Net-zero leadership: Six truths for the modern manager

Words / Fiona Harvey

“This is an all-hands-on-deck situation.” So what’s the appropriate management response to COP26? We asked a leading environment correspondent who attended the global conference for her analysis

The COP26 climate summit, held in Glasgow over two weeks in November, was the biggest governmental event ever hosted on British soil, with more than 30,000 delegates from nearly 200 countries, more than 120 heads of state and government, and representatives from thousands of businesses in attendance. At the conference, nations agreed that holding global heating to 1.5°C above pre-industrial levels was a scientific imperative, and set out plans for sweeping cuts to greenhouse gas emissions in the next decade. While not everything was resolved in Glasgow – the emissions targets set out would lead to 2.4°C of heating, so countries need to return to the negotiating table next year to revise them upward – it still marked a watershed moment.

Governments representing more than 90 per cent of the global economy have now made pledges to reduce greenhouse gas emissions to net zero by 2050. Some of those plans are detailed and some barely more than aspirations, but the direction of travel is clear: the world must embrace a low-carbon future, and there is no going back to the high-carbon past.

For the UK as the host nation, a key step taken in advance of the conference and set out more clearly in Glasgow was an eye-catching pledge to cut emissions by 68 per cent this decade and by 78 per cent by 2035 (compared with 1990 levels), and to reach net zero by 2050. Those targets will be a stretch, as the government’s advisers have warned that we are not yet on the right trajectory and emissions from key areas such as transport and heating remain stubbornly high.

Understand that net zero is now a core principle

Every company will have to make sweeping changes to meet those targets. Yet there is still widespread confusion about what it will all mean. Lloyds Bank found, in research published shortly after the COP26 conference ended, that about half of SMEs in the UK already have a net-zero target, but so far only 34 per cent have introduced measuring and monitoring of their environmental impacts. Four in ten say they do not know what the government’s net-zero target means for them.

McKinsey also published advice recently on how managers should think about net zero. In a paper following up on how “COP26 made net zero a core principle for business”, the authors Harry Bowcott, Daniel Pacthod and Dickon Pinner noted: “In many instances, net-zero commitments are running ahead of companies’ own plans to meet them. Relatively few businesses have yet to make clear, detailed plans for how they will achieve net zero. That must be what leaders focus on now: investors and regulators expect them to do so.”

They point to plans from the UK government, set out by Chancellor of the Exchequer Rishi Sunak in Glasgow, to require listed companies to lay out climate plans by 2023. Smaller, unlisted companies will also face a cascade of pressure: even if Company Little escapes formal regulation, its client Company Big will expect to see a detailed net-zero blueprint, because its performance depends on seeking answers on carbon output from its whole supply chain. As McKinsey puts it: “The basis of competition has changed, and there is now a premium on sound net-zero planning and execution.”

Finance companies of all kinds also want to see more action from the companies they invest in. The communications company Edelman recently conducted a survey of UK investors and found that eight in ten thought companies with a clear net-zero plan deserved a premium from their financial backers, and nine out of ten financiers expected all companies they invest in to establish and communicate a net-zero plan in the next ten months.

With such a strong signal from the banks, managers in all companies need to take note. Iain Dey, managing director of Edelman Smithfield, said: “The data tells us that investors are paying closer attention to what companies are doing, not just saying. Simply disclosing standard ESG [environmental, social and governance] metrics is no longer enough. Stakeholder and employee activism is on the rise, and welcomed by investors. Understanding and adjusting to these new dynamics will be critical for companies wanting to build and maintain trust in a fast-evolving market.”

Educate yourself

For all managers, the key advice is to make a start. Educating yourself on some of the jargon helps here. Something you will hear many times in any discussion on net zero are “Scope 1, 2 and 3 emissions”. These refer to a standard way of reporting on greenhouse gas emissions from businesses. Scope 1 covers direct emissions of carbon, methane or other industrial gases from sources that your company owns or controls, such as emissions from factories, and from vehicles owned. Scope 2 covers indirect emissions, chiefly the emissions generated by the electricity or other fuels that you use. Scope 3 is the widest, which covers all the indirect emissions from the products and services you sell, which includes the emissions generated by your customers as a result.

Controlling Scope 1 emissions is something all companies ought to be doing by now as a matter of course. Many companies have also embarked on or are exploring Scope 2, which requires companies to seek out renewable or other low-carbon sources of energy, for instance by signing an energy contract with a green supplier. Scope 3 emissions will vary the most from one company to another; an accountancy firm helping individuals or small companies to file tax returns, for instance, may have a much smaller Scope 3 carbon footprint than a company making hair dryers or motorbikes.

Set some achievable targets

Even if the scale of the task may seem daunting, it is important to grapple with it. “When creating a climate strategy, take a look at where you can actually deliver results,” advises Richard Chiumento of The Rialto Consultancy, who has mentored high-ranking executives on the issue. “This might be a series of quick wins to get you started, as well as some longer-term initiatives that will be rolled out over time. But everything you are proposing needs to be achievable. No business is going to reach net zero overnight, but every organisation has small actions that they can take to start working towards that goal. Take an honest look at your business and where you can improve, and start there.”

Also remember that while some ways of cutting emissions, such as switching your vehicle fleet to electric cars and vans, may involve upfront costs, many are also likely to save cash over time. Energy efficiency is a key way for companies to save money, and cutting down on all forms of waste – from raw materials to food in the canteen – will reduce a company’s carbon footprint and add savings to the bottom line, particularly in today’s world of high inflation and supply problems.

