing the negative impact the company has on the environment to proactively optimizing internal processes, the portfolio and products and lastly taking responsibility beyond the own organisation.
To sum up, the definition of corporate decarbonization strategies vary. Thus, they are leaving room for flexibility and adaptation to the companies’ needs and overall strategic goals. Because of the urgency of climate change, supposed details need be taken into consideration to evaluate a company’s decarbonization ambition. Moreover, a company’s decarbonization only starts with agenda-setting and the target definition, the results can only be seen on the basis of pertinent measures.
Author: Student of MBA Sustainability Management Class 1 (2023-2025)