It’s not too late to shift our trajectory on climate change. However, to achieve the targets set by The Paris Agreement — and ensure a livable planet for future generations — we need to take aggressive steps to decarbonize our economy.
Put simply, decarbonization is the reduction or elimination of carbon emissions. In the context of business, decarbonization refers to the process of cutting emissions from corporate operations and value chains. While nations, states, cities, and households all have a role to play in drawing down carbon, businesses generate the vast majority of the greenhouse gases disrupting our atmosphere, and therefore offer the greatest opportunity for progress.
Below, we’ll talk about the levers, or initiatives, companies can deploy to decarbonize, the business advantages of applying these decarbonization levers, and how to build and implement a robust decarbonization strategy.
What are Decarbonization Levers?
Decarbonization levers are the tools and mechanisms organizations use to reduce emissions and achieve their climate goals.
While some decarbonization levers apply universally to all sectors, each industry relies on its own set of relevant tools and approaches.
In financial services, for example, a typical decarbonization strategy can include measures like making investments in low-carbon companies and technologies, financing renewable energy projects, offsetting carbon emissions, and incorporating environmental, social, and governance (ESG) criteria into investment decisions.
In contrast, the manufacturing and retail sectors can often focus decarbonization strategies on energy use. Reducing energy waste and switching from fossil fuels to clean power sources like wind and solar can quickly shave emissions. Other levers in this category include the adoption of low-carbon production processes, purchasing materials from suppliers with reduction targets, and promoting sustainable end-of-life practices for their products.
Some industries — like plastic, cement, and shipping — are especially tough to decarbonize. But recent years have brought a spike in innovation and solutions that promise to help. With existing technologies alone, these difficult-to-abate categories could still decarbonize by the middle of the century, according to a report by the Energy Transitions Commission.
Different approaches make sense for different kinds of businesses. Before embarking on a strategy to achieve carbon neutrality or net zero emissions, it’s essential to understand the distinct decarbonization levers available in every sector — whether it is in finance, energy, building, transportation, or manufacturing.
Even within the same industry, each company will require its own unique set of decarbonization levers. Businesses need plans and initiatives that are tailored to their specific needs — there’s no one-size-fits-all approach.
Why are Decarbonization Levers Important for Businesses?
Cutting emissions can create a competitive advantage.
Decarbonizing isn’t just good for the planet. It also sets businesses up to thrive in an economy and regulatory landscape that increasingly reward good sustainability practices.
By implementing robust decarbonization strategies, companies can enjoy the following benefits:
- Financial Savings. Climate-friendly measures like increasing energy efficiency, reducing waste, and cutting down on business travel can keep operating costs in check.
- Competitive Advantage. Visible emissions reductions set businesses apart from their peers. Strategic use of decarbonization levers can help you differentiate your product, respond to consumer demand, improve your brand, boost talent recruitment, and ultimately add to market valuation.
- Stakeholder Satisfaction. More and more investors want to know what businesses are doing to cut emissions and manage climate-related financial risks. In the 2021 EY Global Institutional Investor Survey, 86% of respondents said it was an important part of their strategy to fund companies with aggressive carbon reduction programs.
Improved Brand Reputation. Consumers are paying closer attention to corporate climate action. A plan that includes decisive, achievable, and aggressive steps for decarbonizing helps build customer trust and loyalty — and enhances an organization’s standing.
How to Build an Effective Decarbonization Strategy
Decisive steps will help you reach your climate goals faster.
Setting ambitious climate goals is one thing. Meeting them is another.
According to a recent global survey, 96% of organizations have set targets for reductions in at least one of the three emission scopes (you can read more about scopes 1,2, and 3 here). Yet over the past five years, only 11% of these companies have successfully met their emissions reduction goals.
To stay on track — and contribute to the collective effort to stave off climate disaster — businesses need to design decarbonization strategies that make sense. There are several steps you can take to make sure your climate plan yields meaningful results:
- Understand the importance of decarbonization. Businesses that lag behind on reducing their emissions are at risk — from consumers, investors, and regulators. Aggressive climate action will help you get ahead of regulation and stay competitive. The sooner you can garner internal support for decarbonization, the more likely you are to succeed.
- Choose the right technologies and solutions. Decarbonizing is complex — especially when it involves reducing scope 3 emissions throughout your value chain. Carbon accounting technology streamlines data collection and analysis, fostering transparency and instilling confidence in your goals and progress.
