Navigating the path to Net Zero

Over the past few weeks, I have been participating in the University of Sydney 's online Net Zero Sprint led by scientist Professor Deanna D’Alessandro, the Director of the University's Net Zero Initiative, and engineer and decarbonisation expert Dr Gordon Weiss.

The Sprint introduces participants to the knowledge and tools needed to navigate the complexities of carbon accounting and reporting and to develop reduction strategies within their organisations.

In the introductory session, participants were invited to reflect on how we understand the term ‘net zero’. Has this term become a buzzword, or does the wide use of ‘net zero’ mean that we are moving more meaningfully toward real and demonstrable emissions targets?

Worldwide, there are many organisations that exist to help guide us toward decarbonisation on a global scale. But how effective is that guidance and does it help achieve the overall balance we need between the amount of carbon dioxide and other greenhouse gases and the amounts that can be removed from the atmosphere?

Climate 101

At the start of the Sprint we considered climate change basics including historical context and the Greenhouse Effect. Earth's climate has changed over millennia, but recent rapid increases in global temperatures are driven by human activities, especially the burning of fossil fuels.

Greenhouse gases like carbon dioxide trap heat in the atmosphere, leading to global warming. Current CO2 levels are unprecedented over millions of years, contributing significantly to rising temperatures.

With current warming about 1.4-1.5°C above pre-industrial levels, temperatures exceeding 2°C could significantly impact many sectors and present increased and unpredictable risks in future. At the same time, sea level rise and more intense storms will increase risks to homes and businesses in vulnerable areas.

“If we don't at least reach a balance in in the world emissions versus the amount of greenhouse gases that are taken up by 2050 then it is recognised that the Earth's ecosystems will continue to be under a significant threat,” Professor D’Alessandro explained.

“It’s not just about reducing demand, mitigating emissions and moving as fast as possible to zero emissions, energy and industry. We’re also talking about the need to remove greenhouse gases using a portfolio of approaches.”

A portfolio of solutions

Australia’s net zero target by 2050 is underpinned by the current Labour Government's commitment to achieve 43% emissions reduction by 2030. Targets for decarbonising our economy are enshrined in law. 

To reduce demand as fast as possible, our efforts must be first on increasing energy efficiency, then moving to zero emissions in energy and industry. Both global and national policies focus on reducing fossil fuel use, and this approach to mitigating climate change has direct implications for businesses.

There is also the issue of addressing climate change risk.

A recurring theme throughout the Net Zero Sprint is the need to accurately assess climate risks from unpredictable data as climate extremities continue to exceed previous limits. With climate anomalies becoming the norm, the climate drivers once relied on to predict risk are changing in unpredictable ways.

Rising temperatures and extreme weather pose all kinds of risks, from damage to physical assets such as road and rail networks to significant impact on business operations, financing and governance.

None of the solutions are mutually exclusive.

What’s need is a parallel transition, with different proportions of reducing demand and moving to zero emissions energy required for different sectors and different types of companies.

Mandatory reporting of non-financial disclosures

As businesses are now expected to accurately disclose and report on climate impacts, the issue of how they quantify risk is increasingly important. Companies must communicate transparently and with integrity on their carbon emissions and net zero strategies.

So how do you accurately estimate climate emissions?

A key driver behind the Net Zero Sprint is the suite of new reporting requirements targeting large climate emitters, including requirements for disclosure of climate related risks.

As of January 2025, many will be required to disclose their emissions and provide evidence of an abatement plan, consistent with the International Sustainability Standards Board (ISSB).

Eventually, climate risk disclosure will become the standard.

“You will need to know what the market is doing – from your customers to competitors and suppliers. You need to really understand the risk that your business is exposed to and how you measure, quantify and report it,” warned Dr Weiss.

Penalties will be applied to those falsely promoting products as carbon-neutral – other terms used include climate neutral, CO2 neutral, carbon zero, climate positive.

A further consideration is that companies are expected to commit to reducing carbon emissions along their entire value chain, not just within their immediate operations.

“The lesson here is that climate change is going to have an impact on your business over coming years. It will impact physical assets, but it will also have an impact on financing, governance and business value more broadly. And that means that your business should start adapting today,” said Professor D’Alessandro.

Accounting for Scope 3

The impacts on businesses range from the scope of carbon emissions to climate policies and risk, both physical and financial. Understanding Scope 3 emissions will become increasingly important, noting that carbon accounting categorises emissions as follows:

• Scope 1: Emissions a company produces directly (e.g. burning fuel in fleet vehicles
• Scope 2: Emissions a company produces indirectly from purchasing energy  (e.g. electricity use in operations)
• Scope 3: Those emissions for which a company is responsible indirectly through its value chain (e.g. From products it buys from a supplier or from its products once a consumer uses them).

While many companies may set ambitious targets for Scope 1 and 2 emissions, some omit Scope 3 emissions altogether. This is concerning, as Scope 3 is often where the most significant omissions can be found in a value change.

So how can a business plan their pathway to becoming carbon neutral?

When looking at how businesses can identify climate risks and create a pathway to reach their emissions targets, they must be accountable for progress made against those plans. And most importantly, to ensure integrity and transparency, they must be realistic about climate risks and do more to neutralise emissions rather than purchasing offsets instead of genuinely aiming to reducing them.

When it comes to achieving net zero targets, there can be a fine line between communicating legitimate climate commitments and greenwashing. Australian businesses found to be making bogus net zero claims risk being found out by the ACCC, actively on the hunt for potential greenwashing. 

Understanding and managing the full scope of emissions to address climate change effectively is crucial for businesses of all sizes and types. Adaptation strategies will become even more important for future proofing over the next few years.

With large carbon emitters setting ambitious goals to address their entire global supply chains, there will be many opportunities for research and risk professionals as well as small to medium enterprises to be part of the solution, whether it be through innovative science and technology solutions or new accounting tools.

What’s clear is that sustainability is a journey. There is still so much to figure out.

“It’s a journey for us as individuals. It’s a journey for all stakeholders. And we see this evolution across regulators, investors, businesses around the world, as sustainability permeates their awareness and their activities,” explained Wai-Shin Chan from HSBC’s Climate Change Centre of Excellence.

Now halfway through the Sprint, I'm looking forward to learning how businesses navigate some of the carbon accounting tools available to help identify their emissions and mitigate risks. I'll also have a chance to think about ways to develop a strategic approach to managing climate risk, setting emissions reduction targets, creating decarbonisation strategies, identifying effective measures for reducing emissions and increasing energy efficiency.

Learn more about the Net Zero Sprint https://plus.sydney.edu.au/net-zero/