The financial implications of a net zero strategy

It is well-known that working towards net zero will require every individual and organisation to take steps to understand and reduce their carbon impact, and that includes the charity sector.

Indeed, given the charitable sector’s position as creating positive change for beneficiaries, both current and future, there are calls that all charities, and not just environmental organisations, have a responsibility to go beyond working reducing their own emissions, and take the lead in mitigating and avoiding dangerous climate change. 

As well as campaigning, they can wield significant influence through procurement by choosing service providers with a track record of protecting the environment, as well as using their investment funds in line with environmental, social, and governance (E.S.G.) principles.

Charity Finance Group (C.F.G.) research has shown that while the majority of charities are keen to understand the practical ways in which they can contribute towards net zero, 80% do not have a net zero objective, and even fewer report on their carbon emissions.

Implementing a robust, achievable net zero strategy, suitable for the short, medium and long term is seen as both complex and costly. So what are the financial implications? And can a well-implemented and managed approach actually help ensure sustainability, financially as well as environmentally?

What is net zero?

Achieving net zero means reducing greenhouse gas emissions, including carbon dioxide emissions, as much as possible and then balancing out, or offsetting, any that remain by removing an equivalent amount from the atmosphere elsewhere.

Charities can look to develop sustainable practices to reduce their carbon impact by assessing how their current operations and activities contribute to it, and then embedding sustainability targets into organisational strategy and frameworks. C.F.G. has produced a useful guide on steps charities may consider on implementing a realistic but effective strategy.

To achieve this, employee and volunteer engagement and training is critical. But organisations may face tensions when working towards net zero, including resistance from staff, who may be concerned that taking action to reduce the organisation’s carbon impact could hinder their ability to deliver on its charitable purpose, especially if these changes involve cost.

But changing how they operate day-to-day in order to reduce their carbon impact could benefit charities in many ways, be it by saving money in the long-term, empowering and engaging staff and volunteers, attracting the next generation of employees looking to work for organisations with strong sustainability stories, or being more attractive to donors and funders with environmental consciousness.

Therefore, embedding a net zero strategy should be viewed as an opportunity to future proof an organisation, even if there is a cost in the short term.

Examples from across the charity sector

Bridge House Estates, along with its trustee, the City of London Corporation, has recently adopted an ambitious Climate Action Strategy. It commits them to achieving carbon net zero in its own operations by 2027 and across investments and supply chain by 2040.

To achieve this, it is spending £3.5m over the next five years to improve energy efficiency in its premises, including the iconic Tower Bridge, and ensuring investment portfolios reflect its net zero goals. In addition, it has allocated a further £15m towards delivering climate commitments, with the ambition of reaching net zero across all of its work ahead of that 2040 target.

It sees this kind of significant investment as about putting “Bridge House Estates, which has been around for over 900 years, on a sustainable footing – if not for the next 900 years, at least for the foreseeable future”.

But not only does it regard its strategy in terms of its own activities, but believes that by aspiring to be a responsible leader, delivering them in a sustainable way can help it share knowledge and ideas with smaller charities.

Meanwhile Wellcome, the U.K.’s largest charitable foundation which supports science to solve urgent global health challenges, has set a target of reaching net zero for its U.K. scope 1 and 2 emissions by 2030.

The target covers the emissions generated by operations at Wellcome’s headquarters, and museum and library based in Euston. Its emissions result principally from the heating and cooling of these buildings and from purchased electricity.

It is simultaneously exploring both refit and relocation options, which it admits are significant and resource-intensive, but concedes doing nothing is not an option and so sees it as an opportunity to “create an environment in which people will enjoy visiting and working in for decades to come.”

Advantages of becoming a net zero

As, highlighted above, there are clear benefits to becoming net zero, beyond the wider positive effect on the environment, even if making any change to how a charity is run rarely comes without cost in the short term. And there are other considerations from a financial perspective.

Charities should seek to maximise the efficiencies which net zero organisations can find through reduced energy, waste and water costs. Those with minimal greenhouse gas emissions and environmental impacts may also find themselves able to avoid future carbon and waste taxes.

Donors are becoming more and more climate-conscious and will be attracted to not only environmental causes, but charities demonstrably pursuing net zero policies.

Funders, including foundations and public sector contractors, will increasingly set commitments to net zero as a minimum requirement to be considered for grants and contracts. 

In the business world, there is also a case to be made for the early mover advantage, whereby while the potential advantages listed above come with risks attached in investing and working to achieve them, it can put a company ahead of others in an industry and help them to establish a larger market share while others catch up.

Although this business model of outdoing competitors isn’t so directly relevant to the charity sector, there is still a clear gain for those charities who are ahead of the game.

As well as realising the benefits of effectiveness in fulfilling their own charitable objectives, as being seen to take the lead in tackling the undoubted beyond crucial challenge of climate change globally, net zero strategies will increasingly become aligned, and indeed part of, necessary overall financial policies for sustainable organisations.