Net zero: How do businesses position themselves?

In October 2021, CPA Australia, along with nine of the world’s largest professional accounting organisations, committed to achieving net-zero greenhouse gas (GHG) emissions in their operations and to report annually on progress towards this goal.

What is the background to such an initiative, and what are the key considerations in making such a commitment?

Through the 2015 Paris Agreement, 188 parties have agreed to hold the increase in the global average temperature to well below 2°C above pre-industrial levels, pursue efforts to limit the temperature increase to 1.5°C, and achieve net-zero emissions in the second half of this century.

In pursuit of these goals, and as part of an ambitious cycle, countries are required to progressively strengthen their targets – nationally determined contributions, or NDCs – every five years.

The net-zero emission imperative is further emphasised in the Intergovernmental Panel on Climate Change (IPCC) special report on global warming of 1.5°C, in which it warns that rapid and far-reaching transitions are needed across economic sectors and industrial systems to limit global warming to 1.5°C.

According to the report, limiting warming will require carbon dioxide emissions to reach net-zero by about 2050, followed by neutrality for all other greenhouse gases.

The coalescing around the net-zero imperative is evident in the activities of institutional investors.

For example, Climate Action 100+ is an investor-led initiative that seeks to systematically engage with GHG emitters and companies that have significant opportunities to drive the clean energy transition.

The initiative has more than 615 investors responsible for more than US$55 trillion (A$74 trillion) of assets under management and is coordinated by regional investor networks. The investment coverage amounts to more than 80 per cent of global industrial emissions.

“Real economy” firms are increasingly cognisant of the impact that climate change will have on their operations, their suppliers and customers, and are thus responding either directly to the Paris Agreement or to instruments that have an alignment to climate change driven mitigation and adaptation measures, again centred around the goal of net-zero.

For all organisations, the making of such commitments should not be taken lightly. More than lapsing into the old trap of “greenwashing”, which has often plagued confidence in sustainability reporting, shortcomings around net-zero statements potentially have real consequences over and above reputational damage.

 

"Our actions are driven by a deepening awareness of our reliance on the natural environment and the imperative for humankind to arrest and redress the cumulative harms that now imperil is all."

 

The April 2021 supplementary update to Climate Change and Directors’ Duties Memorandum of Opinion (the highly influential Hutley SC and Hartford Davis opinion) notes that companies making net-zero commitments require “reasonable grounds” to support the express and implied representations contained therein. A failure to do so potentially exposes the company and its directors to claims of engaging in misleading or deceptive conduct.

Even for companies that are unlikely to face hostile member resolution at annual general meetings, the inclusion of such commitments in annual reports or other formal documentation may well amount to “an assertion by management”, the veracity of which may be subject to assurance scrutiny.

Furthermore, practical changes in managing and reporting on an emissions reduction trajectory, particularly where the primary emissions are indirect, as is the case with a services-based business, should not be discounted. The international dialogue on climate change has shifted from a focus on carbon budgets consistent with the Paris Agreement, to a focus on achieving net-zero emissions by 2050. The shift signals an increased urgency on reducing emissions – both direct and indirect – to zero by all economic sectors, with an increased focus on the full value chain of emissions.

What further reasons would there be for a medium-sized member services organisation, such as CPA Australia, to commit to achieving net-zero emissions? Looking beyond the more immediate objectives of leading by example and ensuring members can adapt to new challenges and opportunities, it is the idea of a shared collective responsibility. Our actions are driven by a deepening awareness of our reliance on the natural environment and the imperative for humankind to arrest and redress the cumulative harms that now imperil us all.