Insight

The five pillars of net zero

At the center of the net-zero imperative are five pillars of action

Arun Ghosh

Arun Ghosh

U.S. Leader – Climate Data and Technology, KPMG US

As climate change rises to the top of the business agenda, organizations are facing more pressure than ever to develop and execute a credible greenhouse gas (GHG) emissions-reduction strategy. Stakeholders expect nothing less, and organizations that fail to mitigate their emissions face the likelihood of financial and reputational damage as well as potential legal liability. Regardless of what stage you’re at in your decarbonization journey, keep this key point in mind: pledges to reduce emissions won’t mean much if your company can’t demonstrate that it’s made progress on its commitments.

This means you’re going to need the ability to gather and analyze data that presents a clear picture of your emissions footprint. And to achieve this, you’ll likely have to look beyond your current reporting tools and consider a broader technology framework to manage the entire process.

The Decarbonization Journey: Five pillars to achieving net zero

Five pillars of net zero

A growing number of organizations today are committing to an ambitious net-zero emissions goal, in which a business achieves an overall balance between emissions produced and emissions taken out of the atmosphere. Organizations on the net-zero journey need to be especially disciplined and strategic. We have identified five pillars of action for achieving your net-zero emissions goal.

1. Decarbonize strategically

Many Fortune 500 companies have designed decarbonization strategies to achieve their targets. The details vary but share some basic elements.

A well-designed decarbonization strategy is always aligned with a company’s overall business strategy. It is founded on a deep understanding of climate change and the tools needed to mitigate it.

Organizations define the reporting strategy for internal and external stakeholders. And they shift their capital structure to account for the increasing role of climate in finance. They align executive compensation with environmental performance, and they demonstrate progress clearly and consistently.

2. Operationalize sustainable behavior

Accelerating an organization’s decarbonization strategy can only be accomplished if its personnel and cultural psychology have fundamentally shifted as well. That’s because decarbonization cannot be compartmentalized in an organization. It has to be woven into every area of an organization so that climate risk and opportunity become part of business thinking at every level.

With this shift, incorporating decarbonization initiatives into existing organizational transformations can unlock additional benefits for the business.

3. Gain regulatory agility

There’s no question that the regulatory winds have shifted since the Biden administration came to office, starting with the United States rejoining the Paris Climate Agreement. The American Rescue Plan Act of 2021 includes tax-credit extensions for certain renewable-energy and carbon-capture projects enacted in 2020. In addition, the U.S. Securities and Exchange Commission has issued a statement that its Division of Corporation Finance will “enhance its focus on climate-related disclosure in public company filings.”

Legislation, both federal and local, is being enacted to cap emissions from real estate, so it’s going to be critical to have processes in place to reliably and accurately report emissions reductions generated by your decarbonization strategies.

4. Accelerate climate-focused partnerships

It’s increasingly common for leading companies to collaborate with industry peers, industry groups, nongovernmental organizations, and supply chain partners to pursue their decarbonization strategies. These business relationships can spark innovation and accelerate progress toward achieving net-zero goals.

For example, Hilton eliminated more than 460,000 single-use water bottles and realized a 40-percent cost savings by partnering with a local Bali-based small business.1 And in 2020, Microsoft announced a long-term partnership deal with the French energy company ENGIE to purchase power from a wind and solar farm in Texas.

5. Build trust and prove results

Net-zero pledges won’t mean much to consumers, investors, and regulators unless you can demonstrate that action has been taken and you are making verifiable progress. Stakeholders want to see objective, understandable data to support an organization’s decarbonization claims.

In order to provide this data, companies will need to rely on powerful technologies such as cloud computing, machine learning (ML), intelligent automation (IA), and blockchain. This type of information will also help companies assess where and how to act.

Here’s a closer look at how these technologies can help you achieve your net-zero efforts:

  • Gather granular data. Your technology operation needs to integrate real-time, asset-level data on emissions and consumption with existing internal and external systems and data sources.
  • Collect and manage data in an automated way. An automated system that rolls up emissions data from an asset level to the enterprise level makes it easier for you to demonstrate progress in achieving emission reduction.
  • Gain visibility through insights and analytics. ML and IA detect patterns of consumption and emissions, which enables organizations to make proactive and prescriptive changes, such as when to turn on the lights or adjust HVAC systems based on occupancy patterns. This technology-driven approach helps mitigate emissions and improve overall operational efficiency, and also identifies which assets are under- or overperforming against targets.
  • Leverage digital-trust technology. The marketplace has to trust in the data and know that it’s credible. Blockchain technology helps provide this assurance and objectively answers questions around “how much,” “where,” and “when.”
  • Satisfy stakeholders and share your success. It’s critical for companies to get ahead of claims of “greenwashing” to provide and promote reports that tell their climate success stories. These external releases must be backed by credible and easy-to-understand measurements and metrics of emissions data.

Get ahead of the climate change wave

Stakeholders have high expectations for your organization. Not only do they want you to address climate change. They expect you to tackle the full spectrum of environmental, social and governance (ESG) issues facing today’s business. But once you start down this path, your actions must be credible. That means they must be measured and reported. Increasingly, that also means having the right infrastructure and digital technologies in place—such as Internet of Things, cloud, ML, IA, and blockchain – to capture, measure, and verify emissions data. This technology will serve as the foundation of your ability to generate reports that back your claims and verify your efforts.

For more information on the decarbonization journey, please read our full report.

Footnotes

  1. Source: Sustainable Purchasing Leadership Council, “SPLC Leadership Awards,” January 2021.