3 ways African companies can remain profitable amid net-zero targets
Jan. 18, 2022
Transitioning to net-zero has been a major focus for many African companies, requiring them to dedicate themselves to essential system-level change — decarbonizing operations and business portfolios, engaging in introspective dialogue with investors, applying new measures of performance, and boosting climate technologies production.
However, this can be quite a frightening task for many of these companies because they often assume it is impossible to achieve net-zero targets while maintaining their profit margins.
The truth is, it is possible for companies to reach achieve these targets. How? you might ask. Well, let’s find out.
Value chain-targeted emissions reduction
Companies can achieve their net-zero targets by reducing carbon emissions but it requires them to look across their value chains. This is because, for many of these companies, most emissions abound in their scope 3 assets.
Scope 3 assets are not owned or controlled by the reporting company, but contribute indirectly to the company’s value chain e.g. investments, purchased goods and services, employee commuting, business travel, waste disposal, transportation and distribution (up and downstream), use of sold products, leased assets and franchises.
But the problem is that when companies look to reduce their carbon emissions, they often focus on low-hanging fruits and short-term solutions — investing in renewables for electricity at their offices, investing in other companies to offload emissions, etc.
Companies need to take action on these scope 3 emissions by adopting a more ambitious and wide-ranging approach. This can be done by investing in technologies and solutions that demand less energy across the full range of activities needed to create their products or services.
Mitigating the root causes of emissions
A bulk of the work to be done and length of success for companies to achieve their net-zero targets lies in tackling the root causes of emissions across their value chains.
Most times, in tracking the root causes, companies would find out that the huge emissions places are often not the most effective places for them to take action.
For example, a parcel delivery company that tracks emissions to find their root causes within their own business or along the value chain discovers that there’s a whole lot of emissions that emanate from the whole delivery process.
To reduce emissions, companies would have to minimize energy consumption in their services and the use of their products.
Avoid defunding high-carbon businesses
As talks about reducing emissions and achieving net-zero intensify in Africa, there’s every tendency for investors to be tempted to rebalance their capital allocation to increase their portfolio of low-carbon activities.
Here’s the shocker. A more effective approach to galvanizing emissions reduction is by doing the opposite of that by investing in businesses that are high-carbon emitters while setting out clear and immediate transitioning pathways.
Likewise, effective transition plans can be driven and financed by lending. Some banks have already keyed into this by lending to fossil fuel companies with the understanding that when their clients transition, these fossil fuel companies will also transition with them and this will require capital.
The truth is low-hanging fruit solutions may be the easiest way for companies to reduce their carbon footprint but those alone will not lead to achieving net-zero and may even distract them from more important steps.
For these companies to achieve their overall targets, they need to purge their entire business system of emissions and this should extend to how their customers use their products as well as their supply chain.