What’s happening?

The imperative for action on carbon is growing – the political and economic climate continues to reflect this. In 2022, the number of companies setting goals to reach net-zero emissions by 2050 grew rapidly. Unfortunately, these commitments have often lacked interim emission reduction targets or plans that incorporate Scope 3.

In 2023, we believe that pressure from shareholders and other stakeholders will compel businesses to develop concrete, near-term plans and begin to act to address emissions across the full value chain. To help reach net-zero, we predict that carbon reduction will become ‘business as usual’ for an increased number of organisations – who will look to new business models, set stretching targets and report more robustly.

The UK’s Transition Plan Taskforce (TPT) ‘gold standard’

The TPT gold standard was launched at COP27 – a gold standard for climate transition plans developed with insights from industry leaders, academia, and regulators, and by coordinating with international efforts.

Whilst not anything new for those of us that work in sustainability (in fact, this is business as usual for a lot of the clients we work with) the publication of guidance and recommendations for companies and financial institutions in the UK on how to develop credible and robust climate transition plans is a positive step closer towards a net-zero economy.

In essence, a transition plan should translate ambitious strategic climate objectives into concrete steps to be taken in the short- and medium-term, setting out how a company or financial institution plans to contribute to and prepare for a rapid global transition towards a low-carbon/net-zero economy.

What it means for businesses

The TPT recommends that any emissions reduction target should consider Scope 1, 2 and 3 emissions and should prioritise decarbonisation through direct abatement over purchasing carbon credits.

The TPT recommends that a good practice transition plan should cover:

• High-level ambitions to mitigate, manage and respond to the changing climate and to leverage opportunities of the transition to a climate resilient economy. This includes a net-zero commitment.
• Short, medium and long-term actions the organisation plans to take to achieve its strategic ambition, alongside details on how those steps will be financed.
• Governance and accountability mechanisms that support delivery of the plan and robust periodic reporting; and measures to address material risks and leverage opportunities.
• Measures to address material risks and leverage opportunities.

Moving away from offsetting

Previously carbon offsets were considered a legitimate way for companies to prove their sustainability and net-zero commitments. More recently, carbon offsets are coming under fire for being an easy out for companies looking to claim they are sustainable while taking little tangible action.

For years, researchers have been raising concerns that these transactions are letting polluters off the hook. Rather than reducing planet-heating emissions, these offsets function like an accounting manoeuvre that allows more greenhouse gas to enter the atmosphere. Additionally, heavy use of carbon offsets can now lead to accusations of greenwashing. We predict that as a result, carbon offsets will be begin to be phased out throughout 2023/24 and be replaced by more concrete ways of reducing emissions.

The Climate Change Committee (CCC) agrees, stating ‘although many businesses have named ambitious net-zero dates – achieving them through an over-reliance on offsets is undermining the economy-wide transition’.

The development of a clearer definition of a ‘Net-Zero Business’ in the UK will help businesses pursue a strategy that complements the national targets – prioritising action to cut emissions ahead of offsetting.

In early 2023, an initiative to make green claims more accountable across Europe will come into fruition. Any green claims made on products will have to follow the PEF (Product Environmental Footprint) calculation method. If companies want to make environmental claims, they will have to use the PEF method, which does not allow offsetting emissions with offset credits. PEF quantifies the impacts of a product over its lifetime using sixteen environmental parameters, including climate change, human toxicity, resource use and others. Using offsets to compensate for environmental impacts is not part of the PEF equation.

On the horizon: The circular economy

Circular economies have lower carbon emissions than a linear economy. Producing new materials results in carbon emissions; circular economies minimise the need for producing new materials by maximising the re-use of resources – eliminating the carbon costs of producing new materials. Recent Bain research shows that supply chain executives plan to double the share of revenue from circular products and services by 2030. Circularity represents a decoupling of economic growth from resource consumption. For companies, it means conserving materials, extending a product’s lifetime through repair and reuse, and ultimately recycling.

Corporate leadership teams are grappling with an unprecedented number of challenges, including global supply shortages, geopolitical tensions and inflation. At the same time, the climate crisis and unsustainable resource consumption demand immediate attention. Many industry experts have identified circularity as an opportunity to reshape the way many businesses operate in order to cut costs and plug supply chain problems. We see the circular economy becoming a more important strategic business opportunity throughout 2023 and into 2024.

For more on ESG and sustainability trends, download our Insight here.