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A Pathway to Net Zero for SMEs: An Introduction

Have you ever opened Google and wondered what exactly they mean when they say they have been “carbon neutral since 2007”? Or what Amazon really means when they commit to being Net Zero by 2040? If the answer is yes, then you’re not alone. Research shows that 89% of people in the UK have heard of Net Zero but only 14% claim to have “a lot” of knowledge about the concept.

So, what does Net Zero actually mean? Why is Net Zero important for small and medium sized enterprises (SMEs)? How can SMEs become Net Zero?

Put simply, Net Zero means achieving a balance between the amount of greenhouse gas (GHG) produced and the amount removed from the atmosphere. In business terms, this means reducing your GHG emissions as much as possible. According to the Net Zero Standard, businesses should reduce their full value-chain emission by 90-95% and then offset the remaining emissions.

  • Greenhouse gases (GHG) include:

o Carbon dioxide from burning fuel.

o Methane from cattle and other ruminants, decomposing organic waste, manure, leaking natural gas, land transformation and rice.

o Nitrous oxide from agriculture through fertilisers and crops.

o Fluorinated gases mostly from refrigerant leakages and other industrial processes.

o Nitrogen trifluoride which is primarily produced in manufacturing.

  • An organisation’s full value chain includes their scope 1, 2 and 3 emissions which are often referred to as direct emissions (e.g. from company owned vehicles, manufacturing processes), indirect emissions (i.e. purchased energy such as the electricity used to power your lights), and non-owned indirect emissions (i.e. emissions from your supply chain – e.g. business travel and end-of-life treatment of sold products).

  • Carbon offsetting refers to investing in projects that remove carbon dioxide from the atmosphere, such as reforestation and building renewable energy, to compensate for your emissions.

  • A carbon footprint (also known as GHG accounting) is the emissions you produce across the three “scopes.” It includes all GHG emissions but is usually measured in equivalent tons of carbon dioxide (CO2-e).

  • Carbon neutral is slightly different to Net Zero. It means that a company achieves a balance between the amount of CO2 it emits and offsets. This doesn’t necessarily mean that a company is Net Zero, as they might only be offsetting their emissions and not actually reducing them. As stated earlier, Net Zero is all about reducing GHG emissions to zero.

Why is Net Zero important for SMEs?

The science shows us that to prevent the worst impacts of climate change and maintain a healthy planet, global temperature increase needs to be limited to 1.5°C above pre-industrial levels (prior to 1750 CO2 levels remained constant but began to rise after this date). To achieve this, emissions need to be reduced by 45% by 2030 and reach Net Zero by 2050. Every country, sector, industry, and individual has a role to play.

SMEs account for about 99.9% of total businesses in the UK and globally they represent about 90% of all firms. Therefore, collectively, SMEs have a key role to play in ensuring we reach Net Zero.

But we also understand that sometimes goodwill is not enough to engage a whole organisation. So, we have set out five “corporate” reasons why carbon reduction initiatives and Net Zero are now a business essential.

Net Zero pledges by governments now cover 91% of the global economy and these pledges are trickling down to SMEs. The UK was the world’s first major economy to set a legally binding target of being Net Zero by 2050 and other countries like Sweden, France, Denmark, New Zealand, and Hungary quickly followed. But what does this mean in practice for SMEs? Well, in the UK for example, companies wishing to apply for major government contracts must commit to being Net Zero by 2050 and publish a carbon reduction plan.

Larger companies are expecting their suppliers to act: To gain access to lucrative supply chains, contracts and growth opportunities, SMEs need to set carbon reduction targets. For example, Unilever is asking suppliers to adopt carbon reduction targets and prioritising partnerships with new suppliers who already have emissions targets in place. And Microsoft has also made carbon reduction an explicit aspect of its procurement process and plans to expand its internal ‘carbon fee’ (a charge paid by each business division per tonne of carbon they produce) to emissions from suppliers.

Carbon reduction initiatives can save you money: Improving operational efficiency and resource management is a great way to reduce costs. For example, Pend Books, an independent bookstore in Whithorn, Dumfries and Galloway, improved their energy efficiency by insulating their walls and windows, switching to LED lighting, and installing a biomass pellet boiler. These actions led to estimated annual savings of £4000.

Employees want to work for sustainable companies: In a recent survey, nearly 70% of individuals in the US who worked for large companies said that if a company had a strong environmental agenda then they were more likely to work for them long-term, while around a third said they put more time and effort into their job when working for a company with a sustainable agenda. In the UK, research shows that 53% of the workforce say sustainability is an important factor in choosing a company to work for. In New Zealand, almost 70% of respondents to one employee survey said it is important or very important for organisations to focus on sustainability.

Customers want to buy from sustainable companies: The Global Sustainability Study found that 85% of people had shifted their purchase behaviour towards being more sustainable in the past five years. This is especially true of Millennials and Gen Z who over the next decade will become the most important consumer groups.

In the articles that follow, we will take you through the best ways to measure your carbon emissions, set reduction targets, and the most cost-effective carbon reduction initiatives to help your business on its journey to Net Zero.

Written by Rosalind Kainyah MBE, an authority on Sustainability and responsible business with over 30 years of combined legal, international, executive and board level experience, and Helen Stickler, Co-Founder of Triplo ESG.


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