UK Companies At Risk Of Missing Decarbonisation Targets

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UK firms risk straying from the 1.5°C pathway of the Paris Agreement if the downward trend of achieving decarbonisation targets persists into next year.

A collaboration between the CDP and Bain & Company Inc. disclosed this finding in their report on UK corporate decarbonisation.

On a positive note, smaller companies led the charge in an increase in disclosures of targets.

Indirect emission disclosures need improvement

The first part of the comprehensive report focused on measuring the Scope emissions as delineated:

  • Scope 1 emissions are direct emissions from company-owned or operated assets, such as company vehicle emissions.
  • Scope 2 emissions are indirect emissions from the generation of purchased energy like electricity.
  • Scope 3 emissions are indirect emissions derived from all other value chain activities, such as those from suppliers and customers using the product or service.

Scope 1 and 2 disclosures are often standard practice. Both account for 74% of disclosures, a constant from last year’s disclosure rates.

However, the report for Scope 3 disclosures is another matter entirely. 

Only 56% of UK-based companies disclosed their emissions data for this category, a mere four-point improvement from the previous year. 

The findings at a glance

Emissions disclosures increased by 24% in the last year. Smaller public and private companies mainly drove the growth to 1,787 companies. 

Unfortunately, only 33% of these UK-based companies set targets for decarbonisation in 2023. 

Of that percentage, most were more concerned with near-term targets. A measly 4% disclosed exclusively long-term goals, while 20% revealed near-term. Only 5% disclosed both. 

Companies were also lagging behind in achieving their set goals. 

Scope 1 and 2 emissions had a reported three-percentage-point drop. Scope 3 had a six-percentage-point fall.

Currently, Scope 1 and 2 decarbonisation efforts are well within the limits of achieving the 1.5°C pathway of the Paris Agreement— 9% versus the limit of 4.2% per annum or more. But should this downward trend continue, UK companies will likely miss the requirement. 

Companies tagged as Effective Decarbonisers, those with reported verified emissions per the 1.5°C pathway, were down to 62% from 67% in 2022. 

In other words, 38% of UK firms are either not on track to achieving net zero or are Carbon Laggards (verified Scope 1 and 2 emissions fail to reach 4.2% p.a. limit).

What it means

saving energy

The report laid out various reasons behind the downward trend regarding targets for decarbonisation.

First, companies may have already lessened emissions in easy-to-achieve categories, such as reduced electricity consumption.

What’s left may be the more difficult-to-control steps, such as those under the Scope 3 emissions category.

Second, most businesses have bounced back post-pandemic, leading to a jump in emissions. For example, most disclosures included ‘Covid’ in the 2023 climate change questionnaire.

Additionally, almost 66% of repeat disclosures reported a surge in emissions in all three Scopes.

Initiatives to improve achieving decarbonisation targets

It may be worthwhile to emulate UK firms with climate transition plans to improve this slump in achieving their targets.

In fact, these companies reported an average of 8.3% p.a. decarbonisation rates versus the 3.9% p.a. rate of those without. Furthermore, those that employed ‘engaging with customers’ and ‘using science-based targets’ transition plan elements see faster decarbonisation.

These companies also equate decarbonisation as an opportunity for profitability while complying with climate targets. Most reportedly dropped their emissions by 2.4 percentage points faster p.a.

Another solution is to focus on Scope 3 emissions. This Scope accounts for up to 95% of a company’s carbon footprint. This is significant as it encompasses all emissions within the firm’s value chain or the full range of a product’s lifespan. 

As companies have already made significant developments with the emissions tied to assets they own and control, making headway on reducing Scope 3 emissions may be the key to achieving their decarbonisation targets. 

Our Opinion

The decarbonisation of our economy is an important factor if the UK wants to meet its legally binding net zero target by 2050. And this means that all businesses based in the UK have to reduce their emissions.

But that’s easier said than done. And it’s no wonder that many businesses focus on Scope 1 and 2 emissions, because that’s easier to achieve. But I also think many small companies need a lot of guidance and this isn’t really forthcoming.

While the government’s Business Climate Hub provides a lot of information about how to calculate your business’ carbon emissions, make a plan to reduce them and implement it. It also gives information about how to achieve a greener supply chain.

But there is a lot of information to take in and a lot of work, time and effort is needed to make it happen. And many small businesses don’t have the time or staff to do this, especially given how challenging an economic landscape we currently have.

And let’s not forget that the government themselves have postponed some of their climate targets last year. This signals that there isn’t any urgency, giving small businesses the justification to focus on something else instead.

There is no doubt that we small UK businesses have to decarbonise, but we can’t do it without the right support.

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The Business4Beginners news team consists of several writers who each have their own unique experience in businesses. By keeping their fingers on the pulse, they bring you the latest in news and trends impacting small UK businesses.
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