Net zero has quickly become a must for businesses large and small to enter the global discourse surrounding swift climate action. Businesses are familiar with The Net Zero Tracker (NZT), which uses key criteria to analyse the quality of net-zero targets. Additionally, an eager audience of over 3,000 have joined the Race to Zero, an initiative of the UN Framework on Climate Change to rally the largest ever alliance committed to net zero carbon emissions.

Over the years, investor appetite for net zero has and will continue to increase. Investors with trillions of dollars of capital are increasingly scrutinising environmental, social and governance (ESG) factors before deciding where to put their money. Businesses that are ahead of the curve with their transitions will certainly benefit from earlier access to capital, but it’s not too late to gain first mover advantage.

Just remember, not all net zero pledges are created equal, and each business has its unique role to play in decarbonising and taking actionable steps. There are multiple advantages of transitioning from “dirty” to “clean” business models, ranging from increasing investor interest and building capacity with stronger partnerships to attracting the right talent, reducing operating costs, and tapping into new markets. The good news, particularly for SMEs, is that it doesn’t have to be difficult or expensive to get ahead of the curve, and it starts with a commitment to radical transparency.

Beware of carbon accounting tricks

Both SMEs and large businesses can achieve net zero when the full range of their entity’s activities are included. However, some companies, such as those in utilities, currently calculate their net zero activities without including certain geographic regions, whereas others discount their assets (such as mining). Others don’t include all of their business structures. It is important to maintain a complete, evolving greenhouse gas emission inventory (GHG) to align with international best practices, leaving no company division out – even if it impacts timelines.

Use the circular economy as your secret weapon

The circular economy (CE) can help turn your net zero pledges into tangible plans by cutting to the core of the problem and introducing lower-impact ways to use materials. SMEs can particularly benefit from this as it requires reassessing existing business lines, and determining how they can share, lease, reuse, repair, refurbish and recycle existing materials to keep them in use for as long as possible. Circular practices have many positive compounding effects like controlling increases in raw material costs, enhanced innovation, access to new markets, and building brand equity to stand out.

However, as a rapidly developing space, there are also considerations due to the increasing commercialisation of CE principles. To counteract this, entropic overhead is a lifecycle measure that can assess the best purpose for a product based on its environmental efficiency in several scenarios. For example, whether to build a new chair with virgin materials, versus building it with repurposed materials, or using the chair for building something else with more value (upcycling), etc. Technical insights based on science will allow a business to flourish by assessing the different energy costs they would bear to create an object with long-term utility and avoid doing environmental and reputational harm, despite being well-intentioned.

You can teach an old business new tricks

In many markets, incumbents have been slow to adapt to the pace of start ups driving clean, green, climate-tech solutions. Encompassing everything from renewable energy to electric vehicles, start ups often break the glass ceiling with technological breakthroughs that are centred around net zero transition. Even for more established companies, it’s never too late to enter the still-maturing clean-tech space, provided they move quickly, diligently, and work collaboratively. Investors may be attracted to traditional businesses demonstrating continual adaptation and resilience through innovative thinking linked to a long-term sustainable strategy.

Think beyond utility bill reductions

Whilst both scope 1 and 2 emission reductions offer financial and environmental benefits, the increasingly elusive scope 3 may offer some insights to shift the paradigm from operational efficiency to value creation. In short, scope 1 emissions consider direct emissions from company sources, and scope 2 consider indirect emissions from energy purchases. Scope 3, on the other hand, are indirect emissions produced outside the company’s direct control through it’s value chain – such as upstream emissions from the production of raw materials, and handling, distribution and usage of the final product. Accurate oversight and reporting of all 3 scopes are of paramount importance for realistic goal-setting. However, scope 3 accounts for a substantial share of total emissions, despite being excluded in many firms’ disclosure, acting as a barrier towards net zero targets. A more thorough understanding may allow a company to reconfigure its value chain and promote open-source knowledge sharing to build capacity and trust amongst stakeholders. Furthermore, it can help collectively build healthy supply chains that can meet climate targets, offering a more collaborative route to business model transformation.

In-set where possible, off-set when necessary

Carbon offsets allow businesses to look further afield to neutralise their business emissions. The concept of carbon insetting refers to an investment made by a business towards emission reduction projects within its own supply chain. For example, if a business procures products from a variety of agricultural suppliers, other businesses can collaborate with these suppliers to implement regenerative agricultural techniques or afforestation efforts, building trust, partnerships and enhancing the social and economic aspects of their supply chain. The main difference between insetting and offsetting is that insetting focuses on amplifying the good in the business supply chain, whereas offsetting aims to minimise the bad.

Offsets offer private businesses the means of procuring carbon credits to get to carbon-neutral status. For instance, Company A could offset its unavoidable emissions by purchasing carbon credits from company B that is in the business of renewable energy. Firms should be careful to buy quality offsets that meet specific standards, recognised by a credible program such as the Verified Carbon Standard. Offsets, however, hold their own set of intangible issues. They have, in the past, undermined the credibility of firms’ climate and sustainability strategies, and have been criticised as another form of “greenwashing” into net zero, without any substantive change within their supply chain. More significantly, poor quality offsets can be financially taxing, and offer no real benefit to the environment, potentially doing more harm than good. Firms should also be aware that concepts such as double-counting and additionality have the potential to jeopardise the positive impact of their carbon exchanges.