Net zero – the companies leading the fight against climate change

As the issue of climate change takes more of the centre stage, the UK government is pushing companies further to reduce their impact. That’s the thinking behind new regulations that’ll have British companies outlining their net zero plans from 2024.

As the deadline approaches, the government’s working on an outline of what a so-called ‘credible’ transition plan looks like.

Many of the largest companies have already released plans to decrease carbon emissions. It's vital for investors to scrutinise these strategies to determine whether the companies they invest in are capable of surviving and thriving in a more sustainable world.

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What is net zero and why is it important?

Net zero is about achieving a balance between the amount of greenhouse gasses emitted into the atmosphere, and the amount removed or offset. To achieve it, companies need to significantly reduce the overall level of emissions they create.

Reaching net zero across the globe is essential if we are to avert the worst impacts of climate change. The drive towards net zero will bring about cleaner energy sources, healthier ecosystems and a more sustainable and resilient future for all.

What are the risks of poor net zero planning?

Companies that publish finger-in-the-air net zero aims without a credible plan to get there are subject to a whole load of potential pitfalls.

If transition plans are considered misleading, it could mean litigation. Oil and gas giant Shell is already battling angry shareholders on several fronts thanks to accusations that its transition disclosures are inadequate and misleading.

Ultimately though, lacklustre net zero plans might be an indicator of other governance failings within the business.

What makes a good net zero strategy?

Firstly, companies will have to publish a plan to reduce their direct emissions in line with the international aim to limit global warming to 1.5-degrees Celsius above pre-industrial temperatures. That means setting a longer-term goal to reduce emissions in line with the UK’s net zero by 2050 goal, and interim targets to stay on track.

The best net zero plans are those that don’t rely heavily on offsetting. This is something most companies have already done.

Action and implementation are what set companies apart. The impact of a company’s net zero plan should be considered throughout their strategy – from financial implications to its impact on company policies.

Businesses serious about reducing emissions will also look outside their own four walls. That means engaging with customers and suppliers and working with industry leaders to create meaningful change, and even consulting with the government where needed.

Next up is accountability. Board-level oversight is an essential part, as is clear responsibility throughout the management chain. Net zero targets should be linked to compensation requirements to urge management to step up to the plate and make net zero part of company culture.

For more information on how to incorporate these and other climate-related risks and opportunities into your investment decisions, explore our responsible investment page.

Two companies setting a sustainability example

Very few companies are doing net zero perfectly. But companies trying to create credible net zero plans now are in a much stronger position to meet the reporting requirements without putting themselves at risk.

Here are two companies we think are well on their way to achieving net zero emissions. 

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Mondi’s journey to net zero emissions

The paper and pulp industry is energy intensive. From running the machines that grind pulp to the high heat needed for paper drying, it’s an industry that will see a clear impact as net zero progresses.

Mondi has set scope 1,2 and 3 net zero targets aligned to a 1.5-degree scenario, and the group’s worked hard to integrate them into the wider strategy. Its commitment to net zero has been made part of top-level decision making, with sustainability goals linked to executive bonuses.

Right now, Mondi powers about 80% of its mills using renewaable energy, most of which comes from waste by-products from the pulp-making process. The other 20% comes from natural gas and coal. The group’s continuing to chip away at that 20% by improving its energy independence and shifting more focus onto renewable biomass.

With firm targets in place, the group’s building out an engagement process that will help suppliers and customers reduce their emissions as well. Mondi is also part of a handful of industry associations working to address issues like climate change and biodiversity.

Mondi’s got the bones of a solid net zero strategy in place, and its commitments are underpinned by integration across the business.

The group’s strong disclosure means investors can keep tabs on performance against these targets and monitor their execution.

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AstraZeneca’s bold steps to tackle indirect emissions

For some industries, transitioning to net zero within their own operations is less of an undertaking. That’s because most of the greenhouse gasses come from their suppliers or the use of their products.

This was the case for pharmaceutical giant AstraZeneca, whose scope 3 footprint is about 20 times that of its scope 1 and 2 emissions combined. That meant that although Astra committed to an ambitious 98% reduction by 2026, the impact would be relatively low if scope 3 was ignored.

With that in mind, AstraZeneca set a target to halve its scope 3 emissions by 2030 and reduce them by 90% by 2045. To get there, the group’s requiring suppliers across key areas to set their own science-based net zero targets.

By engaging with its supply chain, AstraZeneca is accelerating collective progress toward net zero while significantly improving its own impact.

The group’s also been looking at how it can rethink its products to reduce their impact once they’re in consumers’ hands.

The greenhouse gasses used in inhalers are significant contributors to climate change. Studies show they make up some 3% of the NHS’s carbon footprint. That’s led AstraZeneca to redesign its inhalers and roll-out lower carbon alternatives beginning in 2025.

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