Understanding the real hurdles to jump before reaching net-zero emission goals
Even as more and more Fortune 500 companies make plans to reach net-zero emissions, the challenges they face become more and more daunting. Specifically as it pertains to Scope 3 emissions, which are those created by both suppliers and customers.
“It’s been really encouraging over the last 12 to 18 months to see the progress, particularly in the backdrop of COVID and all of the other challenges where this could have all been shoved to the side,” said BCG global chair Rich Lesser, during a virtual conversation with Fortune CEO Alan Murray on Tuesday. They discussed how these pledges, however fraught, are encouraging given where the same CEOs were even just last year.
Scope 3 emissions are hardest to tackle
Fifty-eight percent of Fortune 500 CEOs said in a recent Fortune survey that they have a plan to achieve net-zero greenhouse gas emissions by 2050 or sooner. That’s up from 36% just a year earlier. But just half of those 58% have included a plan to tackle Scope 3 emissions.
And many companies that made these pledges have found that Scope 1 emissions are easy to tackle. That’s because Scope 1 emissions only include those the company itself produces in manufacturing their products or providing their services. But without Scope 3 emissions in those plans, the entire effort can ring hollow. Plus the same companies might try to skirt the rules by outsourcing Scope 3 emissions so they aren’t responsible for addressing them.
“For so many downstream producers, whether in food or auto or construction or electronics, most of their emissions footprint is not from the carbon produced in their own operations. It’s from the carbon that was in the supply chain,” Lesser said. “It’s the steel or the battery in a car, or the wheat that’s grown with fertilizer in a loaf of bread. And that’s a challenge.”
It’s Scope 3 emissions that confound these same CEOs, Lesser explained, because they look at both the upstream emissions caused by suppliers who ship the products and the downstream emissions caused by consumers who use those same products. That’s two different directions that must both be tackled in the same step.
Both Murray and Lesser agreed that without Scope 3 compliance, these promises mean little for climate problems.
“If I’m not tackling how we fly, and whether we pushed the change to sustainable aviation fuel…if we don’t make those kinds of commitments, then simply saying, ‘I’m net zero on Scope 1 and 2’ is not worth so much,” Lesser said.
Another difficulty in reaching net-zero emissions is measuring progress toward those goals. There are a million ways to reach net zero, but not all methods are created equal.
Lesser talked about a major tech company that opted to use green cement to build one of its newest sites. They went that route in an effort to reduce emissions, even though it meant spending a lot more on the project. It wasn’t until they completed the work that they realized that the way emissions are calculated showed they were doing worse toward reaching their goals because of how much they spent on the cement.
“They were so struck by the way that emissions factors are calculated that they would actually look like they were getting worse because they were spending a lot more per ton on cement,” Lesser said. “It’s saying we’re doing worse when we’re spending so much more to do better.”
Lesser said technology can help in this arena, and so can good leadership. In the future, technologies that are costly now will likely be more affordable, and can therefore be used to reduce emissions.
“In order to fully decarbonize—and that is the goal here, to fully decarbonize—we need technologies that are unaffordable today to become affordable in the 2030s and ‘40s or we will not get the last 40%, give or take, of carbon out of the air that we need to get,” Lesser said. “So the question is, How do we accelerate those technologies?”
Lesser said one fix is for the government to offer better incentives to create more supplier momentum.
“Governments have enormous power in terms of pricing, such as the pricing of carbon, which is the one thing almost every business is called for,” Lesser said.
While there is much progress to be made toward net zero, Murray applauded those companies taking the initiative to have conversations about those goals now—even if the same companies won’t put milestones or procedures in place to reach them yet.
“A couple of weeks ago with Doug McMillon, the CEO of Walmart, their Project Gigaton, which is basically going to all their suppliers and saying, ‘Let us help you figure out how to get a gigaton of emissions out of the products you’re putting in our stores,’” Murray said. “That’s got to be a very clear signal to anybody who wants to sell into Walmart.”
Murray also pointed to Søren Skou, the Danish CEO of shipping company A.P. Moller-Maersk, who pledged to reduce emissions on the company’s shipping boats. Lesser said Maersk initially pledged to make eight of its ships carbon neutral and is now up to 13.
“They’re making a massive investment in wind farms to create hydrogen fuel for his ships, even though there’s no indication right now that that’s an economic investment,” Murray said.
Lesser said transparency will be key for those companies still looking to make plans to reach net-zero emissions, and having conversations early is important.
“Even having those conversations now with suppliers would be game changing,” Lesser said. “Even if the actual decisions are a few years away.”