From trend to necessity: The evolution of sustainability in business

When it comes to discussing sustainability and the efforts to combat climate change, it’s important to use the correct terminology. Words like “net zero,” “carbon neutrality,” and “climate positive” may seem interchangeable, but they actually refer to different things, and it’s important to use the correct terms in order to ensure transparency and integrity.

One thing net zero, carbon neutrality, and climate positive all have in common is that they are terms that refer to the balance of greenhouse gases (GHGs) in the Earth’s atmosphere.

What is carbon neutrality, net zero, and climate positive mean?

Carbon neutrality refers to balancing carbon dioxide emissions with the amount removed from the atmosphere. It is similar to net zero, but only accounts for carbon dioxide rather than all greenhouse gases.

Net zero means achieving a balance between the amount of greenhouse gases emitted and the amount removed from the atmosphere. In order to go net zero, a company or organization must either reduce their emissions to zero or offset any residual emissions by removing an equivalent amount of greenhouse gases from the atmosphere through activities such as reforestation or carbon capture.

Climate positive refers to actions that actions go beyond offsetting an organization’s greenhouse gas emissions and actually remove more greenhouse gases from the atmosphere than the organization emits. This means that the organization is having a net-negative impact on the climate.

To give an example for each term:

• A company that uses carbon credits to offset carbon dioxide emissions is striving for carbon neutrality.
• A company that gets all of its electricity from renewable sources and offsets any remaining emissions through reforestation is achieving net zero emissions.
• A company that not only offsets its remaining emissions but also installs solar panels and uses excess electricity to power electric vehicles is taking climate-positive actions.

In recent years, there has been a growing movement to transition to net zero, carbon neutral, and climate positive systems in order to mitigate the impacts of climate change. This includes efforts by governments, businesses, and individuals to reduce their GHG emissions and adopt practices that remove GHGs from the atmosphere.

The growing trend of companies pledging to become net zero or climate positive is especially popular among the oil, energy and manufacturing industries, as these sectors tend to have higher GHG emissions and therefore have more potential for GHG reduction.

Net Zero Tracker’s Stocktake 2022, a report prepared to assess the progress of the companies that have pledged to achieve net zero emissions, shared that large, publicly visible companies with high emission levels are more likely to set net zero targets. According to the report, the fossil fuels industry had the second-highest percentage of net zero targets, with 49% of the companies having net zero pledges, and more than 10 of these companies are on the Forbes 2000 list. Data shared states that the Materials industry, including sectors such as steel, chemicals, and cement, and the Transportation Services industry, encompassing airlines and shipping, also had high percentages of net zero targets at third and fourth place, respectively.

To give sector-specific examples, in the oil industry, companies such as BP, Shell, and ExxonMobil; in the energy sector, companies such as Ørsted and EON and in the manufacturing industry, companies such as Siemens and Unilever announced their climate pledges; committing to contribute to a more sustainable way of doing business.

There are also a number of banks and financial institutions that have made net zero pledges, including Bank of America, Citigroup, and JPMorgan Chase.

As for climate-positive pledges, examples include Iberdrola in the energy sector and Patagonia in the retail and apparel industry.

With the shift in the business world towards a more sustainability-focused approach, more and more companies are dropping the traditional “business-as-usual” mentality and, instead, are prioritizing actions that address the pressing issue of our time: climate change.

Several factors are driving this shift. Firstly, customers are increasingly demanding that companies take responsibility for their emissions and operate in a more environmentally-conscious manner. And there is much evidence to suggest that consumers are increasingly interested in the environmental practices of companies and that this can indeed influence their purchasing decisions. A 2022 survey by GreenPrint, a PDI company, found that 66% of American respondents said they would pay more for sustainable products and that consumers, regardless of age, were particularly likely to consider a company’s environmental and social impact when making purchasing decisions. Similarly, a 2019 survey by Nielson found that 73% of worldwide consumers indicate they would likely or certainly alter their consumption habits to decrease their environmental impact.

In addition to affecting purchasing decisions, a company’s environmental practices can also impact its overall reputation and customer loyalty. Going all the back to 2017, a survey by Cone Communications found that 87% of consumers said they would purchase a product because a company advocated for an issue they cared about and that 76% would refuse to purchase a product if they learned that a company’s practices were harmful to the environment.

These findings suggest that companies prioritizing sustainability and environmental responsibility may be more attractive to consumers and can potentially differentiate themselves in this competitive market. These findings also demonstrate that this growing awareness and concern has started to change the behavior of many companies, who are now taking steps to reduce their environmental footprint and operate more sustainably. It is clear that this is an ongoing trend and not just a fleeting fad.

Secondly, in addition to customer demand, investors and stakeholders are also pushing companies to make more responsible decisions. As the risks of climate change become increasingly clear, investors are looking for companies that are taking proactive measures to mitigate their impact and are positioning themselves for a low-carbon future. This pressure from investors and stakeholders is leading companies to reassess their business practices and make changes that not only benefit the environment but also protect their bottom line.

For example, a new study from Bank of America suggests that investors are increasingly concerned about the climate goals of the companies they invest in and want more transparency about their carbon footprints. The energy, utilities, and industrials sectors, which make up only 15% of the S&P 500’s market value but contribute to 70% of direct and indirect emissions, are particularly under scrutiny. The study found that companies with a timeline for achieving carbon neutrality trade at a premium compared to those without emissions targets. The average 12-month forward price-to-earnings ratio for companies with a net zero target is 32.4, while 20.3 for companies without such targets.

It is fair to conclude that customers, investors, and stakeholders demand that companies prioritize sustainability, and it’s not just a passing trend. It’s a fundamental shift in the way businesses operate. As consumers become more aware of the environmental impact of their purchases and the role that companies play in addressing climate change, businesses must adapt and strive for greater sustainability. By reducing their carbon footprint and going beyond mitigation measures, companies can meet the expectations of their customers and stakeholders and position themselves for long-term success in a complex and volatile world. The increasing number of companies pledging to achieve net zero, carbon neutral, or even climate-positive status is a testament to this shift. It shows the importance of sustainability in the modern business landscape.