What is net zero? A guide for manufacturers and commodity traders

Companies with a net-zero target must dramatically reduce their carbon footprint and purchase carbon removals to mitigate residual emissions. Here’s how.

What is net zero?

The call for sustainability is louder than ever, and for high-carbon industries such as manufacturing and commodity trading, answering this call is not just about ticking boxes on a checklist — it's about keeping these essential industries thriving without harming the planet.

The concept of net zero has emerged as a cornerstone for a low-carbon future. But the precise definition of net zero can be difficult to pin down, with different takes appearing in different places. What does net zero mean for your business?

Let’s dive in.

What does net zero mean?

For a company, being net zero means making significant emissions reductions in their operations and supply chains, and then achieving a balance where any remaining greenhouse gases (GHGs) it emits are equal to the amount it removes from the atmosphere. This balance ensures that the company’s operations don't contribute to the overall increase in global GHG levels, effectively neutralizing its impact on climate change.

To reach net zero, a company has to drastically reduce its carbon footprint — often by more than 90% and across all three ‘scopes’ of emissions. The small number of residual emissions that remain can be addressed by purchasing carbon removals to offset them. The goal is to get as close to zero emissions as possible before addressing the leftover emissions through carbon removals.

Net zero is not just a label — it’s a long-term commitment and a journey toward a more sustainable future.

Learn how Metal Exchange and Pennex use CarbonChain to accurately report on their aluminum emissions.

What is the importance of net zero?

High-carbon industries are major contributors to global emissions, with over 50% of the world’s greenhouse gases originating from the extraction, processing, and manufacturing of materials, fuels, and food.

While embracing net zero is difficult — particularly for carbon-intensive sectors like metals, energy, and manufacturing — it’s necessary and strategic. Not only will it help companies meet regulatory and market expectations, but in the new ‘green’ economy, a commitment to net zero also serves as a competitive advantage. Here’s why:

Boosting efficiency and competitive advantage

Investing in energy-efficient technologies and renewable energy can lead to significant cost savings. As operational expenses decrease, businesses can improve their bottom line while reducing their carbon footprint. Now more than ever, B2B customers and investors are shopping with strict criteria for sustainability credentials. With transparent, low-carbon products available, companies can satisfy what these stakeholders are looking for and even command a price premium as a result.

Promoting financial confidence and stakeholder relations

With 81% of financial institutions now assessing climate-related portfolio risks, there is a growing emphasis on sustainability within the financial sector. By addressing climate-related risks and reporting on their carbon emissions, businesses can give investors the information they’re looking for.

Moreover, businesses that can show that they are not just reporting on carbon emissions but actively progressing towards net-zero targets can strengthen relationships with investors and financial institutions. Finance providers play a key role in decarbonizing emissions-intensive industries like commodity trading, and may be particularly interested in the sustainability performance of the companies they support.

For example, one of CarbonChain’s finance customers, Societe Generale, worked closely with a major commodity trader, Concord, to quantify emissions and develop KPIs for carbon reduction.

Accelerating industry-wide innovation

High-carbon industries that embrace net zero can lead by example, driving innovation and setting new standards for sustainability. This can inspire other sectors to follow suit and accelerate the overall pace of decarbonization.

Leading in sustainability can position businesses to shape future regulations and industry norms, providing a strategic advantage in navigating evolving policy landscapes.

What is the difference between net zero and carbon neutral?

Although both 'net zero' and 'carbon neutral' aim to balance carbon emissions through avoidance or removal credits, they take different approaches and cover different scopes. It’s not just semantics; companies need to make sure they get this right. Advertising regulators are becoming increasingly sensitive to ‘greenwashing’ attempts, and the use of certain terminology (such as carbon neutral) are facing scrutiny.

Net zero

To reach net zero, a company needs to drastically reduce its carbon footprint — often by 90% or more — and then offset any leftover emissions by purchasing carbon removal credits.

