5 Reasons Why Businesses Should Become Carbon Neutral

By Finnie Zhao
January 29, 2024
5 min read

Climate neutrality, or “net-zero greenhouse gas (GHG) emissions,” means reducing and/or offsetting your company’s carbon footprint so your company has a neutral or net-zero effect on climate change. According to the United Nation Environment Programme, ensuring a safe future below the 1.5°C mark aligning with the Paris Agreement requires the world to cut 30 gigatonnes GHG emissions annually by 2030. Thus, global governments and international organizations are encouraging companies to consider becoming carbon neutral. In this blog post, Ecolytics will guide you through five reasons why businesses should start planning on carbon neutrality.

1. Improve Climate Impact

UNEP has stated that businesses must do more  since global warming is accelerating at a speed beyond our expectation. We must stop the Anthropogenic warming to avoid the catastrophic impacts on vulnerable coastal communities, natural landscapes, and global climate disasters. Collective efforts are needed from individual changes that are made by business. Achieving carbon neutrality would be one of the actions that all businesses could take to join the global efforts. Companies, of whatever size and from whatever industry, can join the global efforts of mitigating and adapting to climate change. Food & beverage companies could look for ways to support local agriculture and organic formulations; retail companies could think about biodegradable and recyclable packaging; manufacturers could re-consider ways to measure and reduce carbon footprint; technology companies could leverage its online and offline presence to promote green technologies. There are numerous ways for companies nowadays to decarbonize the value chain and enhance environmental stewardship -- with the ultimate goal to save the planet.

2. Better Financial Performance

Many people believe that there is an inherent trade-off between sustainability and profitability. Researchers found that carbon risks are influencing a company’s performance factors, such as firm risk, cost of capital, financial performance, firm value, and corporate decisions. However, as governmental and societal interventions are happening these days, placing environmental considerations as a top priority has become a must. Ignorance of sustainable factors could easily shift customers’ preferences and destroy the company’s reputation, which directly links to a company’s performance on the bottom line. Recent statistics show that the trend of trade-offs is reversing. A published 2018 literature review found that 78% of publications shortlisted reported a positive relationship between corporate sustainability and financial performance. The Stoxx Global Climate Change Leaders Index, which is based on CDP’s A List, has seen an average annual financial return that is 5.8% higher than its reference index over the past eight years for companies that achieve higher scores on its environmental metrics. A recent McKinsey study indicated that growing demand for net-zero offerings could generate more than $12 trillion of annual sales by 2030 across 11 value pools, including transport, power, and hydrogen. Besides, achieving carbon neutrality is not costly as it was assumed. Nowadays, third parties and advisories offer abundant accredited offsetting programs that drive substantial impacts through reasonable investments.

3. Mitigate Future Legal Risks

In March, the U.S. Securities and Exchange Commission proposed rules that would require registrants to include mandatory climate-related disclosures in the company’s registration statements and periodic reports. If adopted, the rules will mandate businesses to transparently disclose information about climate-related risks that are reasonably likely to have a material impact on the business, results of operations, or financial condition in audited financial statements. Greenhouse gas emissions will be among the metrics that need to be disclosed. According to the SEC, companies need to quantitatively measure and disclose information about their direct Scope 1 emissions and indirect emissions from purchased electricity or other forms of energy (Scope 2). What’s more, regarding the Scope 3 emissions, companies are expected to disclose emissions from the upstream and downstream activities in the value chain if the companies are facing material climate impacts based on the industries, or if the companies have made commitments and set specific targets.

In the future, investors will be able to benchmark businesses’ performance among other industry players easily and use the publicly available information as a reference for their investment decisions. Besides investor attrition, it is foreseeable that possible future regulations may tax carbon consumption. Planning for carbon neutrality is an efficient strategy to mitigate the potential legal risk by taking action beforehand.

4. Retain Employees and Attract Customers

Employees are looking for employers that think and act sustainably. A study carried out by Sustainable Brands showed that approximately 90 percent of millennials identified sustainability as a crucial consideration when making career moves. If companies would like to attract talents, they need to make apparent actions to prove the intentionality and authenticity of their commitments, rather than scamming through greenwashing. Considering the high attrition rate in the job market, sustainable planning is a necessary step to better retain the employees in the long run. 

Customers are also preferring eco-friendly products and brands with climate-friendly commitments. The second Business of Sustainability Index by GreenPrint found that 80% of young Americans are willing to pay more for sustainable products versus less sustainable alternatives. Retailers are able to demonstrate their climate commitments through relevant badges and certifications. Ecolytics have already discovered more than a hundred sustainability accreditations that companies can achieve and more than 15 climate neutrality badges that companies could consider to certify their products.

5. Social Responsibility to Shareholders

After the pandemic, the fluctuation in the economy has pushed companies to respond quickly to societal challenges. Thus, companies are placing attention on integrating Corporate Social Responsibility (CSR) strategies into their business plan. Climate change is seen as one of the most pressing challenges over the decade, according to the World in 2030 Survey report published by UNESCO. Tackling climate change and achieving carbon neutrality could be achieved through combined CSR efforts in actions such as innovative technology, sustainable design, environment-friendly manufacturing techniques, or adopting a green, transparent policy and environmental disclosure system.

Policymakers, investors, and society are serious about the transition to a net-zero economy, and shareholders respond quickly to the trend. Shareholders are also looking at accountability and sensitivity to schemes of greenwashing. Setting goals of carbon neutrality is also proof of the responsibility of companies to their shareholders in reacting to the global challenge. Of the 180 companies examined by S&P Global Market Intelligence across a variety of sectors and regions, 143, or 79.4%, have set some form of a net-zero target. That is to say, it’s now the time for action.

Interested in becoming carbon neutral? Request a demo from Ecolytics today to see how our platform helps your business in mapping the carbon neutral journey!

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