What is net zero?

How the term net zero originated

The concept of “net zero” emerged as a hot topic and a goal in combating climate change in connection with the Paris Agreement in 2015. The Paris Agreement sets the global framework for combating climate change, outlining global goals for reducing greenhouse gas emissions. 

What does net zero mean for companies?

The concept of net zero is crucial for companies that want to contribute to a low-carbon economy. Net zero for companies means a commitment to fully offsetting greenhouse gas emissions, that is, to achieve a balance between greenhouse gas emissions and greenhouse gas removal. 

In other words, in order for a company to meet net zero, the company’s greenhouse gas emissions minus the company’s greenhouse gas removal should be zero. For most companies, this sustainable transition will require significant changes throughout the whole value chain, including but not limited to: 

• supplies and procurement
• more energy efficient production processes
• cooling and heating
• investing in renewable energy 
• sustainable transport
• exploring opportunities for carbon removal initiatives

What is included when emissions are calculated?

Reaching net zero is more complicated than one should think. A lot of factors need to be taken into consideration – not just the ones you control directly. 

Furthermore, net zero includes all greenhouse gases, not just CO₂. While CO₂ is the most well-known of the greenhouse gases, there are six other greenhouse gases as well, such as methane and nitrous oxide, which are all included in the sum for net zero. 

To break this down even more, the greenhouse gases are: CO₂, CH₄, N₂0, HFC_s, SF₆, NF₃, PFC_s. When calculated, these gases are converted into CO₂ equivalents (CO₂ e).

The emissions are also split into three categories, called scopes, based on how they are connected to, for example, the company or organisation that is trying to calculate them and where they were emitted. Net zero includes both direct and indirect greenhouse gas emissions which can make calculations rather complicated. 

Direct emissions are called scope 1 emissions and indirect emissions are called scope 2 or scope 3 emissions. When aiming for net zero, all of the scopes need to be considered to comprehensively address one’s greenhouse gas footprint. 

Let’s look more in detail at the three different scopes: 

Scope 1 emissions 

As mentioned, the direct emissions are called scope 1 emissions. They come from things that a company directly owns or controls, like buildings, factories and vehicles. 

Scope 2 emissions 

Indirect emissions that come from sources that a company doesn’t directly control, but still contributes to, are called scope 2 emissions. The electricity, heating and cooling that a company purchases are good examples. So, if a company buys electricity from a power plant that burns coal and emits greenhouse gases, those emissions would be scope 2.

Scope 3 emissions

Scope 3 emissions are also indirect but cover the full value chain of a company. Examples are emissions from business travel, transport and the use of the products or services a company sells. These emissions are often more challenging to track and manage because they involve activities that a company doesn’t directly control but still influences. 

The loans and investments provided by a bank like Nordea would fall into the category of scope 3 emissions. By lending money to a company, Nordea takes a share of the emissions caused by that company’s activities. These emissions are considered indirect because they result from activities that the bank influences through its financing and investments but doesn’t directly control.