Decarbonization: Delivering climate action

In a world confronted by the urgent need to address climate change, there's nothing more pressing on the agenda than decarbonization – for governments, societies and organizations. 

But what does decarbonization really mean and why is it such an integral climate solution? Read on to understand why decarbonization is more than just a buzzword, and why it is fundamental to shaping a thriving future for all life on earth.

What is decarbonization?

By decarbonization, we mean efforts to reduce, and ultimately eliminate, the carbon emissions produced from running businesses and living our daily lives. It’s a critical objective: CO₂ and other green house gases in the atmosphere are warming the world’s climate, causing extreme weather and the depletion of natural resources and biodiversity. 

A Framework for decarbonization

The Paris Agreement, signed by more than 180 countries in 2015, gave the world a framework for the decarbonization goals we need to meet. It does this by:

• establishing the need to limit global warming to 2°C above pre-industrial levels – and ideally 1.5°. The UN’s Intergovernmental Panel on Climate Change (IPCC) states that beyond 1.5°, the impact of climate change on human well-being and the health of our planet will be severe and, in some cases, irreversible.
  
• setting a target for the world to reach net zero carbon emissions by 2050 – by reducing them by 90%, and removing residual carbon emissions from the atmosphere.
• setting an interim target – to reduce 50% of emissions by 2030.

There are two sides to decarbonization: carbon reduction and carbon removal.

Carbon Reductions

Reducing carbon emissions – ultimately to zero – demands a transition away from fossil fuels, changes to agricultural practices, and conservation of forests and natural carbon sinks. That means adopting carbon-free, renewable energy sources, such as wind, solar, hydropower, geothermal and biomass.

Carbon Removals

Meanwhile, taking existing carbon from the atmosphere requires carbon capture methods and technologies (known as ‘carbon removals’). These range from nature based solutions such as reforestation, and conservation of existing natural carbon sinks, to carbon capture and storage and developing direct air capture technology.

There are many options and we need every solution available to meet our global goals.

Below we consider in more detail what decarbonization involves at a global, national, sector and organizational level.

Paris: from agreement to action

Decarbonization at a national level

How does the Paris Agreement translate into decarbonizing activity in each of its signatory nations?

At the outset, the Agreement obliged governments to translate its greenhouse gas emissions reduction targets into Nationally Determined Contributions (NDCs).

NDCs are national plans to decarbonize a country’s economy and society. They’re usually structured around the five central planks of an economy: 

• energy 
• transportation 
• land use 
• the built environment and 
• manufacturing.

However, there is no formal structure for NDCs so every country has approached theirs in different ways and with varying amounts of detail.

NDCs must be updated and resubmitted to the United Nations Convention on Climate Change (UNCCC) every five years, progressively ratcheting up their decarbonization ambitions. That way, the UNFCCC can keep tabs on the world’s progress towards the Paris targets via a ‘global stocktake’.

Decarbonization at a sector level

Decarbonization targets and plans are being made internationally, by individual governments and – as we’ll see in the next section – by organizations.

For certain high-emitting sectors, reducing emissions is inherently challenging, given the nature of their activities and the demand for their products and services. These include:

• Oil and gas. Overcoming reliance on fossil fuels will be problematic in an industry built on extracting, processing and selling them. Oil and gas producers are investing significant amounts in renewable alternatives; but fossil fuels still account for 82% of worldwide energy use.
• Cement, concrete and steel. These are extremely carbon-intensive products, for two reasons: the energy needed to manufacture them at ultrahigh temperatures; and the large amounts of carbon released by the chemical processes involved. Yet they’re essential to the built environment, and therefore difficult to transition away from. 
• Transportation. Commercial flight, shipping and haulage all use huge amounts of petroleum-based fuel. Switching away from that will be a slow process, for instance access to Sustainable Aviation Fuel at scale is still some way off; and in the meantime, global demand for travel and distribution is only increasing.
• Financial services. Through loans, direct investments and trading in commodities and financial instruments, the finance sector funds companies’ carbon-producing commercial activities worldwide.

Sectoral Decarbonization Challenges

Businesses in these industries face a huge challenge to decarbonize. Achieving net zero will mean a wholesale transformation of their products and services, manufacturing and production processes, distribution methods, and in some cases their fundamental business models.

To complicate matters further, companies in these sectors are often multinational businesses. They operate under the decarbonization ambitions, targets and plans of many different countries.

And decarbonization technology, in addition to renewable sources of energy, to help create a net zero economy is still being developed.

Electrification, or hydrogen, can’t yet fuel our global travel and transportation needs, leaving aircraft, ships and road distribution dependent on fossil fuels. 

