Are we acting sustainably? To get an honest answer to this question we need to take a close look at a number of strategic issues that are key in forming climate-friendly behaviour and making a real contribution to bringing about a sustainably greener economy. These include:

• defining the long-term ambition to achieve net zero by no later than 2050
• embedding decarbonisation in the corporate strategy
• making appropriate changes to the business model
• revising the supply chain from procurement to the end of the product life cycle
• ensuring that monitoring and reporting take place
• developing innovations and technologies that will help achieve the defined decarbonisation target
• ensuring the related funding
• and communicating the intended commitment to all internal and external dialogue groups in a transparent and appropriate way.
  

Key strategic tasks

Decarbonisation encompasses all of a company’s efforts to reduce greenhouse gas emissions within the value chain to zero (‛net zero’). This concerns direct and indirect emissions, including those that are explicitly upstream and downstream of the company (known as ‛scope 1, 2 and 3’). With regard to the regulatory framework (see Change needs a framework, PwC, 2021), decarbonisation is a strategic objective for companies and serves as an anchor point for making appropriate changes at the level of business strategy and operations.

Companies striving for emissions neutrality must decarbonise their entire value creation within a certain time frame. This process is aligned with a clearly defined reduction curve, in which compensatory measures must actively remove emissions from the atmosphere and not just reduce them. As decarbonisation touches every link in the value chain, a company must orient not just itself, but also its suppliers and customers towards its targeted emissions goals. Moreover, as part of its commitment to net zero, the company should engage in the debate on public policy to accelerate a broad-based transition to a green economy. It is critical that all those involved interact with each other.

Being aware of the challenges and responding accordingly

Net zero is a challenging goal that comes at the end of a long road. Numerous obstacles need to be cleared along the way. Companies looking to transform themselves to reach emissions neutrality should involve their stakeholders in their net-zero commitment and in the steps needed to overcome the following obstacles:

• The commitment to net zero is not mobilised across a company’s entire operational value chain.
• Net zero governance is not defined. Key stakeholders who have to decide on the measures are not included.
• There are no established approaches to engaging with policy makers in order to develop a sectoral approach to CO₂.
• An understanding of the meaning of a net-zero pledge is lacking. There is a lack of instruments for measuring or disclosing a reduction in carbon emissions.
• Different opinions prevail within the industrial sector. Like-minded people do not follow the same approach.
• Too many challenges are being addressed at the same time without developing a roadmap for low-emissions production. Such a roadmap would need to indicate the priority areas with the greatest impact on emission reductions.
• Assessing and handling indirect greenhouse gas emissions (scope 3) is complex. In addition, manufacturing companies, which are at the forefront of overall value creation, are uncertain about how far their responsibilities go.
• Decision-makers need to understand the benefits and risks from a business and financial perspective, e.g. pricing, incentive schemes, subsidies to fund the transition, taxation.
• Few companies develop an understanding of the costs and introduce internal CO₂ pricing. This is not best practice yet.
• Not all companies have the internal resources to analyse data and identify the main sources of emissions or how to address them effectively.
• Smaller companies often do not have enough bargaining power with their suppliers and are therefore not able to manage their supply chain.

Proceeding systematically and step by step

So what comes next? This is the question most decision-makers will be asking themselves when starting to implement a net-zero commitment (see Committed to a greener Swiss economy, PwC, 2020). We recommend a step-by-step approach.

1. Draw up a greenhouse gas balance

The first step is to conduct an inventory of the current emissions situation. This will help identify the main points of emissions along the value chain and address them in a targeted manner (see Figure). In most industries, these relate in particular to emissions associated with the procurement of products and services, in addition to emissions that are directly or indirectly controlled.

2. Set reduction targets

The second step involves formulating specific targets for reducing greenhouse gas emissions. By establishing a reduction curve, a company can prepare for regulatory ambitions such as Switzerland’s Climate Strategy 2050 and send a message to its dialogue groups. It can have its climate strategy validated by the Science Based Targets Initiative (SBTi), which more than 350 large companies worldwide are already doing today. SBTi is a partnership between the non-profit organisation CDP, the United Nations Global Compact, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). It drives ambitious climate action in the private sector by enabling companies to set science-based emissions reduction targets and align them with the Paris Agreement’s ambitious levels.

3. Run through options

This step analyses what measures can be used to reduce greenhouse gas emissions cost-effectively along the entire value chain. Various measures are compared against each other for their efficiency. The goal is to structure the measures within the applicable time frame – not to get to net zero as quickly as possible.

4. Implement and monitor measures

To implement the measures as the fourth step, it is useful to prepare a reduction roadmap. The roadmap design will depend largely on when which solutions can be realised as cost-effectively as possible. This is because not all solutions are available today at attractive prices, but they may become interesting and critical in the medium to long term.

5. Ensure reporting and auditing takes place

A company’s public reporting on sustainability or environmental, social and governance (ESG) factors discloses information on its own impact on climate and its approach to climate change, for example, to dialogue groups such as financial market actors, customers and the interested public. Common reporting standards and frameworks such as the Global Reporting Initiative or the GHG Protocol require climate-relevant information to be in a structured form. And the counter-proposal to the Corporate Responsibility Initiative (CRI), which has come into force, has made disclosure requirements stricter (see A unique opportunity to become a responsible business role model, PwC, 2020). To meet standards like these, a company should gradually build up and expand its reporting of climate-relevant key figures, targets, concepts, opportunities and risks. An external audit of these disclosures will raise its credibility.