Beyond Net-Zero Targets: When Do Companies Maximize Their Potential to Reduce Carbon Emissions?
In this article, co-authors Leticia Canal Vieira, Mariolina Longo, and Matteo Mura reflect on the inspiration behind their recent study and research article, “Responding to a Wicked Problem: How Time, Sense of Place, and Organisational Boundaries Shape Companies’ Decarbonisation Strategies,” found in Organization & Environment.
Many companies have committed to the Paris Agreement’s objective of limiting global warming to 1.5°C by setting net-zero emissions targets by 2050. To achieve net-zero emissions, companies can use various strategic approaches that have different implications for the global carbon budget. Companies can reduce emissions at the firm level or throughout the value chain with stakeholders. Examples of action that go beyond the firm level are selecting low-carbon materials and suppliers or developing low-carbon products. We noticed that studies were not giving enough attention to the content of actions proposed in decarbonization strategies beyond the appealing net-zero targets. The focus of our study was on how a company’s understanding of the key constructs related to climate action might influence the comprehensiveness of its net-zero strategy.
The existing literature has identified time, space, and organizational boundaries as constructs that shape companies’ responses to climate change. Managers base their decisions on their perceptions of all three factors, but studies considering these factors together were missing. Therefore, we considered the interplay between those three factors when analyzing data from 45 European manufacturing companies considered leaders in climate action by the CDP and with targets verified by the Science Based Targets Initiative.
Our findings demonstrate that many firms still take a short-term approach when responding to climate change. The inclusion of both short- and long-term objectives was a trait of companies that adopted a comprehensive approach to decarbonization. A long-term time perspective is only part of the picture when it comes to developing comprehensive climate change strategies. A conceptualization of place that includes a thorough understanding of the climate change phenomena is also essential. Companies with a better understanding of climate change have realized the need to plan actions beyond the business level. When they recognize how their activities are interconnected with other actors and natural ecosystems, companies acknowledge how it is unlikely to achieve the necessary mitigation outcomes alone. Thus, companies are led to develop collaborations with actors both inside and outside their value chains.
Our analysis shows that developing comprehensive strategies requires a long-term vision and a thorough understanding of climate change. Therefore, managers need to develop skills to better understand the risks and opportunities associated with climate change. However, companies that took a long-term view, understood climate change, and considered their entire value chain when devising actions still failed to propose decarbonization strategies that challenge current business models. Although current regulations and frameworks provide companies with the structure of a decarbonization strategy, a knowledge gap exists in operationalizing strategies into actions that can promote systemic change. This signals a need for new instruments that account for the dynamics and uncertainties of transitions and assist managers in elaborating on disruptive solutions.
