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How to net zero your business: what is it and what are the benefits?

Sustainability

How to net zero your business: what is it and what are the benefits?

Updated: 14 November 2022

Small99 guides small businesses to net zero through practical tips that build a more resilient and profitable company at the same time. In this two-part series, they’ll guide us through what net zero is, as well as provide practical tips to help your business on the journey to becoming net zero.

With COP27 in full swing, the term net zero will be making an appearance across social media and the news more than ever. It’s baked into Government targets, NHS Operational guidelines and corporate legislation. So, it’s not going anywhere. 

As a small business owner, this can all feel a bit big and unrelatable. Yet with 99% of registered businesses in the UK defined as small, making up to 50% of the UK’s business emissions, it won’t be long before net zero affects you. In this first article, we’ll take a look at what it is and what it means for your business.

What is net zero?

There are two terms which often get used interchangeably but mean different things: net zero and carbon neutral

Carbon neutral

Carbon neutral is when you calculate the amount of emissions you generate, and then purchase carbon credits, or offsets, equal to that amount. Think of it a bit like breaking even. 

To give an example, let’s say you drive a Ford Focus and drive 10,000 miles a year. Based on the Government’s conversion factors for greenhouse gases, you’ll generate ~2.9 tonnes of carbon dioxide equivalent emissions (CO2e). To become carbon neutral, you buy 2.9 tonnes of carbon credits, and this balances out your carbon spend. 

These credits are verified through trusted providers, where tree planting, land restoration or energy projects occur, to neutralise the impact through avoidance of carbon (eg. more trees are planted than usual mitigate the impact of your activities).

Carbon neutral also only measures carbon dioxide emissions, so in this example, you’d be spending 2.8 tonnes of carbon dioxide, and <0.1 tonnes of other greenhouse gases such as nitrous oxide and methane, generated from running the engine.

Net zero

Net zero on the other hand is where you calculate the amount of emissions you generate, reduce as much as possible, and then purchase carbon credits to offset the remaining that you can’t control (yet). Broadly, the accepted reduction amount is 90% by 2050, however huge reductions can still be made within a few months.  

Using the same example, to be net zero, you’d swap your Ford Focus for a Renault Zoe, reducing emissions to 0.7 tonnes, a reduction of 75%. You then offset this final 0.7 tonnes through the purchase of carbon credits.

Another key difference with net zero is that it includes all greenhouse gases, of which there are 6: Carbon dioxide, methane, nitrous oxide, and then 3 different “F-Gases” or fluorinated gases. This can have a big impact if you run a lot of refrigeration, which relies heavily on F-gases.

In terms of measurement, net zero is measured in three areas which are very roughly summarised as:

  • Scope 1 – Fuel and Gas usage
  • Scope 2 – Electricity usage
  • Scope 3 – What you buy, sell, and throw away

To summarise, carbon neutral can be achieved quickly by throwing money at the problem — higher emissions mean more credits to purchase. Net zero on the other hand requires action to meet, by adopting existing technologies to decarbonise and plan for the future.

What are the benefits of net zero for your business?

While the above might sound a little daunting, it doesn’t have to be. There can be some really great benefits to achieving net zero, and these include:

  • Reducing costs
  • Driving business growth 
  • Retaining staff
  • Mitigating climate risk
  • Avoiding future legislation

We won’t go into all of these right now, but let’s focus on those first two points: reducing costs, and driving growth. 

You can reduce your costs

Businesses are under immense pressure currently, with high gas prices driving energy bills up and causing inflation. The UK generates around 40% of electricity from gas, not to mention the extensive gas boilers throughout the country.  However, achieving net zero can help address these challenges. For a small business, energy and transport are typically the two biggest areas of emissions that you’re in control of, or can influence. 

A business with solar panels, electric vehicles and electric heating is much less exposed to external risks such as volatile gas and petrol prices. 

In part thanks to the rising prices, solar panels now have a payback period of less than 2 years. New electricity contracts are being offered at around 80p per kWh. If you use 10,000 kWh of electricity a year, that’s £8,000. A 12kW solar system generating ~10,000kWh a year costs around £14,000 to install. In addition, depending where you’re based, grants are also available which may reduce this down further. 

Equally, much of net zero is about reducing wastage. Excessive use of paper packaging in your retail orders means you have to buy more. Even paper packaging will have a carbon footprint — and therefore cutting down on unnecessary usage will save you cash and carbon. 

It can drive business growth 

B2B

Net zero is starting to strongly affect larger organisations. Large companies are now having to report their energy and transport related emissions data along with their annual accounts, and increasingly also measure their Scope 3 emissions, such as staff transport and travel.

For example, Tesco announced during COP26 that all of its suppliers needed a net zero strategy by the end of 2023. Apple too announced last month that its entire supply chain needs to be decarbonised by 2030. Government contracts also now require a net zero strategy to bid for, where the contract is above £4m. 

Now, as a small business that may not feel like a direct impact. However, due to the way net zero is measured, the knock on effect occurs quite rapidly where even if you’re 3 or 4 steps removed from someone who supplies Tesco, you may need to provide emissions data for new contracts. 

Measuring and acting on net zero now will give you significant competitive advantage in tenders against other businesses. Indeed, a recent study showed those who’re leading on climate action are more than twice as likely to exceed financial targets.

B2C

The consumer demand on climate action is well documented. Increasingly, consumers want to purchase from brands doing the right thing, and there’s a clear advantage to real, honest net zero action when it comes to marketing, storytelling and attracting new customers to your brand. 

A great example of this is the B-Corp movement, whose ethical and environmental brands grow 17x quicker than the national average. 

Ready to take the next step? Check out the second blog in this series which focuses on how to reduce your emissions.

14/11/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice. 

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