Net Zero Industries

Net zero for small and medium businesses?

On January 25th, the British Standards Institution (BSI) published their “Net Zero Barometer” a report on how UK businesses are managing the transition to net zero. BSI has an interest here, as they produce and publish the PAS 2060 standard (developed with other bodies, such as Defra and the Carbon Trust). It’s the only internationally recognised standard for the demonstration of carbon neutrality.

The BSI surveyed more than 1,000 UK businesses on their understanding of, and plans for, net zero.

The survey found that just one in five small businesses had a net zero target, and with such businesses accounting for 99.9% of UK companies, and around half of business emissions, they concluded that: “if businesses continue at their current rate of progress, it is highly likely they will fall short of achieving the Government’s 2050 net zero target.”

So what is holding them back?

The answer appears to be a combination of the need for more guidance (82%), disruption caused by Brexit and COVID-19, and a concern about costs of implementation, particularly for smaller firms.

The need for smaller firms to have more information is understandable, as larger organisations have had more exposure in this area. For example, the EU Emissions Trading System (EU ETS) started in 2005 and compelled large power generators and large energy consumers, such as oil refineries, offshore platforms and industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals, to cap their greenhouse gas emissions and buy tradable emission allowances for any excess. As a result of Brexit, the UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS on 1 January 2021.

Other large companies have also been brought under compliance with the introduction of the Streamlined Energy and Carbon Reporting framework (SECR) on 1 April 2019. The SECR placed a company’s carbon footprint into the public domain for the first time. Large companies need to comply and these are defined as those that have two of the following criteria:

  • Turnover greater than £36 million
  • Balance sheet > £18 million
  • 250 employees or more

Clearly, these schemes have given larger companies more exposure to the concept of measuring and reducing carbon, whereas small to medium companies (SMEs) have had far less involvement.

Carbon taxes to encourage net zero?

There is a very good chance that the information being provided to smaller companies will improve. As noted above, if businesses continue adopting net-zero targets at their current rate, the government will fail to meet it’s 2050 target for net zero. Given that this is a legally binding target, it’s unlikely that the government will let this slide.

On a slightly more pragmatic front, the Chancellor, Rishi Sunak, has already discussed the possibility of carbon taxes. As we come out of lockdown and look to rebuild the economy, tax rises seem inevitable. Carbon taxes for smaller companies might be seen as an acceptable way of generating additional tax revenues, while aligning with the green recovery message.

The disruptions of COVID and Brexit, meanwhile, must surely now recede.

Clearly, cost is always an issue for SMEs. But the issue here may be the inability, thus far, for the SME to easily quantify the benefits of a net-zero business to set against those costs.

It is clear, then, that there is work to be done if businesses are to achieve net-zero targets in order that the country can meet its own obligations.

Demystifying Net Zero – What does Net Zero actually mean?

 One of the most telling statistics in the BSI report was that only 34% of those companies surveyed were aware of the definition of net zero, which, according to Department for Business, Energy and Industrial Strategy (BEIS) is:

“Net zero means any emissions would be balanced by schemes to offset an equivalent amount of greenhouse gases from the atmosphere.”

That’s a good place to start, because it lets us know that there are two parts to a net-zero strategy – reducing emissions, where possible, and then offsetting the remainder.

Net-zero certification

A second element is having a certification to work to, and the BSI has achieved this by developing PAS 2060, which sets out the requirements for both achieving and then demonstrating carbon neutrality. PAS 2060 is also applicable to any organisation, covering carbon neutrality in all areas of business, from buildings and manufacturing processes to transport, products and events. PAS 2060 also provides credibility for those organisations wishing to demonstrate net zero, removing the cynicism and doubt caused by vague ‘greenwash’ claims.

How do you become a net zero carbon business?

The BSI PAS 2060 standard sets out four stages for organisations to progress through as they move towards a net zero business. These are:

1) Measure

This first step involves measuring the carbon footprint of your organisation. This should be done using recognised standards, including ISO 14064-1 or GHG Corporate Protocol.

