Leading on net zero carbon from the Board: Guide for beginners

Board members, the time is now for you to take action on net zero carbon strategy for your business. 

Boards will play a central role in deciding the direction and speed of net zero carbon transition. To be effective, Boards require a case for change, become a platform to consider scenarios, risks and opportunities and activate executive management for strategy development, setting of targets and implementation plan. 

As a Board member interested in taking a proactive stance, you may follow a phased approach to engage your Board and increase preparedness of your company. The driver for engaging resources and time towards net zero carbon is managing your investment risk in terms of access to and cost of capital. Investors are firmly on the path of integrating carbon footprint in their metrics. 

This article outlines Board basics for net zero carbon with specific examples. You may be on the board of an energy company, a company from one of the energy intensive industries (e.g. steel, cement, aluminium, transport) or a company with a lighter carbon footprint. The challenge of the century, decarbonisation, relates to all, though the level and extent of the effort your Board and company will need to dedicate to achieving the goal of net zero carbon might vary. [If you are an advanced or intermediate in zero carbon, reach out with detailed questions.]

Phase 1 - Create Case for Change: Understand where you stand

As a Board, individually and collectively, you want to understand where your company stands on carbon in the context of the global changing landscape and your industry. In order to do that, you can educate yourself and your Board on few key questions:

• What are the impacts of climate change at large and how does it affect your industry? (environment related - extreme weather patterns, changes in biodiversity and crop composition or human related - increased migration, political instability, changes to people's livelihoods).
• What are the business impacts of climate change? (changes in operations, customers, investors, policies and regulations)
• What are the major sources of CO2 emissions in your industry? ( 80+% are related to energy, divided into specific fuels and electricity consumed in your operations and offices, the remaining 20% stem from agricultural activity or land use changes)
• What is the level of carbon urgency? (weeks, months?)
• What are the specific triggers for net zero carbon strategy that will resonate with your industry? The successful companies and industries use at least one of the following triggers that you can choose from: 

1. Pressure from investors 
2. Pressure from customers 
3. Pressure for compliance with mandatory government targets 
4. Decreasing cost of low carbon technologies 

Example: A traditional industry with net zero carbon ambition is steel. An initiative for net zero steel started a few months back and relies on changes in energy sources from coal to green hydrogen and use of carbon capture and storage.

As a specific next step, you can schedule an agenda point for your Board meeting to initiate the discussion and position your Board as a platform towards understanding carbon scenarios, risks and opportunities for your business. For this discussion, you may want to invite an external speaker to provide an introduction to the topic.

Phase 2 - Activate your Board: Platform to drive net zero carbon vision

You will want to spend time gathering information for a deep dive discussion with the Board using the analytical resources from within your company. The discussion will need to touch on specificities of your business in five main areas for which you may require analysis and background from your Executive Management:

1.Carbon footprint of your business, today and based on your forward looking strategy 5 to 10 years For an absolute volume you may be using your revenues or production or operation metrics as a proxy using readily available conversion factors. For example for a transport services provider, you will use kg of CO2 per km travelled, for an aluminium producer it will be tons of CO2 per ton of aluminium. You will also want to understand the split of your business carbon footprint for scope 1, 2 and 3 at least directionally to understand the scale of the challenge in each. For the majority of the business scope 3 is the largest share, though there could be a more balanced view (like for BASF) or scope 3 can be completely dominant (like for Microsoft).

Examples

BASF (Source) has a nice visual describing its carbon footprint across different categories.

Microsoft (Source) uses a simple visualisation that demonstrates the dominance of Scope 3.

2. Situation of your customers. You want to understand whether they are likely to request full visibility on your carbon footprint and ways you are planning to conduct carbon reduction. For example if you are in the freight business, your customers will want to communicate to their clients the carbon intensity of the transport of their goods. 

Examples

• OOCL container logistics company offers a simple calculator of carbon footprint for its customers. (check it here).  
• Hydro, aluminium producer, offers a certificate for its low carbon aluminium product. (check it here).

3.Compliance requirements in relation to carbon reporting. This is a dynamic area that is evolving from a voluntary, self-reporting to mandatory requirement mandated by government regulation in specific countries. The Task Force for Climate-related Disclosures has been so far the gold standard and their publications provide a good guide. The mandatory regulations are under preparation in several jurisdictions. The European Union is planning to publish its Sustainable Corporate Governance initiative in 2021, which could alter the landscape towards more stringent reporting requirements. 

Examples

In the meantime, the way companies report vary and I include here examples of corporate reports that are leading the way in the market:

• Microsoft reports on the larger topic of environmental sustainability with carbon as one of the pillars. Check the Carbon Negative chapter in the report.
• Maersk Sustainability Report covers carbon reduction as one of the three applicable areas. Check the Decarbonising Logistics chapter.
• Lafarge made some incredible progress in decarbonising cement production. Their Sustainability Performance Report includes a chapter on Climate and Energy.

4.Mapping out of risks and opportunities related to your carbon footprint. This mapping will be used as an input into your carbon strategy planning and revolves around several dimensions which may represent a risk or opportunity for your business. The following is a non-exhaustive list:

• Risks: Policy and legal landscape, technology, markets, reputation, physical risks, investment and access to capital
• Opportunities: Efficiency, diversification of energy sources, markets, new products and services and resilience, investment and access to capital

You will want to evaluate the financial implications for each of these risks and opportunities to quantify the impact on your business. 

EXAMPLE: This is how Sanofi, a pharmaceutical company, reported on risks and opportunities related to climate change in its business in 2020. 

As a specific next step, you may request a report on net zero carbon strategy development from your executive management, entailing scenario planning reflecting your risks and opportunities. 

As a Board you can decide to continue this discussion in this setting, or create a dedicated Sustainability and Climate Change Committee. Increasing number of Boards do so based on a report from 2019 by Board Agenda. 

Phase 3 - Monitor development of corporate strategy, targets and implementation plan for net zero carbon vision

This is when your company’s executive management gets fully involved. The process to follow will be (1) Detailing of your carbon footprint, (2) Development of decarbonisation strategy, (3) Identification of targets on a timeline of 2030-2050 and (4) Development of a roadmap with specific initiatives for carbon reduction by 2030. 

The Board monitors and reviews progress of these actions (which will be detailed in my next article) and if you decide to create a Sustainability Committee, its members can get down to the details of your net zero carbon strategy and implementation. 

What else?

In parallel, you will need regular updates as a Board, on changing situations in the carbon reduction landscape. You may want to monitor at least carbon related policies and regulations, investors requirements, carbon price and selected technology developments that relate to your line of business (e.g. if you are in transport, hydrogen and electric mobility). 

I am keen to engage with companies that are early in their decarbonisation journey or those that want to dive into a specific technology or a process issue.

Reach out to me to schedule a session with Enrupt so we can explore the direction and pace of your decarbonisation journey.

About Enrupt

Building our road to net zero carbon is not easy. COVID-19 taught us that our systems are fragile and we need a more sustainable way of managing our today and the future. Enrupt brings together innovators in the energy sector to accelerate our path towards net zero carbon. Enrupt offers leadership advisory, implementation support and innovation services in the field of decarbonisation. We don’t dream of a better world. We create it. Together. 

I started Enrupt to build companies of the future using zero carbon energy solutions. Our community includes startup innovators and industry professionals . Our online and offline events create a platform for an informed debate on the latest industry trends and future possibilities. Being a part of the community also gives you access to Enrupt’s resources and partners. 

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