Carbon capture is still in its infancy; and once deployed, it will take time to reach the necessary scale. While these things are developed they can’t be relied on as the answer to climate change: emissions reduction will have to do the lion’s share of the work.

Decarbonization at an organization level

In light of the Paris Agreement, many governments around the world have introduced regulation, financial penalties and tax incentives aimed at nudging companies to mitigate their climate impact. Reporting requirements are growing across the globe through initiatives including the Task Force on Climate Related Financial Disclosure (TCFD), new guidelines from the Securities and Exchange Commission (SEC) in the United States, and the Corporate Sustainability Reporting Directive (CSRD) in Europe. 

But government intervention is far from the only reason for businesses to embrace decarbonization strategies. Their stakeholders – in the widest sense of the word – are demanding it.

Customers, employees, investors, governments and wider society all want to know that companies are acting to cut their emissions, and minimize their effects on the natural world.

These pressures can put their social license to operate at risk. Reluctance is growing among governments and citizens to permit environmentally harmful business practices.

Meanwhile, investors want to understand a business’s climate risks before putting money into it. 

What’s more, they want to see that the organization is addressing these threats – in the form of governance and risk management frameworks, and resilience and decarbonization plans. 

Investors’ priorities are focusing corporate boards on the issue of decarbonization.

Our fifth annual report into the climate commitments of the world’s largest businesses indicates what climate leading organizations are doing to drive real emission reductions. We found that they are:

Adopting rigorous measurement and reporting

• 76% of Fortune Global 500 companies now report emissions year on year.
• The remaining 24% that do not report emissions data are behind the curve in meeting increasing regulation and investor expectations.
  

Setting a 2030 target to bring about quicker progress

• The reported operational emissions of companies with a 2030 or sooner target reduced by 7% over the last reporting year, compared to a 3% increase among companies without a 2030 target.

Appointing a Chief Sustainability Officer (CSO)

• CSOs are a powerful force for climate action, however only 43% of Fortune Global 500 companies have a CSO or similar position.
• We found that businesses with a CSO (or equivalent role) set carbon neutral and net zero targets between three and seven years earlier than those without.
  

However, Fortune Global 500 corporate commitments are starting to stall. There was only a 3% increase in the number of companies with 2050 commitments and no increase in 2030 targets, between our 2022 and 2023 reports. 

34% still remain without any climate commitments. But reducing emissions pays off both environmentally and financially. Companies reducing their reported emissions year on year earned on average nearly $1 billion more in profit per company than their peers in the Fortune Global 500.

So where should a company’s decarbonization journey begin?

Key steps to decarbonize a business

Decarbonization can seem daunting. It’s an enormous undertaking for any organization, whatever its size or sector.

Here are five steps to follow to create a meaningful carbon reduction plan, which drives business transformation and meets increasing expectations for climate action from stakeholders:

1. Start with the baseline

The first task is to get a granular understanding of your carbon footprint – by establishing a credible, fully calculated baseline.

Effective climate action must be informed by robust science. The Greenhouse Gas Protocol is the widely accepted global standard for measuring carbon emissions, both operational and in the value chain.

This must account for all emissions being generated throughout your value chain (scope 3). Addressing only those from ‘within the four walls’ of the organization (scope 1 & 2) isn’t enough.

Knowing your baseline is not only essential to setting suitable targets and making a decarbonization plan. It will also allow you to identify any emissions ‘hotspots’, where work is needed to reduce the most carbon-intensive components of your operations and value chain. Companies should expect to measure their emissions annually in order to identify changes and new opportunities.

2. Set your decarbonization targets

With your baseline in place, you can set your carbon reduction targets for 2030, out to 2050 and with interim targets along the way. These should be realistic, but also ambitious: merely tackling the ‘low-hanging fruit’ won’t be acceptable to your stakeholders.

The Science Based Targets Initiative (SBTi) has been established to help companies set internal reduction goals that are in line with the 1.5 degree global goal. It has established frameworks by sector, and companies can have their plans validated by SBTi. Using a credible framework like the SBTi to inform targets will help establish how far to go, by when. However, it is not suitable for all organizations of all sizes, many of which are setting science-informed targets which have not been through SBTi.

3. Design your strategy and roadmap

Your targets will in turn inform your decarbonization strategy.

This will, of course, be different for every organization. The way forward will depend on your sector; product offering and lifecycle; business and operating models; value chain; and much more.

Having formulated your strategy, you can then create a detailed roadmap of the activities needed to achieve your targets.

To design your strategy and roadmap, you’ll need to thoroughly assess what must be done to reduce all three emissions scopes. That will mean working with all functions across the business, and engaging with all the firms that make up your value chain.