- Identify opportunities for carbon savings. Calculating and tracking emissions across your entire operation and supply chain allows you to zero in on carbon hot spots and make significant improvements, fast. For example, after reviewing their carbon data, one technology company found that it could reduce 30% of scope 3 emissions through relatively straightforward measures like optimizing logistics and getting suppliers to switch to low-carbon energy.
- Set smart emissions reduction targets. Rapid progress relies on well-designed goals. A successful net zero plan will establish emissions targets that are data-driven, ambitious, and actionable. One example is the Science-Based Targets Initiative (SBTi), a collaborative effort to guide companies in setting targets to reduce their GHG emissions in line with the goals of the Paris Agreement. It has also released sector-specific guidance to help companies determine the appropriate targets for scopes 1,2, and 3.
- Develop a timeline and implementation plan. Many organizations make sustainability commitments but struggle to follow through. A detailed decarbonization roadmap that sets clear, realistic deadlines — and identifies the appropriate decarbonization levers to support reduction goals — helps transition from commitment to tangible action.
- Measure progress and adjust the strategy. Accurate data collection and calculations will allow you to easily see which targets you’re hitting and where you’re falling short. This agility enables you to adapt to evolving economic and regulatory landscapes.
- Communicate with stakeholders. Investors, regulators, and other stakeholders will want to see how you’re managing your carbon inventory. Transparently sharing your data can help win their confidence and trust. Frameworks and standards, such as the Carbon Disclosure Project (CDP), Task Force on Climate-Related Financial Disclosure (TCFD), and the EU’s Corporate Sustainability Reporting Directive (CSRD) are helping standardize emissions data reported, giving stakeholders and investors comparable, consistent disclosures they need to understand a company’s climate-related financial risks and how they are addressing those risks.
- Continuously review and improve tactics. The low-carbon economy is rapidly evolving, with new insights and technologies emerging at an accelerated pace. Regularly revisiting your decarbonization plan enables you to discard outdated tactics and capitalize on breakthroughs.
Challenges (and Solutions) in Implementing Decarbonization Levers
Climate teams must overcome data complexity, resource demands, and changing regulations.
Executing an emissions reduction plan can be difficult and resource-intensive. It calls for upfront spending on technology and infrastructure. Teams need to put in the time to plan, monitor progress, and get new systems off the ground.
One of the most common roadblocks teams face is the complexity of calculations and analysis, particularly with scope 3 emissions, which rely on many data points from across the value chain. A study by Boston Consulting Group found that just 9% of surveyed companies are reporting emissions comprehensively — and respondents placed the error rate of their measurements at a staggering 30-40%.
The rapidly changing global policy environment adds a layer of complexity. Requirements from different agencies and governing bodies all vary slightly — you can visit our Climate Policy Library to view policies and regulations globally.
To optimize your decarbonization strategy, save time, and make sure you can keep up with regulatory demands, it’s essential to:
- Align decarbonization levers with your business strategy. The sooner you integrate climate into business decisions, the more nimble you’ll be. By generating a variety of customized decarbonization scenarios, you’ll prepare your company to adapt to changes in competition, technology, policy, and consumer preferences.
- Leverage emerging climate technologies. Digital tools and infrastructure can simplify carbon accounting and planning, reducing complexity and resource intensity, and thereby accelerating results.
- Engage stakeholders early on. Garner support from investors and staff to expedite your journey towards achieving net zero emissions. Corporate leaders should effectively articulate the case for decarbonization and take ownership of sustainability efforts.
- Aim for regulatory agility. A trusted, central reporting system will allow you to manage different reporting requirements, which is especially important if you operate at a multinational level.
- Form climate-focused partnerships. By joining forces with NGOs, suppliers, and industry peers, you can overcome common bottlenecks more efficiently, position your company as a leader, and spark greater collective climate impact.
- Demonstrate your progress with data. Stakeholders are increasingly sophisticated (and skeptical) when it comes to tracking a company’s progress against its climate pledges. To build trust — and facilitate efficient reductions — you need a reliable system for gathering and analyzing data.
Examples of Organizations Successfully Implementing Decarbonization Levers
Unilever, IKEA, and Swiss Re are using different approaches to reduce emissions.
