Interview
08 Sep 2022, 12:00
Sören Amelang

Climate claims show that companies realise they must act on emissions - consultant

Setting and achieving a net-zero target involves many challenges for companies. Cartoon by CLEW / Mwelwa Musonko CC BY 4.0

Current "climate neutral" product claims may be flawed, but they are a clear sign that companies realise that consumers want climate action, argues Jens Burchardt, the Boston Consulting Group's global expert on climate impact. "I think most companies have still not understood that this is an enormous opportunity," he explains in this interview. Pioneering companies still have the chance to present the world's first genuinely climate neutral products - based on emission cuts throughout supply chains instead of questionable carbon offsets. The first of these are likely to appear in the second half of this decade, but stringent regulation on "climate neutral" claims will be necessary to protect the frontrunners, says Burchardt, who has advised many companies on their net-zero efforts.

*** Please note: This interview is one part of the CLEW focus on company climate claimsThis dossier lists our existing publications and future content plans. Other journalists can also get involved - Find out more here. Our upcoming events are here. This blog explains why we decided to launch the project.***

 

Jens Burchardt. Image by BCG

Clean Energy Wire: Consumers are now permanently confronted with products and services that claim to be “climate neutral” – be it suntan lotion, plastic bags, delivery services or flights. What do you make of these claims? Do you find them credible?

Jens Burchardt: So far, all of these claims are based on procuring offsets of varying quality. There is a very broad range of company ambitions behind them – from those who simply buy the cheapest possible offsets with highly questionable quality, to those who really try their very best to do the maximum possible today in order to reduce their emissions; for example by minimising their overall use of materials in production, using different materials with a lower carbon footprint, employing circularity concepts, and offsetting remaining emissions with more expensive compensation schemes of a high quality. This diversity is possible because the use of this label is not regulated in any way so far.

To the best of my knowledge, there are no companies to date which can implement such claims on the basis of actual emission reductions along their entire value chains. But, we work together with several players who have the honest ambition to do so. Based on their roadmaps, I expect that we will see the first such products in the second half of this decade. And once the first such genuine “net zero” products arrive and businesses see that people are buying them, this will motivate other companies to follow.

In your experience, do companies see a rising pressure to introduce products with a “climate neutral” label because they register growing demand?  

Companies definitely start to register growing awareness for this topic among their customers—including a certain willingness to pay. As a result, companies are doing a number of things. They adopt more ambitious climate targets in general because they feel it helps their brand value and that they might be able to commercialize it in some form down the line. They start to make products with lower footprints — that enable them to make claims such as “fully bio-degradable” or “made with 50 percent less plastic.” We see the first companies implementing so-called carbon labelling, which documents the CO2 footprint of their products. Interestingly, this creates positive awareness even if companies don’t yet have a lower footprint than competitors. But the mere fact that someone creates transparency signals to consumers that they take the topic seriously. And finally, we see an increasing prevalence of “climate neutral” labels.

I believe that this trend presents an enormous opportunity for companies — as well as for the climate. Two years ago, we conducted a study with the World Economic Forum to calculate how much it would cost to entirely decarbonise the world’s largest value chains, and what impact this would have on retail prices. The result was that there are many sectors where cutting emissions to zero along the entire value chain would increase retail prices by a mere two percent, in some cases even less.

Two percent? That’s a pretty astounding result…

Yes, indeed. There are two main reasons for this. For one, many levers to bring down emissions actually save costs, for example increasing efficiency, or are very inexpensive, such as producing renewable electricity. Secondly, emission-intensive materials only have a very minor impact on retail prices in most products. Take the example of a car: Only about 15 percent of the retail price is for the actual materials, the rest is non-emission intensive assembly of components and parts, overhead for things like marketing and sales, and of course margins. This is why even substantial cost increases of some materials only have a relatively minor impact on final prices.

Image shows products with a "climate neutral" label. Photos by CLEW / Finley Smee
When can we finally buy truly climate neutral products? Photos by CLEW / Finley Smee CC BY 4.0

This makes it sound as if the arrival of truly climate neutral products that no longer rely on offsetting could be just around the corner. When do you expect to see them?   

Such products might well first appear in sectors where you wouldn’t normally expect them. For example, the first product I know of today that is sold as “net zero” by compensating supply chain emissions with direct air capture instead of carbon offsets is a mass spectrometer [a device to measure the mass-to-charge ratio of ions]— simply because of a motivated team of technicians behind it.

I myself have been involved with companies aiming to introduce net zero products in quite an exotic range of industries: A net zero beer, which might hit the market in the mid-20s. Net zero fashion, where first products might also materialize in the middle of the decade. A net zero car, which will take more time given the number of parts and complex supplier landscape. Finally, we supported a real estate investor aiming to introduce the first ‘lifecycle net zero buildings’ to the market in the mid-20s. All in all, I find the mix quite promising. Because it indicates that there are companies who see opportunities in this in quite a wide range of sectors.

How will these sort of products manage to stand out given that there are countless “climate neutral” labels already? Do we need new regulation on the matter?

If you are the first in your industry to realise such a project, regulation is irrelevant. Assuming your marketing department is any good, they will find a way to make you stand out. So for the first projects, above all, companies need courage, vision, and far-sightedness of those involved to simply go for it. The pioneers should easily be able to create enough hype, so people notice this is something different.

