This international policy goal is based on the scientific recommendations of the IPCC. It requires the drastic reduction of GHG emissions, and in parallel the preservation of existing carbon sinks and the rapid development of natural and (in certain scenarios) artificial carbon sinks.
The activity of the company must take place within the global context recalled in principle 1.
The climate strategy of a company must be considered as the fair share of effort to be made in building a global net zero system. The perimeter and the "fair levels of contribution” are set out in principles 5, 6, 8 and 9. In particular, the company's entire strategy must be consistent with this principle. The company's financial strategy must not contradict its climate strategy.
The company must:
- Pillar A/ Reduce its direct and indirect emissions (scope 1+2+3) to the levels required by decarbonization scenarios compatible with the Paris Agreement.
- Pillar B/ Contribute to reducing emissions in society, through either the sales of products and services that decarbonize, or the financing of GHG avoidance projects outside its value chain.
- Pillar C/ Preserve and develop carbon sinks in and outside its value chain.
These three levers act in synergy and cannot be added or subtracted, and all three must be activated at the fair level of contribution.
In general, Pillar A (reducing the carbon emissions of companies) takes priority over Pillars B and C.
The method of defining the "right level" and the "right speed", i.e. the relevant GHG emission reduction pathway for the company, is set out in principle 6.
Some companies sell products and services related to low-carbon transition which allows the rest of the economy to reduce its emissions. In the general interest, it might be desirable for them to expand their activity regarding these specific products and services, even if this development results in an increase in emissions. This point is under discussion within the Net Zero Initiative project. It remains certain however that this type of exemption can only be allowed at the scale of a particular product or service and not for the entire range of products of a company.
In conformity with the rules of ISO 14064-1:2018, the company must quantify and report all the significant emissions of its activity, whether direct or indirect (scopes 1, 2 and 3). The accounting perimeter must be its organizational and operational perimeter. The significant emissions for which the company considers that it does not have an influence should nonetheless be included in the assessment.
The direct and indirect emissions must also include those linked to the land sector (forests, soils).
To define its reduction goals, the company can rely on the recommendations of reference frameworks and scenarios.
- International scenarios: The SBTi requires following a 1.5°C reduction pathway for scope 1&2 emissions, and at least a well-below 2°C for scope 3 emissions.
- Regional and national scenarios, for example Europe’s climate neutrality plan and the French SNBC (National Low Carbon Strategy).
- Scenario analyses carried out by the company regarding 1.5°C or well-below 2°C scenarios.
By way of information, the mitigation efforts expected at the global level require a reduction of 5% to 7% in emissions per year. Companies are not necessarily bound to apply these figures as such to ensure compatibility with the Paris Agreement, since the efforts to be made depend on the sector and nature of the company. Nonetheless, the order of magnitude of the reductions expected at the global scale provide an idea of the magnitude of the emission reductions to be implemented, and illustrate the need to significantly rethink the business models of companies to take up the climate challenge.
The pathway must define goals for several timeframes: the medium term (5 to 10 years) and the long term (more than 20 years).
Lastly, regarding the specific cases of companies selling decarbonizing products and services, see principle 4.
To achieve this, it is vital to define an action plan, i.e., a list of initiatives that must be deployed in the company to generate emission reductions in its value chain. Those initiatives cannot be limited to step-by-step improvements of the company's processes. To provide the expected level of emission reductions, there is no other way but to transform business models, reorient investments and rethink the company's strategy. To this end, the company must carry out scenario analyses to help it rethink its activity and make it compatible with a net zero planet.
The reduction of the company's GHG footprint must be monitored and managed dynamically at the highest level of the organisation.
To build a full action plan, the company can rely on sectoral references such as ADEME's international initiative ACT – Assessing low Carbon Transition, to ensure consistency between the actions carried out and the reduction targets.Measuring emissions and defining a trajectory are pointless if they are not followed by the implementation of concrete actions to achieve the absolute reduction of emissions, providing tangible results and in line with the targets set.
In addition to working to reduce their emissions, which remains the priority in most cases, companies are encouraged to contribute towards decarbonizing the economy in general by generating emission reductions beyond the scope of their carbon footprint, quantified as “avoided emissions”. This can be done by using two main levers:
- Emissions avoided through the sales of solutions: the company sells 1.5°C-compatible low carbon solutions that reduce their clients’ carbon footprint.
- Emissions avoided through financial contribution outside the value chain: the company generates additional avoided emissions through the financing of certified projects on the voluntary market, or through any other scheme that enables avoiding emissions according to a rigorous method recognized by reference institutions (e.g., Gold Standard, Verra methodologies, etc.).
The first lever must be considered as having priority in comparison to the second, since the company’s portfolio of solutions is directly linked to its business strategy and risk exposure.
Avoided emissions are different from the company's carbon footprint. One cannot be subtracted from the other.
