Companies can grow through decarbonization but many are off track. Here’s how to fix that.

What if decarbonization could be a catalyst for value creation?

We'll be blunt: decarbonization can be tough. Many businesses are wrestling with how to design and execute a plan. Like any strategic, high-profile company-wide move, this takes bold strategic thinking that balances short-term wins with the foresight to drive large-scale transformation. And that could take years. 

Get it wrong, and risk losing stakeholder trust and market share. But get it right, and the rewards can be meaningful. PwC’s Voice of the Consumer Survey 2024 found respondents would be willing to pay 9.7% above the average price for sustainably produced or sourced goods. Some consumers were even prepared to pay as much as 30% above the average if the products were made from recycled materials, biodegradable or from a company with a reputation for ethical practices. A World Economic Forum report done in collaboration with PwC showed that the potential of demand-side energy action is extraordinary, offering a short-term, cost-efficient 31% reduction of demand without loss of output, shared across all economic sectors. In addition, in the US there are $370 billion in federal clean energy incentives that can boost the ROI of your strategy. 

It’s a lot to contemplate. So, as companies assess the costs, complexities and resources needed to reduce greenhouse gas emissions, PwC sought to better understand the relationship between ambitions and reality when it comes to net zero goals.

Don’t believe the hype

We used corporate filings, company reports and global climate data sources to investigate what may really be happening both inside the walls of 214 of the world's largest public companies and across their supply chains. Our goal was simple: analyze how net zero commitments have changed over time and see how organizations are progressing. While there’s been a lot of conversation about companies pulling back on sustainability commitments, our research showed the opposite: 53% were sticking by their original net zero goals, 37% were accelerating their estimates for when they would meet the targets they’d set and just 5% were extending their timeline. (The remaining 5% have not yet publicly disclosed decarbonization goals.)

Common mistakes to avoid

We dug deeper than many other studies by analyzing trends across short- and long-term goals, payback periods and governance matters. What shined through was concerning. Some companies are simply cherry-picking easy-to-complete projects and kicking everything else down the road. That’s reflected in what we found at the sector level: 10 out of 11 sectors will likely fall short of achieving net zero if the companies within them continue with their current execution plans. Technology, the sole sector on track, has benefitted from getting a jump on renewable energy initiatives and by driving energy efficiency through their buildings and data centers. But the sector’s future emissions could be impacted by the energy demands of emerging technologies such as Generative AI. If companies across these 11 sectors fail to meet their ambitions, it could trigger many repercussions and diminish trust among stakeholders.

Why are so many sectors off track? As we dug into the data, we found 3 recurring reasons why companies are not progressing at the pace they should. First, we saw that companies are underestimating from the start how significant an undertaking decarbonization at scale can be. Your CEO may see competitors announce their net zero plan and say, “If they can do it, why can’t we?” A stake is put in the ground, and it is up to the sustainability team to execute those marching orders. That initial response sets off a powerful ripple effect that can lead to critical mistakes across the company. But don’t let impatience compromise effective strategy and action – it’s not too late if you’re not seeing the results you want. There are solutions to keep decarbonization plans on track or level-set if plans have taken a detour. Here’s how to achieve this with an effective execution playbook.

1. Do the math: Get the data and calculations right upfront

The initial calculations you perform to arrive at your company’s baseline and forecasted emissions have a profound impact on your decarbonization plan. The math informs the 2030 and 2050 emissions reductions targets your company sets, influences the selection and sequencing of decarbonization initiatives to meet those goals and will serve as a benchmark to help you measure progress along the way. This data is going to be subject to external audit as part of new regulations in Europe and the US.

All too often, we see companies doing insufficient math by performing only high-level estimates that can lack the detail needed to produce an actionable plan. A good plan will 1) identify all the specific decarbonization actions (or “levers”), 2) show how much carbon each lever will abate, 3) how much action will cost, 4) how long it will take to implement, 5) the personnel needed and 6) if any grants, tax credits or incentives can fund levers. 

It’s critical that you have confidence in the data you’re inputting into your emissions calculations and the level of detail in your decarbonization plan. For reference, PwC has laid out the controls and processes you need to generate complete and accurate ESG data and we have a database of more than 1,000 decarbonization levers with the detail needed to get it right.

Successful decarbonization requires a detailed plan that includes 3 steps:

• Step 1: Calculate baseline emissions. 
• Step 2: Forecast how your emissions will increase as the business grows. 
• Step 3: a) Determine your desired short- and long-term reduction goals. 
• Step 3: b) Confirm the feasibility of your reduction goals by building a detailed plan that outlines the specific levers you intend to pull, showing for each lever how much carbon it will remove, the cost and timing and the associated credits and incentives.

2. Develop a plan that lands short-term and long-term wins 

Projects that offer an immediate return can be tantalizing. After all, they allow management to take a victory lap. It’s no wonder these initiatives are typically addressed first. And that’s OK. Switching out lighting or installing motion sensors to be more efficient are smart initial moves to reduce energy demand. As we mentioned, companies that act could realize substantial savings on their energy costs by implementing key practices for energy demand reductions.

