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Is carbon neutral certification the ultimate goal?

Climate Change By Madlen Jannaschk, Associate, Sustainability – 28 July 2022

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Madlen Jannaschk in blue jacket and navy top with planting background

Madlen Jannaschk

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Becoming certified as carbon neutral is becoming an important credential for business competitiveness and reputation. But the journey is just as important as the end goal. In our experience, there are two ways most organisations approach carbon neutral certification in Australia.

The first way is via the Australian Government’s Climate Active scheme. This pathway involves calculating the carbon footprint,then setting an emissions reduction target of at least 30% over the next 10 years. And finally offsetting calculated carbon emissions annually to retain certification. These steps are audited by a third party and reported to the Climate Active team, who then confirm and issue the formal Carbon Neutral certification under the Standard.

That is all positive – but we need ask, is it enough?

While the Climate Active approach is based on verified data and information – and it does commit a participant to achieving emissions reductions over time – the required emissions reduction commitment is not aligned with science-based targets for ensuring we limit global warming to less than 1.5 degrees by 2050.

In other words, it won’t get us all the way to the milestone of the Paris Accord, even if every business in Australia decided to take that Climate Active pathway.

“It won’t get us all the way to the milestone of the Paris Accord, even if every business in Australia decided to take that Climate Active pathway.”

The less onerous benchmarks of the Climate Active pathway means a typical (office based) business can generally achieve the 30% emissions reduction through switching from conventional grid electricity to a Green Power contract or - when the organisation is larger - enter a renewable energy Power Purchase Agreement.

The emissions associated with energy use for operating and occupying business premises and facilities are generally the easiest to measure, manage and reduce in any case. So, the 30% target is often an easy win.

While that probably sounds very attractive, it is not necessarily the best business decision for the medium to longer term. For a start, it does not address the overall footprint of a business, which can be a competitive disadvantage if customers, staff, investors or stakeholders are making decisions based on the credibility of carbon neutral claims. Not acting to understand and reduce the whole footprint will increasingly be a reputational liability as the wider global economy decarbonises.

“Not acting to understand and reduce the whole footprint will increasingly be a reputational liability as the wider global economy decarbonises.”

This minimalist approach also leaves an enterprise more exposed to carbon price volatility, as emissions must always be balanced with offset purchasing to maintain carbon neutral status.

The market for Australian Carbon Credit Units (ACCUs) is quite volatile, and we have been seeing steep price rises and falls. This creates some financial uncertainty, as the reporting date for Climate Active is fixed at 31 October (for financial year reporting) and 31 March (for calendar year reporting) and arrangements must be made for offset purchases. Under the Climate Active rules, at least 20% of those offsets must be ACCUs for all organisations from 2023 onwards, and you will not be able to predict the price.

This effectively eliminates certainty from year to year on exactly how much it will cost to retain Climate Active certification. The most effective long-term solution is to take a pathway towards true net zero emissions that incorporates steady year-on-year emissions reductions beyond purchase of Green Power and offsets.

The Science Based Targets initiative (SBTi) provides a framework for a net zero emissions plan in line with a 1.5 degree world which involves planning a feasible trajectory towards meaningful and true emissions reductions through time and to align with the goals of the Paris Accord. The SBTi Net Zero Standard also requires formulating feasible interim targets and report annually on the progress against the targets.

To achieve true net zero, initiatives for Scope 1 and 2 emissions have to go beyond energy procurement. This can include shifting to all-electric vehicle fleets, switching to refrigerants with low Global Warming Potential in air conditioning and refrigeration equipment or reducing corporate air travel through pivoting to virtual events.

Scope 3 emissions can be one of the most challenging to both measure and address as there are some aspects of them that are arm’s length from the direct control of an individual organisation. That said, we encourage clients to look at the emissions sources they can influence such as energy use emissions by any tenants of their assets, or emissions from landfill associated with their waste disposal, emissions per litre of water consumed on their premises or by their operations.

Whatever an organisation purchases in the way of goods contributes to emissions – generally Scope 3 – so making procurement decisions that prioritise low-carbon products and services is another achievable emissions reduction strategy. Staff commuting is also part of Scope 3 – so incentivising public transport use, hybrid working and ensuring premises have end of trip facilities for active travel are all good wins.

While the items to address on a SBTi aligned pathway are many-faceted, the main thing to remember is every emissions reduction is also a multi-faceted win. It is a win for your business in terms of brand reputation, reduced carbon pricing risk exposure and in positioning your enterprise as a supplier of choice for other organisations that are on an emissions reduction pathway. It is also a win for your staff recruitment, retention and engagement as potential employees and existing employees look to align themselves with purpose-led and socially-responsible employers.

It is also a win for the entire community and the global climate – the ultimate value-add.