Majority of businesses feel they have achieved net-zero ‘quick wins’, so what happens next?

98% of companies have made some sort of progress towards targets

The number of businesses setting ambitious decarbonisation targets in order to reach net-zero by mid-century at the latest continues to grow. According to Climate Action 100+, there has been a 17% year-on-year increase in the number of large businesses setting such targets.

But while corporate net-zero targets continue to swell in popularity, the methods to actually deliver these targets differ. Some are relying on offsets to kickstart the journey, while the concept of “greenhush” – whereby corporates don’t publicly outline decarbonisation efforts – has grown in prominence in recent months.

A new major report from ENGIE Impact, however, suggests that the vast majority of firms are making progress again ambitious decarbonisation targets, but mainly by delivering quick wins, such as public targets setting and decarbonisation across Scopes 1 and 2, where they have direct control and influence.

ENGIE Impact’s 2023 Net Zero Report studies more than 500 major businesses, each employing more than 10,000 people. Of the 505 executives surveyed, 62% claimed that they had made a public commitment to ambitiously reduce carbon emissions across the organisation and 98% of companies have made some sort of progress towards these targets.

While this is an increase compared to ENGIE Impact’s previous report, only 12% of companies rate their ongoing sustainability efforts as “extremely successful,” and 75% say they have already achieved the “quick wins” in their decarbonisation plan.

Quick wins range from publicly announcing a net-zero target to implementing operational improvements to help reduce emissions. However, only 12% of surveyed businesses feel they are “on track to meet or exceed their ambitious decarbonisation goals”, with many facing new challenges now that the low-hanging fruit has been picked.

The report states that “organisations may feel they have exhausted many of the easy fixes around carbon reduction and are starting to be confronted with more challenging barriers to implementation and execution”.

It cites the lack of government incentives, the short-term mindset of the corporate investment cycles and a “war for decarbonisation talent within industries” as major challenges now facing businesses, alongside traditional issues such as a lack of internal, external and cross-functional collaboration.

“Our research reveals signs of progress from corporations around the world, but the process must accelerate, and we’ve learned there are challenges along the way that many leaders don’t anticipate at the beginning of this journey,” ENGIE Impact’s chief executive Mathias Lelievre said.

“Our report identifies the most common barriers to overcome and strategic actions to clear those roadblocks and accelerate decarbonisation.”

Six steps to success 

With many firms having already picked the low-hanging fruit, the report outlines six key challenge areas to delivering on net-zero decarbonisation commitments.

1) Maintain long-term focus and belief

According to the report, 73% of businesses believe that the pressure to deliver short-term return on investment as either ‘a major barrier’ or ‘somewhat a barrier’, showcasing that many businesses are failing to adopt the long-term mindset required for net-zero transformations.

The report suggests that organisations should “double down” on decarbonisation resource allocation to create long-term competitive advantages that could negate the short-term volatility caused by things like the energy cost crisis.

“Strong leadership can disrupt the cycle of short-termism when measuring ROI on decarbonisation investment,” the report states, warning that cutting funding for decarbonisation initiatives now would be a “mistake”.

Fortunately, 69% believe that having superior sustainability capabilities will drive competitive advantages in the long run, with many businesses prioritising investments in renewables and energy efficiency.

2) Establish governance and accountability

The report found that 28% of corporates have enlisted specific actions on decarbonisation for functional leaders across the organisation. However, just 10% have aligned net-zero actions at a facility or site level.

The report notes that there is no silver bullet to building in decarbonisation capabilities, but that some firms are trying to empower decarbonisation actions at local levels. “Every organisation should establish a model that will deliver maximum return on decarbonization investments,” the report adds.

Indeed, 56% of respondents claimed to have implemented opportunities for front-line staff to be involved in net-zero actions. A further 23% will look to introduce these internal collaboration models by 2025.

3) Close the implementation expectation gap

ENGIE Impact notes that there is a “misalignment between the expectations of senior executives and those responsible for implementing decarbonisation initiatives,” which could derail future progress.

The survey highlights this misalignment with 78% of executive decision-makers believing that a leading sustainability strategy will drive competitive advantage, compared to 62% for those surveyed in operational roles. Additionally, 54% of executive decision-makers rate their organisation as ‘considerably successful’ or ‘extremely successful’ in executing its sustainability plan, compared with just 41% of respondents in operational roles.

The report notes that executives are more driven by meeting the needs of external stakeholders such as consumers and investors, while operational leaders are more focused on regulation and reducing costs for the business.

The report suggests that successful organisations will need to realign executive visions with the realistic expectations and know-how of operational leaders to find a middle ground that catalyses decarbonisation.

4) Increase executive accountability

The report mentions the increased risk of greenwashing that can occur if corporates set “empty promises”. The report notes that it is “vital for executives to be held accountable for the success of their organisation’s decarbonization activities, treating carbon reduction commitments as seriously as financial targets”.

However, around 70% of respondents claimed they lack incentive or ownership of strategies at an executive level in order to drive carbon reduction and actually deliver on targets, with 29% citing this as a “major barrier” to progress.

Almost half say their executives have “clear, personal accountability” for decarbonisation targets and 29% expect a formalised accountability structure for these targets to be introduced by 2025. However, only 36% currently link the remuneration or bonuses paid to executives to decarbonisation targets.

5) Activate the right decarbonisation enablers

ENGIE Impact notes that businesses need to use new and evolving tools to help meet targets, namely innovative finance models, carbon pricing, and “investing in decarbonisation data maturity”.

The report finds that 34% of companies have put new financing options in place to drive decarbonisation: these include green bonds or finance-as-a-service models to help ringfence funding for climate action. ENGIE Impact claims that uptake of these models will nearly double in the next three years amongst corporates. Additionally, 32% of the organisations have already implemented carbon budgeting internally.

A common challenge for net-zero targets is that of data, with many corporates struggling to improve the quality of the data they have and collect. This is echoed in the report, which found that 37% of companies have a “single source of truth of decarbonisation data” for the entire organisation, meaning that they have to synthesize different data sources and manually extract relevant data to create better oversight. The report notes that this is “both time-consuming and unreliable”.

6) Collaborate with the supply chains to address Scope 3 emissions

The final point covers the complex issues of supply chains, which can have an emissions footprint more than 11 times greater than direct and operational emissions for corporates.

The report found that 40% of companies have made “no or limited progress” to address Scope 3 emissions and just 13% consider themselves a market leader in terms of supply chain decarbonisation.

While 58% have “clearly communicated” their decarbonisation goals to suppliers, only 38% have introduced supplier commitments into formal procurement contracts, although a further 38% plan to do so by 2025.

The report notes that “successful decarbonisation leaders recognise they cannot achieve long-term carbon reduction on their own”, suggesting that decarbonisation needs to be a shared incentive across the value chain.