With the COP26 climate summit in Glasgow starting this Sunday, nearly 70% of the world economy and over one-fifth of firms have voluntarily committed to setting targets to reduce their emissions to net zero by the middle of the century.

Spanish companies are playing a leading role in supporting the global transition to net zero. Both through providing cutting-edge technology and services to support decarbonisation but also by acting to reduce their own carbon footprint.

Recent examples of the former include Siemens Gamesa’s £186m commitment to double the size of its Humber turbine blade factory and GRI Renewable Industries’ €100m investment to supply offshore towers from Able Marine Energy Park in the UK.

These investments help deliver the UK’s target of 40GW of offshore wind capacity by 2030 and illustrate how the Prime Minister’s Ten Point Plan is serving to mobilise private sector investment. This week’s Global Investment Summit unveiled £9.7bn in new foreign investment in to the UK, including a £6bn intention to invest by Spanish utility, Iberdrola, in Scottish Power’s East Anglia Hub.

Over the course of the last year, at the Department for International Trade in Spain we have also had the opportunity to engage with Spanish companies who are leading the way in making ambitious commitments to reduce their own emissions in line with reaching net zero by 2050.

Encompassing trailblazers in the energy sector like Iberdrola and Siemens Gamesa to bold new commitments across a variety of industries by companies such as Ferrer (pharmaceuticals), ITP Aero (aerospace), Torres (wine), Tubacex (steel) and CAF (mobility).

All of these companies share a common approach: they are setting net zero targets aligned to the UNFCCC’s Race to Zero framework – the “gold standard for ambitious climate action” according to COP26 President Delegate, Alok Sharma.

Net Zero: the new guiding star for corporate decarbonisation

“The goal of reaching net zero has gone from a radical concept to a guiding star for climate action in less than a decade” notes Nigel Topping, UN High Level Climate Champion for COP26.

In very simple terms, net zero is the state at which global warming stops. A company reaches net zero when its activities (including supply chain) have no net negative impact on climate due to greenhouse gas emissions.

Getting there requires reducing emissions as much as possible and removing (via verifiable offsets or other mitigation action) what’s left. This doesn’t happen overnight. Companies must first map their carbon footprint. For many, the bulk of their emissions may be hidden in their supply chain.

Fortunately, there are a number of new companies focused on providing carbon accounting solutions. Over the last few months, we have worked with several innovative UK companies such as Emitwise and Circulor who specialise in tracking supply chain emissions.

Next up, companies must devise a plan to reduce their emissions. One path is to set science-based targets, which define five-to-ten year trajectories for reducing emissions in line with net zero – somewhat akin to the UK’s Carbon Budget approach.

Some actions like energy efficiency measures may pay for themselves. Others like switching to renewable energy sources are increasingly cost competitive. But some emissions will prove more challenging to eliminate, requiring fundamental product and process redesign or trusting in as yet unproven technologies.

Business as usual assumptions about climate no longer hold

So, given the upfront costs and effort involved, why would a company volunteer to set a net zero target at all? The starting point for many companies is their own moral convictions. But there are often compelling economic arguments too:

• Physical risks can disrupt companies’ supply chains and strand assets. Climate events were responsible for 60% of global natural disasters between 1980-2018, resulting in $5.2 trillion losses. The numbers are trending upwards.
• “Climate risk is investment risk” writes Larry Fink, CEO of Blackrock - the world’s largest asset manager. Investors are increasingly differentiating on the basis of corporate climate exposures and channelling funding accordingly.
• Public sentiment is shifting too. Two-thirds of global consumers report changing consumption behaviours due to climate change concerns The same proportion believe companies have an obligation to their customers and employees to act
• Companies further down the supply chain are not immune from these pressures either. When firms at the top of the chain commit to decarbonise, they implicitly pass on the challenge to their suppliers, who risk losing business if they fail to reduce their own carbon footprint.
• Public policy is also driving corporate action. Some of the world’s leading economies have followed in the UK’s footsteps in setting binding net zero targets. Delivering on these objectives will require tougher regulations and a concerted policy effort affecting all companies.

For example, the UK has set new rules requiring bidders for Government contracts over £5m a year to have committed to net zero. Meanwhile the European Union’s forthcoming Corporate Sustainability Reporting Directive will oblige 49,000 companies across the EU to explain how climate change affects them and how they impact the environment

• Internal transformation: Committing to net zero is often an effective way to coalesce and focus corporate action on climate change by establishing a key performance indicator which can be monitored internally and communicated externally.

Spanish companies who have set net zero targets tell us that the process has helped them acquire a far better understanding of their energy usage and identify opportunities to boost competitiveness and drive innovation.

Race to Zero: Why zero is more

But while net zero has gained increasing traction, the concept has also come under fire from critics who fear that setting far-off targets without meaningful commitment to short-term action amounts to little more than hot air.

The numbers speak for themselves: to limit global warming to below 1.5ºC – in line with the Paris Agreement – the world needs to reach net zero by no later than 2050 and cut emissions by half in the next ten years

Yet emissions are currently on track to increase by 16% by 2030, meaning global temperatures could rise by 2.7ºC by the end of the century – a catastrophic scenario. This is the reason why the UK has made keeping 1.5ºC alive the overarching priority for COP26.

In the corporate realm, the UNFCCC’s Race to Zero provides a framework to identify and differentiate meaningful corporate action. Companies that join the Race to Zero commit to abiding by a robust set of criteria on governance, disclosure and implementation. The criteria are designed to ensure that net zero targets translate into real world action.

Reaching net zero by 2050 will be a challenge for everyone – Governments, individuals and companies. But the 4,500 companies worldwide who have signed up to the Race to Zero, including 102 from Spain are on the right path. Their leadership should be commended.