Decarbonization for the Corporate Sector
Decarbonization is becoming increasingly common in companies, as part of carbon reduction goals and the creation of a greener production chain. The damage of climate change caused by large greenhouse gas emissions into the atmosphere (burning oil, gas, and coal, plus deforestation) has stimulated the mobilization of society in search of improvements. The conclusion is that decarbonization is essential, especially for highly polluting companies and sectors, such as transport and industry.
In North America, more than 6,800 companies have already set or are in the process of validating science-based emissions reduction targets, supported by the Science Based Targets Initiative (SBTi). The region has a significant number of companies committed to targets aligned with the 1.5°C limit set by the Paris Agreement, but significant challenges remain, especially in the financial services and communications sectors, where only about 20% have set targets. In addition, while many sectors, such as energy, materials, and utilities, are leading the effort with more than 40% adherence, the energy transition faces obstacles in engaging more carbon-intensive sectors.
Companies recognize the importance of the energy transition and NET Zero goals, with approximately 21% of U.S. companies having set such goals, although the majority still focus on direct emissions (scopes 1 and 2). Less than half of companies have clear strategies for indirect emissions (scope 3), which represents a significant challenge, as these emissions often constitute the largest portion of a corporation’s carbon footprint.
Despite the growing number of decarbonization commitments, the transition to a low-carbon economy still requires concrete and sustained action. Talk is easy, but implementing structural changes to achieve climate goals is challenging. For example, in 2021, Shell announced that it would reduce its ambition to reduce oil production by 20% from 2016 levels by 2030, 45% by 2035, and to net zero by 2050, but in 2024, shareholders backed the oil major’s move to weaken climate targets, contradicting previous decarbonization commitments. Furthermore, a study by Influence Map revealed that while many global corporations promote sustainability goals, less than 10% genuinely align their lobbying strategies with the goals of the Paris Agreement.
For-profit corporations are almost always primarily focused on increasing the company's shareholder value, which is driven by the ability to increase profits. If decarbonization does not increase revenue or decrease costs (the drivers of profits) then decarbonization is unlikely to be carried out unless there is government regulation or laws encouraging it.
Sustainability promises without implementation can undermine credibility and public trust, however, putting global efforts to combat climate change at risk. Companies need to demonstrate tangible progress to avoid being seen as simply engaging in “greenwashing”. This can negatively impact brand perceptions and impact sales (i.e. revenue).
Why is it important to decarbonize companies?
The Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), published in 2023, highlighted that the average global temperature has already increased by 1.1°C due to human activities, compared to pre-industrial levels. This warming is already resulting in more frequent and intense extreme weather events, such as droughts, heatwaves, and floods. The document reinforces that each fraction of the increase in global temperature will intensify the risks and damages.
The report concluded that it is technically feasible to limit global warming to 1.5°C, but this requires greenhouse gas emissions to peak before 2025 and be reduced by 43% by 2030. Models indicate that without significant changes, warming could exceed 3°C (5° F) or more by the end of the century. That will require a fortune to adapt to, harm lives, and cause over a million species to go extinct. This reinforces the urgency of a global transition to clean energy and a low-carbon economy.
Therefore, organizations must commit to decarbonization to reduce climate change and the impacts that GHGs have caused. Furthermore, a crucial factor is the increase in investor demand for ESG objectives, which requires companies to be more transparent about their obligations and measures to reduce emissions.
For example, several companies have committed to becoming NET Zero by 2050. This implies that they will achieve carbon neutrality, balancing carbon dioxide emissions with the reduction or elimination of emissions from their production, throughout the chain involved. These measures are expected to be intensified in the coming years, with the emergence of various technologies to help these companies adapt and plan.
Personal commitment and the common good must be at the forefront of these signatures because most for-profit companies are unlikely to fully decarbonize unless it also serves as a way to grow profits. Because businesses exist primarily to generate profits, investors are often resistant to strategies that reduce profitability. This reality is partly why companies abandon ambitious targets. However, if decarbonization can be aligned with cost reduction or increases sales, then it becomes a mutually beneficial approach. For example, implementing energy-efficient systems such as LED lighting or optimized heating and cooling can lead to significant savings while simultaneously reducing emissions.
Recent examples include Walmart and Unilever, which have invested heavily in renewable energy projects and supply chain efficiency. Walmart’s move to 100% renewable energy by 2035 not only reduces emissions but also cuts operating costs. Similarly, Unilever’s efforts to reduce energy consumption in its manufacturing facilities have resulted in cost savings and a smaller carbon footprint.
These cases demonstrate that decarbonization, when implemented strategically, does not have to come at the expense of profitability. Instead, it can drive innovation, reduce costs, and meet growing regulatory and consumer demands for sustainability.
What can a company do to become more sustainable?
Decarbonization involves reducing the carbon footprint of a specific context, such as a company, entity, or region. The carbon footprint refers to the total carbon emissions of a system, which includes the use of fossil fuels, waste, changes in land use, and other direct and indirect emissions.
This transformation can be achieved by switching from fossil fuels or energy sources to low-carbon sources. For companies, this process involves implementing changes in the production of their products and services, thus reducing their carbon footprint.
Investing in decarbonization can provide several advantages, in addition to environmental ones, such as increased attractiveness for investors, greater customer satisfaction, and strengthening credibility throughout the production chain.
Decarbonization can be achieved by implementing carbon savings objectives, setting targets and deadlines for all participants. It is feasible to segment the phases into four stages:
1. Conducting a diagnosis: Identifying the organization's carbon footprint, including all resources used from the beginning to the end of the process, including internal consumption, energy acquired or generated, and fuel used in the processes. Carrying out a complete inventory helps identify which phase presents the highest emissions.
2. Analysis and solution-finding: Once an organization understands its carbon footprint, it can look for solutions and set goals. Options might include improving efficiency, changing business partners, or starting a renewable energy project. Goals need to be achievable so that organizations can improve their environmental performance over time. More ambitious goals might involve total decarbonization, where the organization will aim to achieve zero carbon emissions.
3. Implement solutions: These could include changing the type of fuel used in a fleet or increasing energy production. The solution implemented should be the one that provides the best cost-benefit for the organization's overall objectives.
4. Monitoring and maintenance: Since environmental objectives require years of implementation, it is crucial to maintain monitoring and maintenance to ensure that established expectations are met.
Decarbonization is crucial for combating climate change and offers businesses opportunities to innovate while meeting regulations and consumer demands. By aligning sustainability with profitability, companies can contribute to a healthier planet and ensure long-term success.
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