Net zero strategy to up the numbers for firms.

Governments worldwide have renewed their commitments towards the Paris agreement on climate change by resubmitting and even updating their nationally determined contributions (NDC). These are commitments that countries made to cut carbon emission as well as contribute to adaptation efforts.

The Paris Agreement’s central aim is to strengthen the global response to the threat of climate change. This is by keeping temperature rise of this century well below two degrees Celsius and pursuing efforts to limit the temperature increase even further to 1.5 degrees Celsius. Additionally, the agreement aims to raise the ability of nations to deal with impacts of climate change and at making finance flows consistent with low GHG emissions and climate-resilient pathways.

Kenya, as an example, submitted its updated NDC on 27 December last year, which clearly showed the government’s drive towards fighting climate change. The NDC committed to cut emissions by 32 percent compared to the initial one that committed 30 percent.

Kenyas’ updated NDC is being implemented through the National Climate Change Action Plan under seven priority areas: disaster risk management, food and nutrition security, water and the blue economy, forestry, wildlife and tourism, health, sanitation and human settlements.

To achieve the above level of cuts in emissions, economic growth and development cannot continue without tackling climate change and boosting environmental sustainability. Transitioning from the current development pathway to a low-carbon, climate-resilient one, the country, will require significant investment and innovation and, more importantly, a shift in the way governments and the private sector make decisions. The cost of implementing the NDC will require a total investment of $62 billion by 2030.

If companies are willing to move the needle from the plain vanilla way of looking at consumption and production, climate change will provide the private sector with a great opportunity to grow. This calls for innovative solutions around sustainable consumption and production by companies.

Businesses are under pressure from various sources including customers who are looking for sustainable products and services. Recently I conducted a study on Kenyan consumers and their affinity towards sustainable services and products- 61 percent of Kenyans confirmed that they would only buy from sustainable companies by 2023. This is a clear wakeup call for private sector players to start the journey towards sustainability if they are keen to keep their market share.

Financiers are now pushing for sustainable finance and lower environmental risk loans. This means businesses that have put climate change and sustainability considerations as part of their strategies, will have easier and cheaper access to finance. Other benefits that sustainable companies will accrue are reduced costs of operations, better reputation on the market, more revenues as a result of increased market share and achievement of a social license to operate.

On the part of governments, there is a need for deliberate actions towards leveraging limited public funds and providing adequate enabling policy environment to catalyse green private investments.

The domestic private sector financial flow for climate change stands at less than 15 percent of the total financial flows for climate change in Kenya, which is on the lower side if Kenya is to achieve its NDC targets.

To change the current situation, the government must adopt a holistic approach to private sector engagement on climate change and green growth. This approach involves supporting a range of policy reforms and regulations to promote climate change mitigation and adaptation and improved environmental performance – the enabling policy environment for private climate investments – along with the use of limited public finance for mechanisms to leverage green private investment.

On the part of the private sector, committing to net zero is a great way of walking the talk towards keeping global warming below 1.5 degrees Celsius, which calls for emissions to be cut by at least 45 percent by 2030. Globally, hundreds of companies, including major emitters like United Airlines, BP and Shell, have pledged to reduce their impact on climate change and reach net-zero carbon emissions by 2050. Unfortunately, in Kenya and Africa in general, the private sector is still struggling to understand net zero.

To achieve net-zero, a company will need to identify and report all emissions that it is responsible for creating, it reduces them as much as possible, and then – if it still has emissions it cannot mitigate – it invests in projects that either prevent emissions elsewhere or pull carbon out of the air to reach a “net-zero” balance on paper.

The process is complex and still largely unregulated and ill-defined, and companies will require expertise and tools to enable them to succeed in their net-zero mission.

May 2021

Business Daily