The difference between net-zero and carbon neutral

At some point, directors and executives will discuss their company’s impact on climate change. By and large, investors and consumers want to see this happen and want you to know what you’re talking about. 

Does that mean you need to know everything about climate change? No, of course not. 

But it does mean you should know the basics of the data. After all, part of your role as a corporate leader is to understand and stand over reports, and in any climate report, you’ll likely find references to both “carbon neutral” and “net-zero”.

It’s easy to think these are the same thing. But they’re not. 

Net zero refers to a state where a person, organisation, or country’s GHG emissions are balanced by removing an equivalent amount of emissions from the atmosphere.

This can be achieved through a combination of reducing emissions and actively removing carbon dioxide from the atmosphere, for example, through carbon capture and storage or afforestation.

On the other hand, carbon neutrality refers to a state where a person, organisation, or country’s GHG emissions are balanced by offsetting those emissions by purchasing carbon credits.

Carbon credits are a way to fund projects that reduce or remove carbon emissions, such as renewable energy or reforestation projects, to cancel out the emissions the purchaser produces.

“It’s important to note that while net-zero and carbon neutrality are necessary steps towards mitigating climate change, some experts argue that relying too heavily on offsets can be problematic as they can be subject to fraud, or double-counting may not address the root causes of emissions,” says David W Duffy, CEO of the Corporate Governance Institute.

“Therefore, it is generally considered more desirable to focus on reducing emissions at their source rather than relying solely on offsets,” says Duffy.

Net zero is when a company’s emissions balance out to zero. This may sound like carbon neutrality, but there are crucial differences:

• Carbon-neutral allows for offsets; net zero does not. In other words, to be net zero, you must ensure your supply chain emits no greenhouse gases from the beginning. Offsets don’t count. 
• Carbon-neutral documents only carbon; net-zero documents every harmful greenhouse gas. It presents a fuller picture.

It means the full measure of a company’s carbon emissions balances out to zero. In other words, you ultimately contribute no CO2 to the atmosphere. 

Why do we phrase it like this? Because companies will continue to emit CO2 within their supply chain. Often, in this day and age, that’s inevitable. 

The core of carbon neutrality is offsetting that impact – compensation for activities that emit carbon dioxide into the atmosphere with activities that take it out. 

This is called “offsetting”. Common examples include carbon credits or forest development.

“Net Zero is considered the gold standard for corporate climate action”.

         –   Senja Kuokkanen, Sustainability Manager at Finnish energy giant Neste. 

These words have been endorsed by the World Economic Forum, highlighting that because “net zero” is a newer term with broader parameters and stricter standards, it will likely be the global benchmark.

Don’t assume that “net zero” is the only important term at corporate leadership meetings. 

Sustainability is far more significant than one term and one goal; “carbon neutral” can be an equally important, depending on the context of your board meetings and the report you’ll need to produce.

As a corporate leader, you don’t need to know everything about climate change, but you should learn the basics. Knowing how to differentiate terms with similar meanings is central to that. 

As investors and consumers become more savvy about environmental matters, they will want to see that you know the difference from internal and external communications. 

Any indication of confusion is unlikely to impress.