Emissions-reduction pledges from world leaders last week set the stage for a renewed push to coordinate globally on climate. Companies shouldn’t miss the significance of this moment. In the United States, while formal proposals for legislation and policies to support the lowered target have not been presented, leading companies will take the signal to seize the opportunities from accelerated decarbonization.
The more aggressive US decarbonization goal reinforces our belief about the acceleration of net zero or carbon reduction commitments and the wide-ranging impact of these initiatives.
President Biden’s pledge enhances the signal that changes are coming throughout much of what you do. Proactive companies can seize opportunities to grow their market share and increase their profitability with products and solutions that meet low- or carbon-free demands.
Moreover, reporting and compliance requirements are expected to grow. Regulatory agencies will play a big part in implementing the Biden administration’s climate goals. CFOs across industries are stepping up efforts to gather and validate ESG data and identify frameworks and metrics for reporting, according to our March 2021 US Pulse Survey. As ESG reporting continues to evolve, companies that progress faster than others—for example, using ESG data insights to inform strategic decisions—will race ahead.
Every commitment made by a CEO, institutional investor or government to reduce GHG emissions rests on the premise that every organization is capable of coming to a clear understanding of the sources and intensity of those emissions, and that they can act on it to reduce their share over time.
To support companies on their journeys, PwC has defined nine key building blocks necessary for a successful decarbonization transformation. Regardless of the ambition of your organization, all approaches to GHG reduction begin with the first three building blocks:
This is often referred to as the GHG inventory. Companies will typically assess emissions for a year, setting a baseline to track progress in reductions over time. The more ambitious the goal, and with net zero commitments specifically, the more the exercise broadens to identify emission sources across their value chain. Reduction targets will drive companies to look for ways to make changes across geographies, product lines, the supply chain, downstream in logistics, product use or end of life. A value chain-wide GHG footprint is essential to baseline impact and to translate the net zero implications into business-specific parameters. The assessment should have an executive sponsor and audience but can be driven by the sustainability function, whose team members are familiar with these assessments.
Transitioning to a low-carbon economy will impact every company in a different way. The goal of GHG reduction within imperatives to attain positive returns on overall transformation initiatives will require strong governance, starting from the top. Companies can begin by consulting publicly available sources of information for effective climate governance. The FSB Task Force on Climate Related Financial Disclosures (TCFD) and WEF Climate Governance Principles and Guiding Questions may help build an understanding of the key issues. As a company matures, senior leaders should reevaluate any existing incentives that may hinder progress and consider creating incentives that assist management in delivering on milestones and targets.
Leading decarbonization commitments have certain attributes: They are science-based. They take responsibility for tackling value chain emissions including those of suppliers, products, services and investments. They also explicitly recognize that net zero requires a reshaping of corporate strategy and in turn, a company’s operating and financial model. And they allocate substantial funding for skills, innovation and R&D. It will be important to assess market dynamics to ensure both upside opportunities and downside risks are captured to understand net zero implications on business growth and where reshaping or reinvention is needed. Those who lead the transition will move from defense to offense sooner and lead the creation of new markets.
The Biden administration is targeting carbon pollution-free electricity by 2035 and a net zero emissions US economy by 2050. Beyond regulation, President Biden is deploying other policy tools, including executive orders, a push to integrate climate resilience into its infrastructure proposals and rejoining global efforts to fight climate change.
We believe the most prepared companies are investing in the capabilities needed to capture the coming opportunities. They are integrating decarbonization building blocks into their operational and financial strategies, enhancing governance to drive desired outcomes and investing in new products and services to meet the changing needs of customers. In so doing, they are demonstrating leadership in this evolving economy.
PwC has a large team of professionals with expertise in the standards, methodologies and technologies that can help your company move from ambition to action in the decarbonization transition.