4. Communicate your ambitions – and results

With stakeholders scrutinizing business’s decarbonization efforts, you’ll want to communicate your net-zero targets to the outside world once your strategy and roadmap are complete.

You’ll also be expected to report regularly on the progress you’re making. You can’t just come up with a set of commitments: you must demonstrate what you’re doing to meet them, and the results. We advocate for real climate action, that is not just making commitments, but actually reducing emissions. That will reassure your stakeholders that you’re playing your part in the fight against climate change.

Currently there are a myriad of options for companies to demonstrate and communicate their climate action. With increasing external scrutiny on the claims businesses make, it can cause a reluctance to communicate action – also known as green hushing. Our Landscape of Corporate Climate Claims whitepaper dives deep into this topic to provide guidance for organisations.

5. Make an immediate impact

Decarbonization is a long and complex journey, with milestones that are some years away. As you work through your roadmap, look for ways to have an immediate effect while you work on your longer-term initiatives.

For example, you might consider buying high-quality carbon credits to compensate for the emissions you can’t reduce quickly. Carbon credits fund independently verified carbon projects, which aim to reduce and avoid emissions around the world.

Alternatively, we offer companies the opportunity to create new projects for a future supply of carbon credits.

Recent research by Forest Trends’ Ecosystem Marketplace shows companies engaging in the voluntary carbon market are reducing their own emissions more quickly than their peers:

• They are 1.8 times more likely to be decarbonizing year-on-year.
• The median voluntary credit buyer is investing 3 times more in emission reduction efforts within their value chain.

Hurdles to overcome

Taking carbon emissions out of your operations and value chain won’t be easy. Not just due to the sheer scale of the task; it’s also a highly complicated and technical exercise.

In our work supporting businesses’ decarbonization journeys, we see them come up against three common difficulties:

Value chain

Measuring and monitoring emissions across the value chain is still not common practice for two principal reasons.

Firstly, because they’re long, complex, and often multinational. They’re made up of:

• the downstream activity of your suppliers.
• your upstream activity – for example, distribution wholesale and retail services, and your customers’ use and disposal of your products.

Secondly, because value chain emissions are often difficult to influence, with no direct say in how the companies in your value chain deliver the products and services you use. That may explain why only 23% of Fortune Global 500 companies have complete Scope 3 reporting, while more than half of the companies (55%) in the Fortune Global 500 are reporting on some form of Scope 3. Scope 3 emissions are significant because they represent 90% of the Fortune Global 500’s total reported emissions.

Short-term horizons

The year 2050 is a quarter of a century away. From a business perspective, that’s a long way off. Companies don’t tend to work in 25-year cycles – or anything like them.

Boards and investors will therefore struggle to justify decisions that come with a hefty price tag, but won’t make a return for a couple decades. But we have found there is a strong case to set nearer term targets such as 2030.

The operational emissions of companies with a 2030 or sooner target reduced by 7% over the last reporting year, compared to a 3% increase among companies without a 2030 target (Commitment Issues Report). The UN Environment Programme (UNEP) calculates that annual emission reductions of 8% are needed throughout this decade to limit global warming to 1.5°C.

Earlier targets can incentivize current leadership to take more action sooner, as ambitious and achievable targets mean accountability, and accountability drives change.

The skills gap

Decarbonization isn’t usually a company’s core competence.

Most companies lack the technical skills to establish an emissions baseline; design a carbon reduction strategy and roadmap; and make the necessary changes happen.
As a result, there’s a war for talent in this space, which makes recruiting the necessary experts difficult – and expensive.

However, having dedicated resource to focus on a company’s climate strategy produces better results. Reflections and advice from Chief Sustainability Officers at Fortune Global 500 companies including Barclays, Delta Air Lines, GE and GM can be found in our Commitment Issues report.

How we can help

Time is of the essence. We’re up against a pressing deadline to tackle climate change: we need to more than halve the world’s carbon emissions by 2030.

At Climate Impact Partners, we help organizations take climate action now, by purchasing Energy Attribute Certificates (EACs) for scope 2 electricity use, and using high quality projects in the voluntary carbon market (VCM) for emissions they can’t avoid. This enables climate action over and above what decarbonization alone can deliver.

By using the VCM, you fund emission reduction projects externally and you put a price of carbon into your business, which can increase the focus on achieving decarbonization goals.

External reduction projects in the VCM all comply with third party standards and have been validated and verified by independent auditors to demonstrate they are achieving measured emission reductions right now. They allow a business to compensate for the emissions it can’t avoid, deliver climate action, and support the global transformation to a low carbon economy.

We work with clients all over the world to help them use EACs and emission reduction projects of the highest quality to meet ambitious targets and deliver climate action right now.