Measure the impacts of your business

Steve Evans, chief executive of XeroE, an emissions-free transport platform, recommends that managers start with measurement, to understand the impact of their business, perhaps using some of the many tools available online. “This will help you identify where the quickest savings can be made. It will also give you a benchmark, so that managers can demonstrate the progress they have made to their stakeholders,” he said.

He gives the example of companies that sell their goods online: they are likely to discover that as much of 93 per cent of their emissions are from the outbound delivery of their products. Conducting thorough preliminary investigations into where emissions come from will pay off.

But managers also need to understand that there may be costs involved in embracing net zero, Evans adds, and be prepared to stick to their guns. “[This] is going to have a cost investment. Other stakeholders in the company may be against the change, and you will need to defend it. Managers will also need to decide who is going to pay for this,” he said. Some businesses could choose to absorb any costs, he adds, treating those costs as an investment in their marketing and brand equity, and some may pass them on to customers, for instance through a premium for a green version of their goods and services.

Develop a new mindset

As well as setting targets for the whole economy, the UK government is also working to decarbonise. Each government department will have to draw up plans. At the Ministry of Defence, Richard Nugee CMgr CCMI points to changing mindsets as a key element: “We need to change the behaviour, and ultimately the culture, of Defence throughout its operation. To do this, we need strong leadership at all levels, a clear narrative as to why we need to act, to adopt formal mechanisms, processes and structures, to enable the change to be embedded, and then to train the staff in the skills to be able to maximise the impact in their specific area.”

Richard Nugee CMgr CCMI

That need for cultural change extends far beyond governments, adds Dave Munton, head of UK markets and clients at Grant Thornton. “There needs to be a change in mindset in which sustainability moves from being something ‘side of desk’ to something that is ever-present and a factor considered in all key decision-making. We know from recent research that one of the main barriers holding back mid-sized businesses in particular from progressing their ESG agenda is a lack of understanding of what is required. Measurement is fundamental. To make meaningful change and understand where to focus, you need a true understanding of a business’s current impact, plus continual monitoring and reporting.”

Managers worried that they lack the skills to enact net-zero policies can also seek help from their peers. Groups such as the Race to Zero, spearheaded for the UK’s COP26 presidency by business champion Nigel Topping, offer the support of an international network. Many existing business groupings and professional membership bodies now offer help and advice to members on meeting the challenges.

The urgency stretches beyond national governments to “non-state actors” such as regional governments, cities and other organisations. Topping, a UN climate champion for COP26, told the High-Level Event for Global Climate Action during the second week of the talks that: “The momentum among non-state actors is only set to grow. That is clearly welcome given the mountain left to climb. The science is clear. We’re not transitioning nearly fast enough. Turning today’s momentum into implementation is absolutely the order of the day.”

Michael Bloomberg, founder of Bloomberg and the UN secretarygeneral’s special envoy for climate ambition and solutions, backed up his call: “Climate change is a challenge that can’t be solved by federal governments alone. It will also take cities and states, businesses and universities, tribal nations and faith organisations, and everyone in between – because this is an all-hands-on-deck situation.”

Never, ever give up

The key thing is not to give up. Thanos Papadopoulos and Maria Elisavet Balta, management academics at the University of Kent, say that this is particularly important for smaller businesses: “For SMEs, which constitute around 99 per cent of all businesses, the path to net zero is far from easy. Although SMEs may have a relatively modest footprint related to their short supply chains and fewer employees, they continue to share facilities, outsource manufacturing and other supply chain nodes, and pay energy bills themselves. This makes the transition to other types of energy particularly challenging.”

They warn: “SME owners may feel overwhelmed when it comes to knowing where to start and how to set priorities on sustainability targets, which may lead to their abandonment.”

But abandonment is no longer an option. The outcome of COP26 may have been mixed, but the direction of travel is clear, and the imperative to meet the legally set carbon budgets of the next decade and beyond is unarguable. Managers must comply with the law, and the law stipulates reaching net zero. Putting it off will be good for no one: not for the planet, not for your company, and certainly not for your career.

This COP felt different

“Walking around the halls of COP26 in Glasgow, bustling with the entourages of world leaders, business moguls and even the occasional royal, the sense of a massive global occasion was clear. I have been attending UN climate COPs, some major and most minor, almost annually since 2004. This was my 15th. But it was clear from the start that this was going to be different. I was at Joe Biden’s press conference one day, interviewing China’s head of delegation in a cramped windowless office the next. I queued for an audience with Barack Obama, and I rushed across the halls to be in the front row as Bill Gates urged businesses and financial institutions to back up the tech leaders in the fight against climate chaos. The place crackled with energy, purpose and urgency, but also an undercurrent of fear. Would it all be enough?”

About Fiona

Fiona Harvey is an award-winning journalist who has covered the environment since 2004, at the Financial Times and subsequently for The Guardian. She has written extensively on every environmental issue, from air pollution and biodiversity to ocean plastic and climate change. Her assignments have taken her as far afield as the Arctic and the Amazon, and she has attended almost every UNFCCC COP since 2004, including reporting live from the 2015 Paris conference. She has twice won the Foreign Press Association award for Environment Story of the Year, and in 2020 she was named in the Woman’s Hour Power List of 30 Top UK women, focusing on Our Planet.