Organisations operating within heavy industrial, manufacturing and engineering sectors face a complex challenge when tasked to reach net zero.
Energy intensive companies (unsurprisingly) use a lot of energy in their operations and the GHG emissions associated with this energy use are considered ‘hard to abate’. This is in part due to costly, complex technologies that are needed to deliver deep emissions reductions that are still in early phases of development. And yet investors, customers, suppliers and employees are demanding action on net zero and plans for how to get there.
We hosted an event for heavy industrial, manufacturing and engineering firms, to share insight into how net zero and science-based target setting can provide a clear direction for a company. Watch the recording here and see below for a summary of the discussion.
The science-based targets framework and Net Zero Standard provides a steady hand and long-term strategy to move towards better business resilience – but urgent action is required now.
Market trends challenging the sector
Given the current energy crisis, financial strain and operational uncertainty is mounting for energy intensive industries. The ability to control energy costs and secure energy independence is now of critical importance and as legislation comes in for strategic divergence away from fossil fuels, heavy emitters who act now will future proof their business operations against further energy shocks in the years ahead.
Investors are increasingly using a company’s ESG performance to inform investment decisions. Larry Fink, CEO of Blackrock, made the profound statement last year that ‘climate risk is investment risk’. Mr Fink’s statement that companies that are not doing enough to evolve and innovate to move past this crisis stage with low carbon future technologies and energy resilient strategies are putting themselves at risk of divestment and devaluation.
In the public sector we saw governments make market shifting announcements such as the UK Finance Minister saying that all LSE listed companies as well as financial institutions must now publish a net zero target, as well as a clear roadmap for how to achieve that target, starting as of next year.
In addition to these current trends – heavy emitting companies have to deal with ‘always on’ issues in their sectors such as:
- Long-lived capital assets, which means retiring a plant for more low carbon infrastructure would incur huge costs
- The competitive global trading of the materials commonly produced or used in heavy industry which makes it challenging for companies to adopt expensive low-carbon technologies without being undercut on price.
- Thin profit margins also make it challenging to fund the large upfront investments that are likely to be required for low carbon technologies.
Net zero is the destination but how do we get there?
The road to net zero will be tricky to navigate, net zero is still an emerging concept so there’s not a clear map on how to get there. Your journey will have some uncertainty of which path to take and there will be roadblocks and pitfalls. No one has all the answers but what’s most important is to get started.
Your business will have to make some decisions on ‘big bets’ that could accelerate your journey. For energy intensive companies this will almost certainly involve investing in alternative technologies. This could involve retooling your operations for low carbon manufacturing of your products with a strategy to ensure resilience for the future.
The challenge of balancing ambition and achievability
This challenge will boil down to your stakeholders and their input into the process of setting your targets and net zero roadmap.
On one side there’s the sustainability team who are under enormous pressure to set a target that’s ambitious so can be communicated to the CEO and to shareholders who want to hear a good news story around sustainability. There’ll also be pressure to make sure the target is aligned to the latest climate science.
The target ought to be flexible enough to change and adapt to new evidence as it emerges as well as be market leading to set you apart from competitors, gain respect from customers, tick boxes for investors and shield you from greenwashing. To take that target and hand it to an operational team and say – this needs to be delivered by 2030 or 2035 is a very tall order. Difficult but not impossible.
In order for that ambitious target to also be achievable those operational teams will need to know that there is board level commitment to unlock budget to access new low carbon technologies in order to make that transition to net zero. Setting realistic target horizons will enable a smooth transition to net zero.
Operations teams should consider what technologies can be adopted that offer production benefits such as improved quality, more reliability, and less chance of downtime – these variables are critical for your business to continue being profitable on the road to net zero, so the benefits offered by new technologies will help gain the buy-in needed across your business to embrace change.
Security of energy supply should also be regularly reviewed and questioned, especially is the supply is price sensitive. This is just scratching the surface of what a business needs to consider when implementing an energy strategy to align to net zero. There will be many other factors based on the culture of your business and the things that matter to your sustainability and operational team.
Science-based targets and the Net Zero Standard: Helping steer you to net zero
Since its inception, the Science Based Targets initiative has emerged as the gold standard when it comes to corporate climate target setting. Investors and corporate customers expect the companies that they work with and engage with to have these kinds of robust targets in place.
In October 2021 the Science-Based Targets initiative introduced the Net Zero Standard which would enable a company to have their net zero target officially validated and approved.
What does net zero mean?
In summary, science-based corporate net zero targets will require:
- Emissions reductions in line with a global temperature increase of 1.5°C before 2050 across Scopes 1, 2 and 3
- Near-term targets and rapid action to reduce emissions over 5-10 years in line with 1.5°C (previously known as science-based targets)
- Long-term targets of ~90% across all Scopes before 2050
- A limited dependance on carbon removals to neutralize emissions that cannot yet be eliminated (5-10%)
- External verification of corporate net zero targets and annual progress reporting
Why was the Standard introduced?
- Lack of consistency around net zero has caused scepticism
- Reduce risk of greenwashing
- Provide a standardised approach to net zero
- Confidence that your net zero strategy is consistent with limiting warming to 1.5C
- Decarbonisation needs to be the priority
- Recognises that there is a limit to the amount of carbon that can be removed
Actions to take away
- Be bold and ambitious by considering new technologies that offer production benefits along with deep decarbonisation
- Challenge your equipment suppliers and operational teams on what is the art of the possible
- Understand what the SBTi Net Zero Standard means for you
Further resources for sustainability professionals:
We work with complex organisations such as Vidrala, KBR Inc, Senior Plc, Coca-Cola European Partners and Inmarsat to set credible carbon reduction targets and develop the roadmaps to achieve them. Contact us today