The tough truth behind corporate net zero sustainability targets

Businesses are increasingly committing to ambitious sustainability pledges. Yet what that means is complicated and opaque, and some companies are struggling to make an action plan.

When Monika Liikamaa and Denise Johansson left their corporate jobs to start Enfuce in 2016, a Finland-based payments-processing platform, they wanted to create a firm with impact.

“We need to come to work and believe that we can make the world a better place,” says Liikamaa. As female founders, aged 48 and 42 respectively, they took a significant career risk: women receive less than 3% of global venture-backed funding. Yet they decided the gamble was worth it if they could build a company with a legacy that lasted beyond their own tenure. For Liikamaa and Johansson, that meant establishing Enfuce at the outset to be net zero by 2040.

Many companies are making similar commitments to not add to the total amount of greenhouse gases in the atmosphere. Operating in a world where carbon dioxide levels are rising, populations globally are experiencing heat records and extreme weather events are becoming increasingly common, some founders are making these moves based on their own ethics. Others are experiencing outside pressure from investors, employees and governments.

This means businesses are increasingly releasing sustainability plans that feature keywords such as “net neutral”, “zero- or carbon-neutral”. They typically commit to reaching the targets in the next 20-to-30 years.

Net Zero Tracker, an independent group that follows corporate pledges, found that half the world’s largest 2,000 publicly listed companies have a net zero target. In the past 16 months, the number of companies with these aims has risen 40% from 702 in June 2022 to 1,003 in October 2023. The organisation reports the corporate world is in “phase three” of the transition: they’ve accepted a climate issue, then made a pledge; now, they’re delivering on commitments.

While companies have taken strides to act on their pledges, there are still outstanding questions about the transparency and meaningful steps towards change, leading both consumers and even UN leaders to call for tougher standards and greater corporate transparency. There’s optimism businesses can make an impact, but the road to developing and executing on concrete plans may be rocky.

Fuzzy standards, fuzzy reporting

When companies say they are planning to hit net zero, most are aligning with the Paris Agreement‘s goal of keeping average global warming to 1.5C (34.7F) of pre-industrial levels to to limit future climate change. One way to do this is to reduce the level of greenhouse gas emissions. Companies can also off-set their contributions to zero-out their impact.

Yet larger concerns around inaction are merited, says Tim Mohin, global sustainability leader at Boston Consulting Group, based in the US. Historically, “many companies set an aspirational goal without a lot of thought”, he says.

McDonald’s, for instance, announced in 2018 that it would get rid of single-use plastic, but failed to live up to such pledges; the paper straws they touted as an “eco-friendly” replacement to plastic, were too bulky to be recycled. (Earlier this year, UK business regulator the Competition and Markets Authority warned it will investigate companies and products that use claims of sustainability in their advertising so consumers aren’t misled.)

In the wake of anti-greenwashing and the ESG movement facing increasing backlash, however, there has been a move to have a clear, tangible target before publicly announcing goals.

Other markets have followed in close step – the EU requires companies with more than 500 employees to comply with the Non-Financial Reporting Directive (NFRD), which ensures companies disclose social and environmental issues in its annual reports.

Now, the stakes for transparency and meaningful goals have increased, as US states introduce legislation around corporate sustainability. In October, California passed a bill that will require  companies with more than $1bn (£817m) in annual revenue to report greenhouse gas emissions by 1 January 2025. This covers approximately 5,300 companies. 

Currently, roughly 96% of the largest 250 companies worldwide self-report sustainability matters, but so far, there is no globally agreed upon set of standards and frameworks to vet and measure these reports. Mohin explains this lack of standardisation enables companies to easily make vague claims using buzzwords like “net-neutral”, or to say that they are working towards decarbonisation by a far-off date.

Most companies aren’t purposely evasive or not invested in hitting targets – in many cases, they’re lost at sea for their next steps without explicit guidelines. “Companies are saying, wait a minute, physically, how do we do that?” says Mohin. “We don’t want to go out of business, obviously.”

“There are a lot of companies saying, ‘we’re going to do X by Y’. But who is going to decide whether that’s done or not?” adds Katie Mehnert, chief executive officer of Ally Energy, a talent and culture platform that helps professions in the energy sector transition to green roles.

Often, well-intentioned pledges are made without an explicit execution plan in place: she says many businesses turn to outside recruiters and consultants to work with their sustainability teams and hire where expertise is needed, even after publicly announcing commitments. Goals can also feel nebulous, adds Mehnert, when targets are often decades out.

Brennan Spellacy, chief executive and co-founder of Patch, a US-UK start-up that helps companies buy and sell carbon credits, says many of businesses come to them with established goals they’ve promised, and no plan to execute them. “There’s a select group of corporates – I’d probably count them on two hands – with really sophisticated perspectives on how to get where they need to be by 2030 and beyond.” For the rest of the pack, retrofitting individual solutions often takes substantial legwork.

Plus, even as boards experience blowback from shareholders who increasingly value sustainability, executives are also pushed to consider the short-term, amid macroenvironmental headwinds. Many shareholders often judge CEOs are by an average earnings cycle of 90 days. This leaves firms executing a delicate balancing act between long- and short-term goals. “I’ve heard CEOs say, if we get too far ahead of our skis on sustainability or decarbonisation, I won’t be here, because my investors will not see that benefit.”

Yet companies still are taking steps important steps. Spellacy says Patch is structuring muti-year operating agreements with large companies, as they plan to reach targets in 2030 and beyond. Increasingly, he says, CFOs and legal executives are becoming the go-tos to reach these goals instead of leaders in sustainability-specific positions. And he says it seems like core leadership are taking the plans seriously. 

They are also fielding more questions on putting together a more achievable five-to-10-year carbon operating plan without exposing too much climate or financial risk to the business. In essence, they’re trying to create plans that are achievable, so companies won’t have to walk back commitments. 

Even amid the fuzzy guidelines and uninformed approaches, many businesses are genuinely optimistic they can effectively reach meaningful goals. 

While Liikamaa and Johansson remain committed to their sustainability pledge, they acknowledge it can be an uphill battle – one that other companies might balk at because of the effort involved to make good. Liikamaa says the key is transparency and a network of likeminded sub-contractors who are committed to helping companies reach net zero.  

“It’s challenging,” says Liikamaa, “but that’s the easy excuse in a burning world.”