Most companies lack comprehensive plans for achieving their emission targets. This is, to some extent, understandable given the evolving nature of regulations, innovation and government direction. Without knowing which technology is likely to produce the greatest breakthrough, and with uncertainty over future government incentives and/or penalties, there is an inclination to adopt a ‘wait and see’ approach.
However, despite these concerns, decarbonization should still be treated like any other corporate strategy, with robust financial and operational plans and forecasts — including funding — that set a path to meet the publicly-announced commitments. Failure to do so can bring significant regulatory and business risks.
Our eight steps for a decarbonization disclosure plan
1. Disclose your decarbonization governance. Net-zero is a critical issue and boards should have oversight of decarbonization, set the right ‘tone from the top’, disclosing how often they discuss the plan, and detailing how they monitor and oversee progress. Management’s role in set-up, monitoring and implementation should also be clarified.
2. Be transparent about your emissions covered in your commitment. A detailed breakdown of targets shows the world that your organization has a serious plan for addressing climate change. And, by explaining why certain emissions are not included, companies can improve credibility.
3. Disclose your full and intermediate net-zero targets. The target year for the net-zero commitment should not be later than 2050, to help ensure that plans incorporate existing or emerging technologies within predictable scenarios, avoiding uncertainty. An intermediate target date (say, 2030 or 2035) is less distant for investors and stakeholders and puts pressure on companies to act quickly.
4. Present a detailed, credible net-zero plan. Companies should present a comprehensive decarbonization strategy that encompasses the entire value chain and clarifies which emissions are covered. The plan would include different rates of progress for different parts of the organization, as well as scenarios for slower and faster rates of decarbonization across the supply chain, manufacturing, etc.
5. Describe how the plan is integrated into your corporate strategy. The plan should be a core business strategy, not just fitting into it. This means outlining, in some detail, how execution of the decarbonization plan is cascaded within the organization, incorporated into business planning and aligned with the overall strategy. In particular, companies should anticipate the future impact of carbon pricing by introducing an internal carbon price, as well as using other mechanisms to inform investment decisions.
6. Highlight the plan’s risks, challenges and uncertainties. These include the Fluctuating decarbonization costs, Political development, Countries’ future energy mix, Technological breakthrough, Availability of carbon removal techniques, Price of carbon offsets and carbon price, and Controversies over technologies.
7. Detail your plan’s impact. Decarbonization involves a major shift and companies should identify how the plan impacts their strategy in terms of business models, investments, and upstream and downstream value chain including products, business lines, R&D and operations. They may need to invest in new skills for employees, board and executives, which could involve upskilling, partnerships with third parties and academia, as well as defining new roles, responsibilities and organizational structure.
8. Review and report annual progress. Decarbonization plans should be dynamic and evolve as uncertainty reduces over time, as companies get closer to targets or intermediate targets. By setting metrics, it’s possible to measure, track and report for an internal and external audience. Investors in particular will likely want to know what’s been achieved versus the plan, and how the organization compares against peers.
The excerpt was taken from the KPMG Thought Leadership publication entitled Net-zero commitments: Where’s the plan?