Scope and ambition

• Broader goals: Net zero is a comprehensive approach to reducing greenhouse gas emissions across all three scopes as much as possible. This includes direct emissions from owned or controlled sources, indirect emissions from purchased electricity, and all other indirect emissions throughout the supply chain.
• Reduction focus: The primary goal is to minimize emissions as much as possible, aiming for near-zero emissions. Then, any remaining emissions can be addressed through removal or offset strategies.
• Holistic impact: Net zero considers the entire lifecycle of a business's operations, products, and supply chain, ensuring that all aspects contribute to a sustainable future.

Real-world application

• Long-term sustainability: Industries work towards innovative solutions and cleaner technologies to permanently reduce emissions, leading to sustainable business practices.
• Alignment with global goals: Net zero aligns with international climate agreements such as the Paris Agreement, aiming to limit global warming to well below 2°C above pre-industrial levels.

Carbon neutral

For carbon neutrality, the goal is to balance the carbon footprint by reducing emissions where possible, with the main emphasis on offsetting the remaining emissions through the purchase of carbon credits.

Scope and focus

• Offset emissions: Carbon neutrality involves ‘balancing’ emissions by investing in carbon offsets, such as reforestation projects, renewable energy credits, or carbon capture initiatives, to compensate for emissions produced.
• Operational adjustments: Carbon neutrality does not necessarily require significant reductions in emissions from a company’s core operations.

Real-world application

• Short-term strategy: Often seen as an initial step towards sustainability, carbon neutrality can provide immediate results but may not address long-term environmental impact.
• Market positioning: Companies can quickly claim carbon-neutral status, appealing to environmentally conscious consumers and stakeholders without extensive operational changes.
• Greenwashing: Companies are being increasingly advised to move away from carbon neutrality as a label or marketing tactic, as the concept of offsetting without emissions reductions comes under scrutiny.

Ways to get closer to net zero

Net zero is a journey — one that, for most companies, will take decades. Every company’s journey and destination will look different, and high-carbon industries may not be able to compare their own net-zero targets and milestones to other industries.

The good news is that, at a high level, the path to net zero often follows clear, distinct phases that can guide your efforts and help you stay on track.

1. Measuring existing sustainability performance

The first step toward net zero is getting a clear picture of your carbon footprint. For this, you’ll need robust carbon accounting in order to pinpoint the best places to start reducing emissions. Your baseline becomes your roadmap and reference point for tracking progress toward net zero.

2. Setting targets and developing a meaningful strategy

Once you’ve established a baseline, the next step is to set clear, science-based targets that align your business with global climate goals. You may align these targets with voluntary standards or mandatory regulations depending on your industry and location. Currently, the leading voluntary sustainability target-setting body is the SBTi.

3. Building new incentives

To turn your net-zero target into a reality, it's important to weave sustainability goals into the very fabric of your organization. This starts with creating strong internal incentives that motivate everyone in the company to work towards these targets. Ensure there's clear accountability by assigning specific sustainability responsibilities to key roles or teams so there's real ownership of your net-zero goals.

4. Checking in frequently

Any business goals require careful measurement, and net zero is no different. Given that many companies anticipate their decarbonization journey to span two decades or more, it's crucial to continuously assess your carbon footprint and progress while remaining agile and open to change.

5. Communicating sustainability performance

To fully reap the benefits of decarbonization, it's essential to communicate your progress. Even if your carbon footprint isn’t perfect yet (and let’s face it, no one’s is), sharing your current performance builds trust and transparency for the journey. Open communication helps people understand the genuine efforts behind your goals, preventing any perception of ‘greenwashing’ that could harm your brand.

Why carbon accounting is critical to net zero

Carbon accounting is the foundation of every net zero journey. Without robust carbon footprinting, companies don’t have an accurate picture of their greenhouse gas emissions, and don’t know how to pinpoint their carbon hotspots.

Beyond simply helping companies to set and monitor progress towards their own net zero goals, carbon accounting is also a critical tool in helping your company meet demand for low-carbon or carbon-transparent products.