Who Pays For Corporate Net-Zero Commitments?

  • The Procurement Department reports on the zero-carbon steel alternative, as well as the 30–60% higher price tag.
  • The Operations Team presents some options on how to source more clean energy, but it too requires premium pricing.
  • Your Sustainability Crew summarizes options for purchasing carbon removal credits, which XYZ will need, since you can’t lower emissions substantially overnight. Another hefty expense.
  • And so on.
  • The institutional investor leading a big ESG equity fund who has warned that they may dump the stock of non-compliant companies . . . and is now asked to remain a supportive shareholder in the face of lower profit margins.
  • The environmental consumer who is mindful of her carbon footprint and votes for representatives with strong climate policies . . . and then faces a much higher price tag when they need a new XYZ car.
  • The employee at XYZ who asked about ESG in his job interview and continued to push the company to take the net-zero pledge . . . and now learns that bonuses will be lower this year due to reduced company profitability.

Can’t we turn to the government?

So what should net zero-pledging CEOs do in the meantime?

  1. Conduct an audit of your emissions; figure out how ambitious you are about reducing them, and declare your goals.
  2. Join a net-zero coalition like the Science Based Target initiative.
  3. Get started.
    But it’s how you plan for what’s next — when you’ve picked the low-hanging fruit and need to start spending big money to decarbonize — that will really matter.
  4. Identify the range and cost of the next identifiable near-term emission reductions opportunities and carbon removal options.
  5. Determine how much you can afford to spend.
    If you’re a very profitable and not-carbon intensive company like Microsoft, then you can probably afford to just get going.
    But if you’re in a commodity business with lower margins — and especially if they are cyclical — you likely won’t always be able to afford much additional expense.
    I suggest that you lock in your commitment by creating a formula that spells out how much and under what conditions you would spend money on decarbonization. For example:
    When operating margins are x% or higher, we will spend y% of operating profits on carbon reduction.
    Of course, the specifics would vary for every company, and it is a decision that needs to be made carefully. Such transparency would be a big step forward.
  6. Get very explicit about how you are going to reduce emissions. Help people understand the constraints that you are under, as well as the efforts you are making.
    Be upfront that the most appealing options are those that are the lowest cost. If high-quality carbon removal is lower cost than your next incremental decarbonization move, you will likely choose the former over the latter. Such discussion will likely stimulate some new decarbonization and carbon removal ideas.
  7. Turn to your suppliers who have made net-zero commitments and ask if they can help you address this specific problem and in exchange you will share the credit.
  8. Look to your customers who are reducing their own carbon footprint — especially other corporations with net-zero commitments — and explain why you need to raise prices, how much of the cost burden you are taking on yourselves, and how you hope you can count on their support.
  9. Reach out to institutional investors, especially the ESG ones, and ask for advice. Ask them, as shareholders, how far they are telling you to go, given your cost projections. What else do they recommend?
  10. Finally, most importantly, lobby the government. Let them know if they want you to decarbonize, you need help. Outline specific requests. For example, they could mandate that utilities sell you more clean energy. They could provide tax incentives. They could support research and development in this field. And of course, they could put a price on carbon. Then your net-zero strategy initiative will suddenly be much less disadvantaged.

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Former CEO of The Nature Conservancy CEO. “Nature’s Fortune” author. Family man, yogi, ice climber, vegan.

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Mark Tercek

Mark Tercek

Former CEO of The Nature Conservancy CEO. “Nature’s Fortune” author. Family man, yogi, ice climber, vegan.

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