How to identify a great net zero corporate strategy
At a glance
The need to pursue credible investments that substantially progress net zero outcomes has never been greater. Revealing a greenwashing or poor risk understanding post-transaction is less than ideal. Investors are looking to better understand physical and transition climate risks within their portfolios to capitalise on value creation opportunities while also increasing the due diligence rigor examining how organisations are positions for net-zero.
More broadly, ESG (Environmental, Social and Governance) investing is under greater levels of scrutiny. Industry regulators are calling for increased consistency and transparency in how decisions are made and calling out greenwashing in court. Mandatory Disclosure requirements are now common place, however understanding is less prevalent. Debt and equity providers are looking to challenge those who are not doing enough or finding shortcuts on their climate homework.
More and more, asset operators are being held accountable for exaggerating climate claims in their portfolios, leading to material business impacts, reputational risks, and stigmatisation in the public consciousness. Some have found themselves in very publicised legal proceedings, at first driven by lobby groups, now with corporate and environmental regulators involved.
Creating clarity by connecting your strategy and planning to solid action plans
With investors pointing to the importance of credible action plans and citing integrity, transparency, and accountability as critical to any net zero commitment, a framework that facilitates a thorough understanding of the roadmap to net zero is urgently needed.
Resources are stretched and execution is lagging. Many corporate decarbonisation plans are self-defined or only measure financial risks aligned to pollutive practices when there is so much more that influences bottom-line outcomes and success. A significant number of net zero plans do not stand up to scrutiny, meeting their demise when the pragmatic lens of implementation is passed over them. Directors are now taking notice with some organisations escalating climate planning into enterprise risk registers – especially in a world where having a plan and having a good plan are two very different quantities.
Eight principles to inform investment decisions
Designing (and implementing) viable net zero implementation plans is key to the successful roll-out of decarbonisation strategies.
Considering more than solely bottom-line risks and applying a wider, integrated approach to decarbonisation investment decisions produces a complete assessment with meaningful data and insights that can equate to stronger, long-term financial gains. A net zero strategy with longevity considers the ‘how’ rather than just the ‘what’ and involves a deep analysis of the approaches and risks, prioritises stakeholder engagement and asset transition, and demonstrates solid metrics and measurements.
The seven principles listed below build on processes, frameworks and supporting models applied across technically and commercially robust solutions for our clients. While each net zero journey is unique, taking learnings and best practices from across regions and industries establishes powerful parameters for assessing and executing a net zero strategy.
An integrated net zero strategy - bringing together strategy, risk identification and mitigation planning
1. Evaluating the approach - Clear definition of what net zero (and intermediate targets) means to the business and decarbonisation plans firmly aligning with organisational business strategy.
2. Managing asset transition readiness - Managing the repurposing of assets, identifying technology maturity levels, and preparing for relevant transitions.
3. Identifying the risks - Deep understanding of technology, climate, financial and business model vulnerabilities and their impact.
Capability and behaviours - coordinating the organisational model around decarbonisation and the transition
4. Designing capability and supply chain - Understanding organisational capability and workforce transitions including upskilling, training and the retooling of supply chains. Creating stakeholder plans that embed and consider resilience across the internal and external stakeholder eco system.
5. Supporting governance structures and decision making - Ensuring that management, and accountability for decarbonisation, is embedded in the organisation and within all levels of the corporate centre. Ensure your partners in business are aligned and executive understanding and buy in.
Metrics and data - entrenching targets and decarbonisation measurement approaches into reporting systems
6. Rigorous data informed reporting - Solid baseline data and updated metrics that include short-term, interim and long-term measurable performance targets. Ensuring the implementation of robust yet practical systems to capture and report on metrics accurately.
7. Commitment to measurement - Ensure that key performance indicators are understood and mainstreamed into performance reporting, while discussing risks and roadblocks regularly and openly.
8. Commitment to consistency and rigor – Building networked confidence in processes, assumptions and data throughout net-zero planning (in the assets or divisions) through to corporate sign-off and disclosure. Giving consideration to a ‘decarbonisation audit’ to ensure what is being said, and being done, marries with what is being disclosed.
Working within these principles, we partner with clients to build on existing decarbonisation initiatives while ensuring that gaps are bridged across new strategies, capability, governance, and processes. Truly viable and resilient decarbonisation planning requires excellence across all three factors for success: strategy and practical implementation approaches, capabilities and behaviours, and metrics and data. Being brilliant at just one or two falls short of the minimum requirements and impacts overall performance.
Many organisations are grappling with poor planning, especially during the costly and risky implementation phase. ‘Failure-to-launch’ comes with significant downside risk, and at a stage where the organisation might lack time to properly plan, or at a point where parameters defining feasible from the unfeasible cannot be redrawn.
As the clocks to 2030 and 2050 tick with greater tempo, businesses must reflect on whether there is embedded integrity in their net zero planning. The same reflections apply to those seeking to invest – as a bad decarbonisation plan will fundamentally impact business viability. By how much? Let’s take every step needed to identify a great net zero corporate strategy to mitigate hits to the bottom line.