Excerpt posted with permission from ESG Impact Zone. The complete article is also available.

If you’re a company interested in climate change, zero might be the most important number.

“Net zero” is the lens many businesses are using to address their climate impacts. As of October 2022, more than 8,000 companies globally have made commitments to net zero under the United Nations’ Race to Zero Campaign.

This article is for you if you’re a business leader who has heard the hype about net zero, but is still wondering:

What IS a net zero company?

Why does net zero matter?

How can my company become net zero?

How much will net zero cost?

What happens if we don’t reach net zero?

This article draws on our work at Ivey Business School in Canada, where we work with companies to understand how they are charting their own pathways to net zero.

Learn more about this growing movement of Certified B Corporations using business as a force for good, and sign up to receive the B The Change Weekly newsletter for more stories like this one, delivered straight to your inbox once a week.

What Is a Net-Zero Company?

Net zero is achieved when “the emissions of greenhouse gases to the atmosphere are balanced by removals over a specified period,” according to the Intergovernmental Panel on Climate Change.

Basically, net zero means that a company’s operations — including supply chain, products and services — are not increasing the amount of greenhouse gases (GHGs) in the atmosphere. Net zero can apply at other levels too, from the globe to a country or city, to a household, or to an event or product.

Aiming for net zero means:

Releasing fewer GHGs like carbon dioxide and methane to the atmosphere (for example, by using different energy sources).

Removing the GHGs that are produced from the atmosphere. Greenhouse gases can be removed through natural processes, like growing trees, or potentially through new technologies, like “direct air capture” or underground carbon sequestration.

The idea of net zero gained attention at the 2015 Paris Agreement on climate, with the goal for global emissions to reach net zero by 2050. But progress has to start now. For example, the Science-Based Targets Initiative (SBTi) has a net-zero standard that requires companies to make deep commitments in the near term, typically cutting GHGs by around 50% by 2030.

Ever wonder why there’s so much buzz about net zero? It’s because those GHGs cause the Earth to get warmer. Then, as the air and the oceans get warmer, our weather patterns start to change and sea levels rise. For example, humans have already warmed the Earth by about 1.2 degrees Celsius, which has led to 70% more droughts and 30% more heavy rainfall.

That warming is leading to a lot of trouble. There are risks to human health and well-being. For example, a 2010 heatwave in Russia killed 55,000 people, and the UN estimates that, already, 20 million people per year are forced to leave their homes because of climate change.

There are clear consequences for business, as well, from supply chain and shipping disruptions to higher costs, changing markets, and regulatory shifts. These risks will just get worse as the climate continues to warm.

Experts agree that we need to limit global warming to well below 2 degrees, preferably to 1.5 degrees Celsius, to prevent the worst effects of climate change. Net zero is a way to achieve that goal.

In the 2015 Paris Agreement, many countries made binding commitments to reduce their country’s emissions in line with these limits. Since then, companies are being encouraged — and sometimes mandated — to act on climate.

For example, Canada has a net-zero-by-2050 goal, with a 2030 goal of reducing emissions by 40%–45% (compared to 2005 levels). That comes with a new tax on carbon, making fossil fuel use more expensive.

Major investors and asset managers are also increasingly focused on climate change. These financial institutions that own and control a significant percentage of the world’s largest businesses now see climate change as creating important risks and opportunities for the long-term value of their investments.

Certified B Corporations have used a third-party verification of their impact. Use the free B Impact Assessment to evaluate your company’s impact on all stakeholders, including the environment, your workers, your community, and your customers.

Image from ESG Impact Zone.