More and more companies are adopting net zero goals and applying decarbonization levers to manage their carbon footprints. Here are some businesses in different industries that are making progress:
The global consumer goods company responsible for brands like Dove and Seventh Generation is taking bold steps to decarbonize their business. Unilever now relies on 100% renewable energy and, through a variety of decarbonization levers, has achieved a 68% reduction in scope 1 and 2 emissions since 2015.
Moving forward, Unilever is focused on slashing scope 3 emissions and is going upstream to cut carbon from roughly 56,000 suppliers who provide it with products and services. The company has prioritized its top 300 emitters and is directing substantial resources to support them in making reductions. Unilever has also committed to replacing fossil-fuel-derived carbon in its cleaning and laundry products by 2030 and aims to eliminate deforestation in its supply chain by the end of 2023.
Because raw materials and packaging make up more than 60% of the company’s direct value chain emissions, these decarbonization levers promise to drive significant improvements.
Home furnishings retailer IKEA has committed to becoming climate-positive by 2030. The company is using a variety of decarbonization levers, including reducing emissions across its supply chain, removing and storing carbon, and supporting the transition to clean energy.
IKEA will phase out fossil fuels and use 100% renewable energy across its value chain by 2030 and has committed $4B USD to support clean energy. It is working to become a circular business, using only renewable and recycled materials with low carbon footprints. By the end of 2021, 56% of IKEA’s materials were renewable, and 17% were recycled.
These decarbonization tactics have not hurt profitably; IKEA’s business grew by 17.6% between 2016 and 2021, the same period in which it achieved a 6.5% reduction in its footprint.
One of the world’s largest insurance and reinsurance companies, Swiss Re, is working to decarbonize its underwriting business. It has stopped providing individual insurance to carbon-intensive companies and is working to phase out insurance for thermal coal. Since 2018, Swiss Re has reduced the carbon intensity of its corporate bond and listed equity portfolio by 42%.
The organization is also financing the development of new sustainability initiatives and renewable energy infrastructure and has launched a partnership with Climeworks to accelerate direct air carbon capture. As a co-founder of the UN-supported Net Zero Insurance Alliance, Swiss Re convenes companies across the industry to speed decarbonization.
Though its operational footprint is modest relative to other sectors, Swiss Re is working to do even better. The company curtailed pollution from its air travel by 73% between 2018 and 2022 and has introduced a carbon levy that incentivizes staff to eliminate emissions within operations.
How Does Technology Enable Effective Decarbonization Strategies?
Carbon accounting tools streamline data collection and analysis, helping businesses chart effective decarbonization pathways.
Though net zero commitments are on the rise, many businesses still struggle to make measurable progress on their climate targets.
One of the reasons for this is the overwhelming complexity of carbon reduction pathways. After measuring emissions, teams often find themselves at a loss, unsure of the next steps to take.
Persefoni teamed up with Bain & Company to address this challenge. Through proprietary research and more than a thousand client cases, Bain has amassed an extensive, industry-specific database of decarbonization levers. Our Net Zero Navigator module draws on Bain’s deep expertise to identify the distinct set of levers that will deliver the highest impact for each business.
Net Zero Navigator takes the guesswork out of climate planning and enables teams to:
- Spend less time on analysis and more time implementing decarbonization initiatives. Net Zero Navigator applies Bain’s research-backed recommendations to your company’s unique carbon footprint, enabling you to easily create, assess, and decide on a plan — so you can quickly move from understanding to action.
- Customize decarbonization pathways to reflect current and planned reduction activities. By configuring the recommended actions and timelines to reflect existing and future climate projects, Net Zero Navigator allows you to accurately assess decarbonization outcomes for your business.
- Track progress against science-based and other reduction targets. Housing your emissions data and decarbonization plan together within a single platform enables you to gain immediate feedback and insights into the impact of your tactics, so you can adapt your strategy in real time.
Looking Ahead — A Journey Toward Net Zero
To avert environmental collapse, we need to cut carbon in every sector. Businesses are moving in the right direction with a steady increase in net zero commitments — but too often, they get bogged down when it comes time to turn those commitments into action.
Technology helps companies move past this bottleneck. Carbon accounting software can make teams more confident in their calculations and empower them to choose decarbonization levers that will generate meaningful results. Our Net Zero Navigator module, for example, allows businesses to cut through an overwhelming amount of data and create customized emissions reduction scenarios.
When organizations are armed with precise data and tailor-made decarbonization plans, they can make intelligent business decisions — and accelerate the global effort to protect our planet.