TL;DR: Carbon neutrality and Net Zero are often used in the same context, but they have key differences. Carbon neutrality allows businesses to offset emissions without necessarily reducing them, whereas Net Zero prioritizes emission reductions before offsetting the remainder. For SMEs, understanding this distinction is crucial because Net Zero aligns with global climate goals, regulatory expectations, and consumer trust. To stay competitive and truly contribute to sustainability, SMEs must go beyond carbon neutrality and actively reduce emissions on the path to Net Zero.
The Difference between Carbon Neutral and Net Zero in Business
The IPCC revealed once again that we really need to limit global warming to the Paris 1.5 ᵒC. Exceeding this goal would mean irreversible consequences for both people and nature. The essence of the story; "Net-Zero" or "Net Zero emissions" by 2050 is necessary to achieve this goal of 1.5 ᵒC.
Since the Paris Climate Agreement in 2015 entered into force, terms like 'Net Zero' and carbon neutral are often named in the same context, for example in sustainability reports. The definitions seem to have similar meaning and essence, reducing, and balancing out carbon emissions. There is however a substantial difference between these two terminologies, and it is important to be able to distinguish them. I will explain the importance of the difference with an example; Imagine a small company (A) that for example produces eco-friendly packaging. This company markets itself as carbon neutral because it purchases carbon offsets by funding climate projects like tree-planting. However, it continues to rely on fossil fuels for production, transportation, and electricity.
Now, suppose Company A has a client; Company (B), who has updated his Net Zero pathway. However, because company (A) misunderstood the difference, they now risk losing this business opportunity. Had they known the difference between carbon neutral and Net Zero, they might have already invested in technologies/practices that would make them more attractive to future clients that have Net Zero requirements.
This example highlights the importance for SMEs to understand the difference, not only to meet regulations and consumer expectations but also to avoid missed business opportunities and ensure long-term resilience. This article will carefully explain the difference and the actions you can take to reach Net Zero.
Defining Carbon Neutral vs. Net Zero
Carbon neutral: As a company, you are considered carbon neutral when you offset your carbon emissions by investing in projects that remove or reduce an equivalent amount of carbon from the atmosphere. This can be achieved through carbon offset projects, such as afforestation projects, renewable energy investments, or carbon capture technology. Carbon neutrality does not necessarily mean that the company has reduced its own emissions, it simply means the impact is balanced out somewhere else.
Carbon neutrality is an important first step for a company’s sustainability strategy. If you want however to maintain a livable planet for the human race and the other organisms, it’s important to achieve the Paris climate targets. That’s why it’s necessary to not only balance out your current emissions, but also to take steps to reduce your emissions as much as possible. That is where 'Net Zero' comes in.
Net Zero: Net Zero goes a step further then carbon neutrality. To become Net Zero, you must reduce your greenhouse gas (GHG) emissions as much as possible before offsetting any remaining emissions. This approach emphasizes that you have to minimize emissions at the source by improving your efficiency, adopting renewable energy, and redesigning your processes before you start relying on offsets as a last resort. Net Zero aligns with the Paris Agreement’s goal of limiting global warming to 1.5°C above pre-industrial levels.
For a Net Zero journey you have to, in addition to offsetting Scope 1 and 2 emissions, also cover your Scope 3 emissions. This means that you also have to look at indirect emissions, which come from activities throughout the supply chain. For a short recap of what the scope 1,2 and 3 emissions are, we advise you to read Scope 1-2-3 emissions explained for a better understanding.
Carbon neutral | Net Zero | |
Emissions covered | Scope 1 and 2 | Scope 1, 2 & 3 |
Applicable offsets | Compensate what you don’t want to reduce | Reduce and remove what you can |
Attitude to carbon offsetting | Neutral | Rather no offsetting, only the emissions that are not abatable |
Applicable at | Company, product or service level | Global, national or company level |
Timeframe | Short term (can be achieved immediately since you can directly buy all necessary carbon offset credits) | Long-term (working towards a goal) |
Key Differences between Carbon Neutral and Net Zero
Emissions Reduction vs. Offsetting: Being carbon neutral in theory allows you to continue emitting greenhouse gases as long as they purchase offsets, while Net Zero prioritizes actual emission reductions before using carbon offsets.
Scope of Impact: The approach that Net Zero takes is more comprehensive and it addresses Scope 1, 2 & 3 emissions, whereas carbon neutrality often focuses only on Scope 1 & 2 emissions.
Long-term Sustainability: Net Zero is in alignment with the global climate goals more effectively by ensuring sustained emission reductions rather than relying on offsetting schemes.
The Importance of Scope 3 in your Net Zero Journey
When you are striving for Net Zero, scope 3 is an essential addition to reducing your Scope 1 and 2 emissions. Scope 3 emissions are often the most challenging to tackle, but often also represent the largest share of a company's total carbon footprint. Becoming carbon neutral is the first step, but address Scope 3 emissions is crucial, as also highlighted by the World Economic Forum.
Companies that actively collaborate with their entire supply chain to reduce their Scope 3 emissions can save on costs and energy, produce more sustainably, and gain a competitive advantage by becoming more attractive to customers and investors who value sustainability.
Why SMEs should strive to be Net Zero instead of Carbon Neutral
In today’s world, consumers and investors increasingly value corporate sustainability practices. If a company claims to be carbon neutral without substantial emission reductions, it may face accusations of “greenwashing.” SMEs that strive for Net Zero can gain competitive advantages by demonstrating genuine commitment to sustainability. Besides that, vulnerable communities are often hit the hardest by climate change. Only offsetting emissions does not address the root cause of global warming. The majority of climate projects is also in the relatively poor regions. By relying too much on projects there, we deprive them of the opportunity to use their land for their own economic development, which is also not fair considering our own historic growth. Really taking responsibility for reducing your own footprint, also means considering these broader societal efforts to mitigate climate change.
Beyond these social arguments, Net Zero is also in more technical aspects interesting. Reducing emissions through energy efficiency and process improvements can for example lower your operational costs in the long run. Investing in cleaner technologies and reducing your reliance on carbon offsets, can lead to economic benefits and competitiveness over time, as explained by ABN Amro. Companies that adopt Net Zero strategies also often develop more resilient business models. This includes investing in renewable energy, sustainable supply chains, and eco-friendly products, which can drive innovation in your company and opens new market opportunities.
Now is the Time to Act
To summarize, achieving carbon neutrality is a step in the right direction, but the ultimate goal should be reaching Net Zero. To preserve the world as we know it, it is more important than ever for businesses to take action against climate change. Besides contributing to a healthy planet, achieving Net Zero also offers socio-economic benefits for companies. Companies that compensate for their emissions and consume less energy tend to be both socially and economically more competitive in the long run than their polluting competitors, because by prioritizing sustainability, those companies are forced to optimize their energy efficiency and increase their productivity.
What can you do?
The first step in the process of your Net Zero journey is to measure your emissions. Regreener offers a valuable tool where you can calculate your carbon footprint. Once those emissions are mapped out, you have an overview of where your greatest emissions come from. Now you know where to reduce your emissions. For easy reductions, make sure to read our quick wins article, to start reducing now! Regreener also offers, in addition to the tooling, strategic advice services for your personal reduction plan. For the remaining part that cannot be reduced we also offer interesting climate projects where you can choose which way of carbon offsetting fits your company best.
Are you also interested in a sustainable future for your company? Regreener can help you with both carbon offsets and your net-zero journey. Contact us via the website or send us an email at info@regreener.eu.