Avoided emissions by the company's solutions should be distinguished from the reduction of Scope 3.11 - “Use of sold products":
- The company can very well increase its scope 3 while generating increasing amounts of avoided emissions (case in which the company increases the sales of its decarbonizing products);
- On the contrary, scope 3 can very well decrease without however generating avoided emissions (case in which the company decreases the sales of carbon-intensive products that do not avoid emissions).
Avoided emissions quantify the impact of a solution on the decarbonization of society, whereas a reduction in scope 3 emissions quantifies a decrease in the company’s emissions.
As with the reduction of the carbon footprint, the company must adopt a three-step approach for its action related to avoided emissions:
- Assess: use a rigorous and recognised method for the annual assessment of avoided emissions generated inside and outside the value chain. A standardisation of this assessment was proposed In June 2022 by the Net Zero Initiative project, and by NZI+WBCSD in March 2023.
- Set targets: set avoided emissions targets that must reflect the fair level of action of the company to achieve global net zero. Such methodological work is in progress within the Net Zero Initiative project.
- Transform : set up an action plan to reach those targets, manage them dynamically, monitor them and report the results.
Regarding financing actions outside the value chain, specific attention must be given to the quality of the projects financed, especially to ensure the reality of their carbon contribution (in particular, the rigor of the quantification, uniqueness, additionality), as well as to the social and environmental impacts beyond carbon, in particular in favor of developing countries. The use of recognized standards (Gold Standard, VCS, etc.) is encouraged. Furthermore, companies shall be transparent on the volume of financing allocated to projects outside the value chain and, if relevant, on the volume of CO2 avoided.
This action must be carried out in parallel with that of carbon sinks described in principle 9, and that of emission reduction described in principles 4 to 7.
In addition to working to reduce their emissions (which remains the priority) and avoiding emissions, companies are encouraged to contribute to the sustainable capture of CO2 in carbon sinks:
- In their value chain: in natural carbon sinks (soils, forests) and technological sinks (BECCS, DACCS, etc.), owned by the company or present in the value chain;
- Outside their value chain: through the purchase of certified carbon credits, or other schemes for financing carbon removals according to a rigorous method recognized by reference institutions (e.g., Gold Standard, Verra, etc.).
Carbon sinks in the value chain must be considered as having priority over those outside the value chain, since they are directly linked to the company's scope of responsibility.
As with the reduction of the carbon footprint, the company must adopt a three-step approach for its action relating to carbon removal:
- Assess: use a rigorous and recognized method for the annual assessment of carbon removals generated inside and outside the value chain, by applying recognized standards (in particular the GHG Protocol on Land and Removals by the WRI, to be released in 2023).
- Set targets: set quantitative carbon removals targets that must reflect a fair level of action of the company in its contribution to global net zero, by distinguishing a specific sub-target for removals inside the value chain.
- Transform: set up an action plan to reach the targets determined, manage them dynamically, monitor them and report the results.
For projects outside the value chain, special attention must be given to the quality of the projects, notably to guarantee the robustness of their carbon contribution (quantification, uniqueness, permanence, additionality, etc.), as well as to the social and environmental impacts beyond carbon, in particular in favor of developing countries. The use of recognized standards (Gold Standard, VCS, etc.) is encouraged. Furthermore, companies shall be transparent on the volume of financing allocated to projects outside the value chain and, if relevant, on the volume of CO2 removed.
Carbon sinks are distinguished according to their type and level of permanence.
This action must be carried out in parallel with that of avoided emissions described in principle 8, and that of emission reductions described in principles 4 to 7.
Through concern for transparency, and to highlight the progress achieved, companies are encouraged to communicate internally and externally on the content and outcomes of their climate strategies.
The dashboard of the Net Zero Initiative provides a relevant reporting framework. Companies are invited to go further than a declaration of intent and targets, by placing emphasis on the results delivered.
Communicating quantitative indicators requires:
- specifying the methodology used for the quantification, and using a reference methodology (e.g., ISO 14064-1:2018, GHG Protocol, Bilan Carbone...);
- specifying the scopes (spatial, temporal, organisational) and the main hypotheses;
- indicating the contextual elements required to understand the figures communicated.
Furthermore, the company must take care to use formulations that faithfully mirror the reality of the results and promote a rigorous approach to the climate challenge. In particular, in conformity with the opinion of ADEME on carbon neutrality, and its experts' opinions on the use of the “Carbon neutrality” argument in communications, NZI strongly advises against the company making allegations of carbon neutrality regarding its products, services and events. NZI also advises against the notion of “carbon offsetting”. Instead, the company is invited to place emphasis on its contribution to global and collective carbon neutrality through its alignment with the reference trajectories of climate change mitigation, according to three indicators: reduction, avoidance and removal.
Communicating can also be the opportunity for highlighting the co-benefits provided by setting up the climate strategy (e.g., social, biodiversity, resilience, etc.)