However, carbon abatement becomes more difficult and costly after you grab the low-hanging fruit. To hit a net zero commitment, you’ll need to undertake initiatives with longer payback periods, as well as take steps so that future business leaders can finish the job. For example, an industrial company looking to install carbon capture technologies at several of its facilities may be looking at a construction period of more than three years. The payback period may be well beyond that. But once functional, these technologies can help reduce carbon emissions by 90% from each facility. Less than 25% of the companies we studied disclosed emission reduction projects with a payback period of more than 10 years. 

In our experience, winning CFOs and business leaders earmark financing for sustainability initiatives. Finance leaders may also find it easier to select worthwhile decarbonization projects when they develop an internal cost of carbon that establishes a price for emissions generated. Accounting for the financial impact of carbon emissions when comparing capital costs of decarbonization projects with the costs of other projects is critical. They then align budgets and timelines, giving sustainability initiatives the same visibility and importance as other strategic initiatives. In short, they have a microscope in one hand and a telescope in the other. 

3. Solve execution problems by embedding sustainability throughout the business

There’s no short-cutting it ─ sustainability initiatives are complex. They typically span multiple geographies and locations, require alignment across business functions, can involve coordination with third parties and necessitate permitting and approvals. At any given time, companies may have dozens, or even hundreds of sustainability projects happening simultaneously across their operations. Our research showed companies are struggling with execution at every turn. Just 56% of companies were on track to meet their short-term Scope 1 and 2 emissions goals. That’s attention-getting since these goals are largely focused on the direct emissions a company can control. And even fewer companies – only 22% – were on track to meet Scope 3 goals.

Because market environments often change and priorities can shift overnight, decarbonization plans can wind up on the backburner. But the companies that stay the course and focus on execution can gain a step on the competition as they spot ways to cut costs and identify new revenue streams. For example, as your customers navigate their own decarbonization journey, they may prioritize working with suppliers and vendors who have less carbon intensive products and services. A company that incorporates sustainability into product design stands to gain market share and, in some cases, can capture price premiums. An added bonus: Companies that include the tax function’s perspective can leverage tax credits, grants and other incentives that can potentially increase the ROI of sustainability strategies. 

Need help fixing execution issues? We can help assist in that. So much so, we’ve built a decarbonization lever suite with detailed information on costs, abatement, timing, feasibility and tax incentives for more than 1,000 sustainability tactics. Fill out the form below to contact us and learn more about how we can help you realize your goals.

Bringing it all together: Flip your company’s conventional thinking on net zero

It can be challenging for many stakeholders to see sustainability as a strategic driver rather than just another compliance requirement. Ninety-four percent of the companies we analyzed disclosed the board’s oversight process for sustainability matters. But PwC’s 2023 Annual Corporate Directors Survey showed that just 54% of directors believe ESG issues are linked to company strategy (and that percentage has been decreasing the last several years). In addition, of the 4,702 executives surveyed in our 2023 Global CEO Survey just 41% accepted a lower rate of return on climate-friendly investments ─ a sign most CEOs are failing to appreciate the full value in sustainability initiatives.

There may come a time when company leaders may be tempted to second guess sustainability efforts. However, those that are on a viable path to decarbonization appreciate the massive opportunities that sustainability offers. Just like “digital” was once a standalone initiative, so too is sustainability for most companies today. Flip that thinking and you’ll be one step ahead. 

Methodology

We identified key sectors for understanding companies’ decarbonization journeys. We used S&P Capital IQ to screen for publicly traded companies within those sectors with annual revenue that exceeded $10 billion for the fiscal year ending 2022.

Our process for evaluating whether a company was on track to meet its net zero goals involved several steps. First, we used primary sources (company websites or corporate sustainability reports) to identify goals for Scope 1, 2 and 3 emissions for the five years ending 2022. We then calculated the expected yearly rate of emissions reduction based on average reduction required for those goals. For example, for a company that set a goal to achieve a 40% reduction in Scope 1 and 2 emissions by 2030 from a 2020 baseline, we would expect to see that company have an average annual reduction of 4%. We then compared the expected rate of reduction to the achieved rate of reduction for the elapsed time (2020-2022). If a company achieved more than an 8% reduction across those two years it was deemed as being on track. Companies that realized a rate of reduction below the required rate were marked as off track.

We used a similar process to assess whether a company was accelerating or decelerating its net zero goals or keeping them steady. We analyzed any year-over-year changes companies had made to their Scope 1, 2 and 3 goals between the years 2018 and 2022. We considered ambition to be accelerated if:

• Target emission reduction percentages were increased with the same baseline year and target year.
• Emission reduction percentages were constant, but the target year was moved to an earlier date.
• Additional emission scopes were added to targets.

In cases where both emission percentages and baseline/target years changed, we calculated whether the absolute emission targets by target date were lower or if the trajectory was a steeper reduction rate. If a company did not change their baseline or target years or reduction targets, we considered it to be holding its net zero ambitions constant.