Businesses can look to get ahead by conducting energy audits and TCFD assessments to work out energy and emissions-intensive areas where they can invest in energy efficiency to save costs and emissions. Following this, increasing on-site renewables can help provide a further buffer against today’s volatile fossil fuel markets.

Key takeaways:

Most businesses have not quantified the benefits and risks of net zero, and that is a high-level risk to be carrying The costs of acting on net zero are around five times lower than the costs of not acting. Businesses should:

• Get a handle on their energy use
• Have a plan for renewable energy
• Start working with their supply chains
• Look at business travel
• Think about operational change
• CDP has a useful framework for SMEs looking at decarbonisation

Do businesses have a good handle on net zero?

Simon: “The short answer for the majority is: no.

But let’s deconstruct the question for a minute – if we look at surveys from YouGov, 50% of all large businesses don’t have any net-zero strategy at all. Furthermore, only 25% of SMEs have a plan.

Of those businesses that do have a plan, 50% have a formal budget and 25% have worked out what it would actually cost them in direct terms.

Thus, in a nutshell, only one in ten large businesses and one in twenty small businesses actually understand net zero to the fullest extent. For those that do have a budget, most of them are only figuring out the costs of reducing the energy use or something that classifies as a direct cost.

The part that is yet to be extrapolated, by even those who do have a plan, is how to reduce their scope three emissions [emissions within their supply chains] and, critically, what the cost of making their business more resilient is.

For example, how well their business responds to heat stress or how are you going to deal with sea-level rising and flood risk. These are areas where a fifth of our customers’ suppliers will experience a serious resilience risk between now and 2050. So, if you have a fifth of your supplies impacted – then this is very important.

In conclusion, the answer is no – businesses on the whole do not have an awareness of the costs and benefits of net zero. For this to be unquantified for a business is a high-level risk to be carrying.”

Do businesses have a good handle on net zero?

Simon: “Tackling net-zero has multiple strands to it. The most sensible strand for a business to tackle now is to reduce both Scope 1 and 2 emissions [direct emissions from site or emissions from purchased electricity]. These two emissions scopes generally tend to have a direct cost attributed to them.

Making your business less wasteful helps with your carbon emissions. Generally, it is cash generative over reasonable time periods and, in some cases, there are instantaneous paybacks for it which can reduce economic pressure. The basics of energy management should be dealt with, along with waste avoidance like water conservation.

Although there is a political lens that will run through this, underlying action on climate change and net zero is legislation. There may individuals who make noise about the suitability of net zero but we are a very long way from there being a parliamentary majority to change legislation.”

How do the costs of net zero compare with the costs of not acting?

Simon: “There is a general rule that if you take a long-term view – now until 2050 – most situations show that the costs of acting are about five times lower than the costs of not acting.

If you are thinking about the costs that will come down the line because you are not climate resilient, these include a very high carbon offsetting cost – this could be £60–120 per tonne of CO2. Your brand could be weakened by the actions that you have not taken.

If you are taking a long-term view, acting on net zero is a no-brainer.

If you are taking a short-term view, I would go back to the same point on economic pressure. Net zero and carbon footprints cover so many aspects of the business so you need to bear in mind you have different levers that you can pull – you can act now on things that will support your P&L directly.

But to say it is too expensive to act on climate change is an over-simplification. It is just not an appropriate conclusion when it comes to the data. The reality is that there is value in any business to be created now from taking action. Sometimes it’s about looking under the bonnet and understanding where that is.”

Where should businesses focus when starting this journey?

Simon: “The best way forward is to look at five important points.

First, get a handle on your energy use. This means looking at utilities, and Scope 1 and 2 emissions – things you can directly control and how you can use less of them.

Second, everyone should have a plan for renewable energy. This is a really easy action in terms of being a purchasing decision, it supports the transition we are trying to achieve overall and is a particular win for small businesses.

Third, start working with your supply chain to develop a plan. See how you can collaborate, ask them to respond to certain questionnaire points to better understand your value chain. Set up an annual data exchange so you can get their information – this will help you.

Fourth, look at business travel – your employees commuting, are there opportunities for electrification in company vehicles? Opportunities to cut travel costs and emissions?

Finally, think about how your business is going to change. Is it going to look different in the future? Do you sell a product that will have to change? For example, if you have anything that is in the cattle supply chain – leather, beef, dairy. This might impact you if you are in furniture or hospitality. How will this affect your business in light of the fact we know that we have to remove a third of methane emissions to reach global climate targets?

There are other wider challenges such as sea level rises that will affect the logistics of certain ports in the next 30 years.

Now is the time to get under the bonnet to understand these things. There are climate resilience maps that allow us to see where sea rises are going to impact most or where heat rises will have the greatest effects.”

How far ahead should businesses be planning?

Simon: “It depends on whether you are a small or a large company.

If you are a small business, making a long-term plan to 2050 is probably a little too far. However, for a large business you would expect them to have a plan that covers their entire carbon footprint. You would expect them to have a high-level projection of emissions up to 2050. In order to understand the full scope of your emissions and whether you’re aligned with climate science, this is necessary and important.

You need to be able to understand what your risks and opportunities are, and they can be as basic as a SWOT analysis or as detailed as a full scenario modelling piece for TCFD [the Task Force on Climate-Related Financial Disclosures – which the largest 1,300 UK businesses have to do now]. You’d need to also do a detailed audit of your buildings, transport, processes and supply chain. Finally, you need a detailed annual action plan with objectives and key results within the next 12 months, and at top level explaining what you want to achieve in top tactical terms in the next three years.

You’d expect all of that except the projection for any business. The risk and opportunities piece can be completed to various depths depending on who you are.

There are more complex elements for franchises, and for example what you do at the end of the lifecycle of waste. Manufacturing businesses are better placed in terms of the quality of data they have, but tend to be less well-structured on the policy side, whilst policy is often stronger in the non-manufacturing sector. There are often nuances by sector.”

What are the options for external reporting for SMEs?

Simon: “In terms of methodologies to look at, uniformly all businesses should look at the Science Based Target initiative. This is considered best practice in terms of aligning with climate science. The website helps you figure out what level to target.

Another option, depending on a business’s level of ambition, is to sign up to the Race to Zero scheme. Beyond this, you would start looking at CDP [formerly the Carbon Disclosure Project] and TCFD. TCFD is not directly relevant to small businesses at this stage of the policy journey.

CDP has an SME framework, so there is definitely something for both small and big businesses. It is useful to benchmark where your company is at each year.”