The Net-Zero Transition: A Necessity for the Free Market

by | On Our Mind

vision du monde

It is undeniable that companies have a significant environmental and social impact. Under increasing pressure, they must show they are taking real action toward a low-carbon, net-positive economy.

According to a study by Global Justice Now, of the world’s 100 most powerful organizations, 69 are corporations,. Businesses cannot operate on the margins of societies that must deal with the consequences of climate change and pollution, nor can they ignore the profound social inequities and changes that are shaking up the world of work without future consequences. Above all, our economic system – if it is to evolve to survive – must stop choosing to ignore it’s embeddedness in an ecosystem of limited resources.

Since the industrial revolution, the market economy has been driven by frantic, continuous growth that is not sustainable. Scientists have been demonstrating this for decades. The obsession with GDP, an indicator whose creator, Simon Kuznets, provided precise counter-indications, leads us to choose between growth and recession in a simplistic, either/or fashion.

Yet companies have enormous power to influence the course of events. In particular, they can mobilize their value chain in order to put it at the service of change. Unfortunately, in an economy based on the quest for profit, subject to a system that does not consider social and ecological externalities in the measurement of “economic health”, they do not have much concrete incentive to move towards a more sustainable model. It is emblematic of this dilemma that a large gap persists between actual societal risks and CEO’s awareness of such risks, as illustrated recently by Marius André, Director of Business Development at COESIO, in a comparative exercise between the World Economic Forum’s annual Global Risk Analysis report and PwC’s annual CEO 2023 report.

In fact, according to a report by Oliver Wyman examining our local context, Canadian companies are on a 3.3°C warming trajectory (compared to a global target of 1.5°C, according to the Paris Agreement), while the majority of organizations that report emissions have not adopted clear, specific, science-based reduction targets.

Joining the movement
The transition to a low-carbon economy is challenging business leaders to deal with a social, geopolitical, economic and physical environment that requires new ways of managing, working and producing. Whether they are SMEs or economic giants, organizations must manage environmental, social and reputational risks, many of which are new and unpredictable.

Companies are therefore under pressure. Financial institutions and the public expect them to behave appropriately, to demonstrate that they have made the shift to sustainable development. They must show leadership and imagination and change the way they do business.

Everyone’s turn
Some companies have already started adopting ESG (environmental, social and governance) practices to transform their business. This is only good as a first step: ESG is mostly about transparency and compliance, which, alone, is not comprehensive enough to truly transform a company. Every company has a duty to set specific targets to decarbonize their value chain.

An increasing number of entrepreneurs and business leaders understand that, as citizens, they must also evolve personally and use their influence to encourage their organizations to transform themselves. The leading actors know that this transformation does not only entail constraints and risks: many sustainable development initiatives positively influence profitability by improving performance and, above all, management tools.

That said, today’s leaders may find it difficult to see a path clearly, as the answers to the environmental challenge are multiple, often vague, and the data incomplete. How do you define your social and ecological responsibility? How do you include externalities in a business plan and integrate social and ecological values into a system designed around a conception of economic success inherited from the industrial revolution?

Dual materiality as business as usual
The key may lie in dual materiality: a concept that aims to consider the impacts of the company on the environment, but also those of the environment on the company.

When regulations and measurement tools make it mandatory to include externalities in financial statements, economic success can only be achieved while respecting the social and ecological contract. Efforts to do so are underway. Globally, international accounting standards are being transformed to incorporate sustainability with the creation of the International Sustainability Standards Board (ISSB) by the IFRS Foundation in 2021. This transformation translates into a requirement for increased transparency on the part of companies, who will have to disclose and measure their impacts. How has an organization reduced its GHG emissions or energy consumption? How has a manufacturing company changed its manufacturing techniques to reduce occupational health and safety risks? Has it audited its supply chain to ensure that its foreign suppliers are treating their workforce well? Has it adopted new packaging standards to reduce its environmental footprint?

These initiatives, among many others, are commendable, but they need to be quantified to avoid the charge (and failure) of greenwashing, and above all, to measure their financial impact. Leaders must therefore must champion these initiatives personally: by mobilizing their entire organization to draft a plan establishing clear targets and then identifying the concrete means to achieve them.

A Fragmented Ecosystem
As with any major transition, there will be many scenarios and ideas to test before a successful way forward is reached. The market for tools to support the ecological transition of organizations is exploding. According to the Fonds Écoleader website, Quebec has no less than 350 experts in sustainable development, and numerous certifications (BCorp, EcoVadis, ISO, etc.) and measurement models are available to companies. How do you find your way around this maze of possibilities and choose the right tools?

Currently, barely 5% of Quebec companies are “advanced” in measuring their GHG emissions, according to the Barometer of the Transition of Quebec Companies, produced by the organization Quebec Net Positif. To promote the transition, public-private collaboration could help to design a simplified offer of public programs: streamlined, easy to access and consistent.

Where to start?
As Québec Net Positif explains, a “low-carbon economy” is one that is low in greenhouse gas (GHG) emissions and resilient to climate change. The first step for a company is to measure its environmental footprint and establish GHG reduction targets as established by the Science Based Targets initiative (SBTi) and the Greenhouse Gas Protocol.

To get even closer to a model of social and ecological responsibility, a company can undergo certification by a third-party – BCorp for example – ideally covering most of the critical social and ecological factors in depth. This certification can be a mobilizing and inspiring factor for employees, while acting as a thermometer for the company’s impact. With a point system format, the BCorp certification and others allow for concrete positive actions to be taken quickly. However, it is important for companies move beyond the standard formats to set targets on specific themes relating to their own value chain in order to maximize the efforts initiated and devoted to the certification process.

What is the ideal scenario towards which a company should aim? To become “net positive”. This requires measuring the overall impact of its value chain against it’s services and goods produced, including the positive social and ecological impact of its business model. To achieve this, the company must try to answer a big question: what are our indicators of success, and do they correlate with our economic success?

Ultimately, the goal is to find out if our society and ecosystems are better off with (or without) our companies.

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