But as this sort of claim becomes more prevalent, we will need additional regulations to protect those with higher and honest ambitions. In the best of worlds, real frontrunners can trigger a self-reinforcing dynamic within a sector. In the worst of worlds, we might see a ‘race to the bottom’, in which companies try making bold claims in the cheapest possible way — by cheaply offsetting emissions, or ‘forgetting’ them altogether. Any regulation that creates more clarity on offsetting standards would help, as would a legal definition of various climate claims. What “climate neutral”, “carbon neutral”, and “net zero” mean exactly could theoretically be defined by self-governing industry bodies, but actual cross-industry regulation - for example on EU level - would likely be more powerful. Finally, mandatory carbon labelling would also help enormously. There are discussions about this on a European level, but we’re not exactly near the point of introduction. And even once this is agreed, it will take some time before it can take effect, given how complicated it is for companies to create the required emissions transparency.

Image shows products with "climate neutral" label. Photo by CLEW / Finley Smee
Decarbonising entire supply chains would have a minor impact on retail prices. Photos by CLEW / Finley Smee CC BY 4.0

You make it sound as if there are some fairly low-hanging fruits for frontrunners to pick. Would it really be that easy?

I think most companies have still not understood that this is an enormous opportunity. What makes it difficult is a lack of transparency — over emissions on the one hand, and costs to bring them down on the other. In all companies where we calculated how incredibly small the effect of decarbonization would be on the price of their final products, this created a real “light bulb” moment. But this also means that there aren’t yet hundreds of companies in this race.

The hope I have is that the few companies pioneering this will eventually force others in their industries to follow. We have already seen this dynamic in corporate-level climate targets. In many industries, once one company stepped forward with an ambitious target, others started to follow, or even aim higher. Why? Because no major company wants to be seen as a laggard in their industry. And as a result, there are now quite a few sectors in which most major players converged on a set of truly ambitious targets. In the most ambitious industries this could mean something like aiming for net zero production by 2030 and a net zero value chain by 2040.

Are you talking about net-zero targets that really do not require any carbon offsets?

Yes, that seems to be their ambition. A few emissions in more obscure categories or the very tail end of value chains will probably remain. Those would then have to be offset with negative emission levers.

What are the most important hurdles end-consumer companies face when setting a net zero target?

Setting a target is easy. The crucial part is actually achieving it. Companies selling products that you or I can buy often don’t have direct influence over more than 90 percent of their total emissions, because these are generated in their supply chains (as so-called scope 3 emissions).

Problem one is transparency. They have limited transparency over emissions. They have limited transparency over levers to address them. And many even have limited transparency about their supplier base. The most extreme case of this that I have seen was a multinational conglomerate we supported with estimating their scope 3 emissions. This company sold thousands of different products in five different industries. They had tens of thousands of suppliers, basically all of which had more suppliers of their own. To not only understand but also control emissions in such a setting is an unbelievable challenge.

Problem two — at least today — is a lack of low-emission alternatives that companies can switch to, especially for more complex products. A steelmaker aiming to produce green steel will not yet be able to buy green iron ore on world markets. An auto supplier aiming to procure green steel will find that supply is still limited — and even more so for other materials such as plastics. A carmaker with hundreds of individual parts and materials suppliers will have an even harder time.

Where supply is limited, companies have to become quite creative to create it. We have worked with a number of companies who approach individual suppliers to convince them to make net zero materials just for them, and who are willing to provide longer-term offtake guarantees at higher prices. This is a “crutch” solution for now—and certainly not one procurement departments are used to. But eventually there will hopefully be a more liquid market.

So, in conclusion: If you take the bird’s eye view – would you say that current “climate neutral” claims represent progress because they are pointing in the right direction? Or is it greenwashing that delays real action on emission cutting?   

It depends. In principle, even “greenwashing” is a sign that companies have noticed that this topic is important to customers. It is not the right reaction, and I don’t believe companies going this route will find long-term success with it. But the mere fact that companies use green claims shows that they believe they can differentiate and hope to gain market share in the process. That’s a positive development, and it creates a different dynamic for transparency on industry emissions. It also gives frontrunners the chance to really land a success with good marketing.

I also would not underestimate the fact that this trend equips frontrunners within companies with better value proof. Even in well-meaning companies, proposals to spend money on lowering emissions will invariably meet the question “So, how does it affect our bottom line?”. Showing how other companies managed to increase sales make this discussion a lot easier to have. I actually held a TED Talk on this subject a few years ago — and my concluding argument went along the following lines: “Imagine you stood in a store and had two versions of a product in front of you. One is net zero, the other one isn’t. The net zero product costs 2 percent more. Which of these products would you rather buy? Which of these two companies would you rather work for? And in which company would you invest your money?”

Consumers must get the choice to buy truly “net zero” products. And the choice must exist in as many products as possible. Everything that contributes to the emergence of this choice is a positive development. On the flipside, we need to do everything to make sure that consumer interest is channelled into actions that get us ahead. If we are unable to increase transparency into which companies are actually ambitious and which are just looking for the cheapest “climate stamp”, we risk a race to the bottom that might do more harm then good.

We should also not kid ourselves that this alone will help us reach zero. It is great if net zero frontrunners can have commercial success and inspire others. But net zero means that everyone has to move — and that only works with regulation.

All texts created by the Clean Energy Wire are available under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)” . They can be copied, shared and made publicly accessible by users so long as they give appropriate credit, provide a link to the license, and indicate if changes were made.
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