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Organizations are committing to Net Zero Pledges in their droves.
Increasingly focused on sustainability and ready to invest capital on the road to Net Zero, businesses look to be taking their role responsibly in the climate crisis by pledging to decarbonize – and quickly. The number of companies making recognized sustainability commitments is doubling year on year, from around 200 in 2018 to around 4,500 by the start of this year.
But dig a little deeper, and we find the truth: only a small percentage of Fortune 500 companies are actually delivering on their climate commitments.
This is echoed in the latest Intergovernmental Panel on Climate Change (IPCC) report . Despite the current climate policies and pledges made, the pace and scale of action across all sectors and regions to date fall short of the levels needed to limit warming to below 1.5 degrees.
The report also found that, with GHG emissions continuing to rise, we are likely to reach global warming of 1.5 degrees between 2030 and 2035, and it is critical to reduce emissions by at least 43% by 2030 to keep within the 1.5 degree-limit – making this the decisive decade for taking clear climate action.
With time running out to halve our emissions this decade, achieve Net Zero by 2050, and therefore limit global temperature increase, its clear commitments mean nothing without taking the right actions to deliver them.
Below, I explore what Schneider Electric discovered when we polled over 500 C-level execs from around the world on this question.
Five challenges stand in the way of pledge delivery
80% of the global CO2 emissions come from energy. The fastest path to net zero is to completely decarbonize the energy landscape – how energy is produced and consumed. Here’s what C-suite leaders told us is slowing down that progress in their businesses:
- Stakeholder alignment: Securing commitment from board level down.
- Real-time and accurate data collection for energy and carbon
- Budget: How to fund the actions especially when navigating an energy crisis (however, a lot of this becomes self-funding because there is a surprisingly fast ROI)
- Technological knowledge: Companies need the technology (good news: according to the IPCC report, solutions needed to reduce emissions by 43% over the next seven years already exist today) and workforce skills.
- How to build a deliverable roadmap: There is a perceived challenge of understanding what should actually be done to cut carbon and how to build a plan to do it.
In terms of what the C-suite leaders are prioritizing in the coming 3 years, the most common steps (around 50% of those we spoke to) were really around their Scope 1 and 2 emissions and switching to clean energy sources, what they can most easily control. While it’s a strong place to start, a more comprehensive approach is needed to deliver the majority of decarbonization.
Embrace energy demand-side changes to accelerate progress
While supply-side change accounts for 45% of the impact of key transformations on decarbonization, the remaining 55% comes from demand-side change: electrifying processes and optimizing energy usage. So whilst most people typically think of decarbonizing energy supply, it is only half of the solution to the net-zero pathway and we need to focus much more attention on energy demand.
We see more advanced companies already looking at reducing their energy demand (accelerated by the energy crisis), as well as looking at microgrids for their own energy production.Those on a more advanced stage of their journey are also incorporating process electrification (transport, heating, etc.) and looking beyond their scope 1 and 2 emissions to consider their scope 3 emissions in the supply chain.
These energy management measures also come with a much quicker ROI than many realize. The integrated range of solutions in the Lippulaiva case, for example, will generate payback within five years, whilst their impact on climate is immediate. So too, when we work with customers to install digital energy-management solutions in existing buildings, we see an ROI of just 2-5 years. This can be applied to homes too. By adopting smart home energy management, the energy bill savings between the most efficient and least efficient homes can typically be as much as 40% and up to 75%.
Strategize, digitize, and decarbonize to make an impact
Based on our work with around 50% of Fortune 500 companies we see that leaders are adopting an integrated approach.
They strategize to create a holistic roadmap covering the entire value chain (scope 1, 2, 3).
They digitize to establish their baseline and gain real-time insights about energy and carbon data, so they are able to identify opportunities for savings and report accurately on progress.
They decarbonize, by looking at both supply and demand. Choosing to purchase or generate clean energy, whilst reducing consumption through efficiency, and electrifying processes to shift consumption from fossil fuel to electricity as a vector for decarbonization.
As the climate clock ticks away, organizations need to take new and significant actions to deliver upon their well-intentioned pledges. The great news? The technologies and guidance to take on each of these steps are ready and waiting to strategize, digitize, and decarbonize, today.
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