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Understanding the Difference between Carbon Neutral and Net Zero

Companies have a responsibility to channel their efforts toward mitigating climate issues. A large part of this is managing their emissions. Learn about the differences between carbon neutral and net zero and how companies can work to achieve either.

As an increasing number of companies demonstrate their strategies regarding environmental, social, and governance issues (ESG), reducing emissions and removing carbon from the atmosphere have become critical — and popular — topics. By addressing responsibilities and making changes, corporations take steps to combat climate change and show the general public, investors, and consumers that they’re environmental stewards. 

Two of the most popular strategies for making a significant difference in mitigating climate change are to go carbon neutral or to hit net zero. Here’s some background information on carbon neutral versus net zero, including what they each mean, how these initiatives help, and how each approach suits a company better depending on its industry and goals. 

Becoming carbon neutral

Carbon neutrality means a company removes the same amount of carbon dioxide (CO2) from the atmosphere as it emits through operations. Being carbon neutral is a significant step toward lowering carbon emissions, which are the primary cause of global warming. 

Corporations looking at becoming carbon neutral must analyze their carbon footprint and find ways to lower CO2 emissions. Some direct ways to do this are using renewable energy sources such as solar and wind power and buying from sustainable suppliers.

An indirect method is investing in “carbon sinks,” such as forests and oceans. Any natural entity that absorbs carbon dioxide from the atmosphere is considered a carbon sink. Investing in the health and safety of carbon sinks is called “carbon offsetting” and allows a company to support climate change mitigation beyond its own carbon footprint. 

Adopting a net zero emissions policy

Achieving net zero means taking the fight against climate change a step further. While carbon neutrality focuses on carbon emissions, becoming net zero focuses on reducing all greenhouse gas (GHG) emissions, including carbon, methane, hydrofluorocarbons, and nitrous oxide — all of which contribute to our warming planet. 

Companies that report their carbon emissions typically refer to the net zero standard by SBTI, which encourages the private sector to improve their impact on timely climate action.

Companies seeking to achieve net zero emissions have several options for reducing personal emissions and contributing beyond their own carbon footprint: 

Governments and organizations worldwide have made commitments to reach net zero emissions, and campaigns like the United Nations Race To Zero drive such commitments. Joining this movement shows that a company understands its environmental responsibilities and contributes to global net zero climate change efforts. 

Carbon neutral versus net zero

The crucial difference between carbon neutral and net zero policies is how much change an organization must undergo to implement them. 

Achieving carbon neutrality means reducing carbon dioxide emissions across every sector, including manufacturing, supplies, and transportation. These changes may not be enough to bring an organization to neutral, so carbon offsetting would be the next step. 

For companies unable to achieve drastic reductions in emissions, carbon-neutral policies make sense because of the ability to offset CO2 pollution without overhauling all processes. Corporations still work to combat climate change, even if they can’t alter business activities significantly.

Net zero policies require more resources and effort and involve significant changes to business practices across every division. Corporations looking to achieve net zero sustainability figures must take a comprehensive approach, setting both short and long-term targets to reduce all GHG emissions, even beyond what’s directly valuable to the company, such as investing in programs related to conservation, forestry, and energy efficiency. 

If an organization is prepared to make drastic changes to its current practices, like moving to clean energy sources and switching to electric vehicles, implementing a net zero policy is ideal. But whether net zero is in a company’s future or not, aiming for carbon neutrality is an important place to start.

Understanding greenhouse gas emissions

Because GHG reduction is central to both carbon neutrality and net zero targets, it’s worth discussing the Greenhouse Gas Protocol (GGP)’s three scopes for corporations to quantify and understand emission accounting. This sort of data is integral to organizations optimizing emission reduction strategies. 

Scope 1: Direct emissions

Direct emissions refer to anything a company is directly responsible for contributing — here are a few examples. 

Scope 2: Indirect emissions (energy consumption from a utility provider)

These emissions include all GHG emissions resulting from company-bought electricity, heating and cooling. Possible solutions include installing solar panels and purchasing energy directly from renewable sources. 

Scope 3: Indirect emissions (from company operations)

This includes all emissions not produced by a company but related to its business activities. The GGP separates these into two categories.

A great way to create an accurate and achievable carbon neutral or net zero policy is by outlining an organization’s emissions and the plan to reduce each. 

Taking on environmental responsibilities 

Companies that strive for carbon neutrality or net zero targets have much to gain from implementing environmentally friendly policies. Not only does it show the companies’ awareness and accountability for our planet and its inhabitants, but it also proves to be beneficial for business and holds many opportunities. For instance, developing climate-friendly products can grant a significant competitive advantage with today’s mindful consumers.

Implementing these practices can improve risk management as there are climate-related risks that could manifest into financial risks, such as import taxation on carbon-heavy products in Europe. 

Implementing environmentally friendly policies and making significant changes to one’s business practices benefits the organization as a whole and shows devotion to a cause greater than profits and losses.

*Disclaimer: This summary is for general education purposes only and may be subject to change. ESGgo, Inc., and its affiliates (the “Company”, “ESGgo”, “we”, or “us”) cannot guarantee the accuracy of the statements made or conclusions reached in this summary and we expressly disclaim all representations and warranties (whether express or implied by statute or otherwise) whatsoever.