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  • Writer's pictureER Advisory

You still have time to be a Net Zero ‘first mover’ – but there’s major risk in waiting too long

Every industry is on the cusp of a major disruption. This is the shift toward Net Zero Emissions business. Companies and governments globally are setting targets to achieve an overall balance between the emissions they produce, and those they remove.

For many including Australia, the target year is net zero by 2050 – too late to meet the Paris Agreement ambitions of limiting global warming to 1.5°C. Some have net zero by 2030 in their sights, and crucially, concrete measures underway to cut their emissions. Some have made no net zero pledge at all.

Being a first mover in the face of any major industry disruption is fraught. There’s the risk of going all in on the wrong technology. There’s the difficulty of trying to overhaul your business model, when the market ticks along in ‘business as usual’ gear. There’s uncertainty around the pace of technological development, not to mention the direction policy will take – when it eventually catches up.

For those businesses yet to move, the message is clear: ready or not, the disruption is coming sooner than you think. Net zero business carries huge risks, but also huge opportunities. While there has been much talk since Paris, the lack of widespread meaningful action to date means there’s still an opportunity to move first (or at least early) and adapt your business to mitigate the risks, and reap the rewards.

What does net zero emissions mean for business?

A company reaches ‘net zero’ when the carbon emissions from its operations are balanced out by an equivalent amount of CO2 removed from the atmosphere. We did an explainer in our article on Net Zero Mining. The principle is the same across industries more broadly.

Companies need to consider three types of emissions:

Scope 1: Direct emissions from owned or controlled operations, e.g. diesel vehicle emissions;

Scope 2: Indirect emissions from energy needs, e.g. electricity, heat, cooling; and

Scope 3: Indirect emissions from the supply chain, e.g. transport, product end use.

A business typically has more control over its scope 1 and 2 emissions, while scope 3 emissions are much harder to influence.

Tasmanian businesses are working against the backdrop of Australia’s pledge to reach net zero by 2050. It was announced in October 2021, days before the COP26 UN climate change conference kicked off. Many pledging nations – Australia among them – were criticised for limp commitments that fall well short in limiting warming to 1.5°C. ClimateWorks has found most Australian companies’ net zero commitments won’t have a meaningful impact or achieve our international obligations.

That means for local industries, it is important to get on the front foot and plan for net zero operations, to avoid getting penalised when international markets slap emissions tariffs on Australian goods and services due to our inaction.

The international context

Action on net zero emissions is ramping up globally. In 2019, 10% of global emissions were covered by national pledges to achieve net zero emissions. As of January 2022, that number had leapt to 92 counties representing 78% of global emissions.

The trend is mirrored in business, with exponential increase over the past few years in companies disclosing emissions data to CDP (formerly the Carbon Disclosure Project), setting emissions reductions targets, or Science Based Targets Initiative goals.

Yet, many countries and companies have either no net zero commitment or have made commitments without meaningful targets or sector-specific regulations. These countries and companies risk disruption by underestimating the pace of change. Emerging low-carbon technologies such as solar PV, wind power and battery technology have consistently proven conservative development, cost and uptake projections wrong. Decision-making is too often based on status quo data and policy, not projections. Investors meanwhile are in the business of looking forward, and companies risk losing significant market value if they can’t signal resilient future performance. Misjudging the pace and breadth of change also increases the risk of being left with stranded long-lifetime assets, especially in heavy industry.

What are the benefits of being a net zero first mover?

Attracting talent: Surveys have found 40-50% of employees see sustainability as a reason to choose or change employers. McKinsey tips the global net zero transition will create many more jobs than it kills, predicting 200 million new jobs with a loss of 185 million by 2050.

Product growth: greener alternatives are tipped to boom, while sales of traditional alternatives stagnate.

Cost savings and financial advantages: Renewable power and energy efficiency efforts mean lower energy costs. Scope 1 and 2 decarbonisation projects will bring significant ‘first wave’ savings, which can in turn fund more expensive efforts, ideally achieving net zero emissions at net zero cost. As carbon regulations tighten, decarbonising early will lead to margins higher than those that delay. Greener projects also attract lower-cost financing.

Higher valuation: The World Economic Forum found less carbon-intensive companies see higher shareholder valuations than their higher-emissions peers. While WEF points out correlation does not prove causality, there is at least “a strong narrative of a link between climate leadership and value creation.”

Game-changer advantage: One company taking a bold leap has the power to trigger a competitive chain reaction through a whole sector. Tesla was the first company to present electric vehicles as a serious alternative to combustion engine cars in 2008. It took 11 years for Mercedes to follow suit. Within three years all major car makers had set electrification targets, and a slew of new all-electric manufacturers had entered the game.

Partnership possibilities: Tackling scope 3 emissions is critical for more impactful carbon cuts. This calls for a coordinated approach, stronger partnerships, and the possibility to improve whole industries’ access to international markets and lower-cost global capital. More commitments normalise net zero, influencing other companies, boards and customers.

Disrupt yourself: WEF poses the question to CEOs: “In a net-zero pathway, would your business shrink or grow? If the answer is shrink, consider challenging it yourself before someone else does.” Identify new products, services, markets, business models and technologies that advance net zero operations.

A more orderly transition: Taking early action means taking control, setting the agenda for both your business and the broader industry, and making manageable decisions. The longer an industry waits, the more likely it is to face a disorderly, economically-volatile transition. By moving first, you can prove the viability of your technology or business model, and lobby policymakers to move in the direction that works for you.

Leveraging Australia’s advantages: As more of our international trading partners and supply chains decarbonise, local businesses need to adapt to remain globally competitive. Australia has the potential to emerge as a major player in this new world order, thanks to our many natural advantages to export technology, develop low carbon products, offset and sequester carbon, and help our trading partners reduce global emissions. But we need to close the technology gap to prove and scale viable, affordable tech.

Tech opportunities: Emissions reduction technology already exists, with the biggest opportunities around batteries, hydrogen electrolysers, and carbon capture and storage. Toward 2050, we can expect emissions cuts from emerging prototype technology, especially in heavy industry. There is huge and highly lucrative potential for private and government investment to develop and scale technology.

So, what now? Will we sit back and wait for the shift? Or will we seize the opportunity, shape the direction of industry to our benefit, and propel Tasmanian industry ahead of the nation and the world?

We make sustainability simple. We can help you track your scope 1-3 emissions, even in heavy ‘hard to abate’ industries, plan your net zero business model and strategy, set ambitious and measurable short and long-term targets, catalyze your supply chain, and put it all into action.

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