These measurements should include emissions in three ‘scopes’ identified by the GHG Protocol, namely:

Scope 1: Direct Emissions – from owned or controlled sources, such as company buildings and vehicles

Scope 2: Indirect Emissions – from the generation of purchased electricity, heating, cooling and steam.

Scope 3: All other indirect emissions – from purchased goods and services, supply chain, transportation, distribution, business travel, staff commuting, investments and leased assets.

Measurements should include all of Scope 1 & 2 emissions and any Scope 3 emissions that contribute more than 1% of the organisation’s total footprint. This measurement stage is clearly comprehensive but there is some flexibility in excluding emissions from sources where it would not be economically or technically feasible to do so. These exclusions must be justified and documented.

2) Reduce

The next step is to produce a Carbon Management Plan containing the following elements:

  • Time-scale
  • Carbon reduction targets
  • Methodology to achieve those reductions
  • Plan for offsetting remaining emissions

Carbon reductions can be recorded in absolute terms, i.e. total emissions are reduced, or in terms of carbon intensity, i.e. carbon emissions are reduced per £ of turnover or unit of production.

3) Offset

Clearly, it will rarely be possible for a business to completely eliminate emissions. These remaining emissions must therefore be offset. PAS 2060 sets out a number of approved schemes, where organisations can purchase certified carbon credits.

4) Document & Validate

This final stage sees the organisation document and verify its progress towards carbon neutrality. PAS 2060 requires the public disclosure of all relevant documentation, alongside a “Qualifying Explanatory Statement” (QES), confirming that standards have been met.

Organisations can self-validate, if they have the inhouse expertise to do so, or use an external party to ensure robustness and increase public confidence in the statement. The organisation can also choose to have its carbon neutral status verified by a registered certification agency.

Net zero – why is it necessary?

In the introduction to this article we saw how the BSI survey showed that “if businesses continue at their current rate of progress, it is highly likely they will fall short of achieving the Government’s 2050 net zero target.”

Companies need to move towards net zero if the government is going to meet its target. Bearing in mind this is a legally binding target, the government is likely to introduce legislation to make sure it happens. This could be in the form of incentives, certainly, but the introduction of some form of carbon tax also seems likely. In other words, sooner or later, it’s likely that organisations will be compelled to comply.

Why move now?

Organisations may be tempted to simply wait until the government forces their hand with incentives or taxation. But there are compelling reasons to move sooner.

We have outlined above how larger companies are already being required to report on their carbon footprint. Many are turning this administrative overhead into an advantage by using that data as a starting point to certify as carbon neutral. To do this, as we have seen, they must factor in Scope 3 emissions in their supply chain.

This means that many SMEs that supply larger organisations are already being asked to reduce their carbon footprint or commit to net zero. Conversely, suppliers who are already net zero are gaining competitive advantage when bidding for those contracts.

Organisations working towards net zero also enjoy enhanced brand reputation with customers, and better employer reputation with candidates and existing staff. For listed companies, net-zero businesses can be attractive to potential investors – with many ‘green’ funds and institutional investors favouring net-zero businesses.

Is Net Zero Possible for smaller companies?

The BSI survey showed clearly that SMEs are lagging behind larger organisations when it comes to committing to net zero. This is understandable. Smaller organisations are likely to have less inhouse resource to dedicate to projects and less finance available to invest.

That’s why it’s important that we develop net-zero services that are as widely accessible as possible. At Locogen we’re working with a variety of clients- manufacturers, drinks producers, IT companies and public sector organisations – to help them achieve their net-zero goals.

The key is to be properly flexible – responding to every client’s own circumstances to provide a perfectly tailored service. That means sometimes just reviewing the client’s data to validate that it meets PAS 2060 guidelines. For other clients, we manage the process of data gathering, preparation of evidence, and submission to a certification body. We also offer a full turn-key service, for clients who want us to completely manage their long-term transition to net-zero carbon.

Please contact us if you would like to arrange an initial call to discuss your own net-zero ambitions.

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