Can Investors Trust Corporate Net-Zero Commitment?
From budgets and accountability to governance: how can companies explain the decisions behind their net-zero targets?
If investors asked at your next results briefing, “Which investment decisions have you changed this year to deliver your net-zero target?”, how would your company respond?
Would you reiterate the target year and present an emissions reduction roadmap? Or could you explain which projects have approved budgets, which operational decisions have incorporated emissions considerations, and who is responsible for tracking implementation and results?
This question highlights the gap between making a commitment and delivering on it.
A net-zero target sets out where a company intends to go. Assessing whether it has a credible basis for getting there, however, requires a closer look at how it allocates resources, manages business trade-offs and assigns accountability for results. Even a clearly defined target offers limited insight into implementation unless it is linked to budgets, responsibilities and governance processes.
To demonstrate the credibility of their net-zero commitments, companies need to explain not only their long-term ambitions, but also the decisions and actions they are taking today. The following three questions provide a useful starting point from an investor’s perspective.
Are Resources Aligned with Targets?
Consider a company that has committed to reducing its operational carbon emissions and identified equipment upgrades as a key measure. Yet when management is asked about timing, funding requirements and approval status, the answer remains “under review”.
This does not mean the target lacks value. It does, however, leave a clear question unanswered: how does the company intend to move from planning to implementation?
If equipment upgrades are central to achieving the target, the company needs to explain whether the investment has been incorporated into capital expenditure planning, when a decision will be made, and which conditions must be addressed before implementation can proceed. Otherwise, stakeholders may still see an intention rather than an action supported by concrete arrangements.
Companies may not be able to secure funding for every measure when they first set a target. What matters more is accurately distinguishing the readiness of different projects:
Committed resources: Which projects have budgets, designated owners and implementation timelines? Are the resources sufficient to support the current phase of work?
Plans awaiting approval: Which measures still require an assessment of costs, technical feasibility or operational implications? When are decisions expected?
Dependencies affecting progress: Which outcomes depend on equipment availability, external partnerships or other factors? What contingency arrangements are in place if these conditions are not met?
In external communications, explaining each initiative’s current status—what has been completed and where the next decision point lies—is more persuasive than presenting every proposed measure as a future achievement.
This also helps distinguish resources already committed from those still being sought, avoiding the impression that an unapproved proposal is ready for implementation.
Companies need to explain what could prevent their plans from progressing and how they intend to address those challenges.
Who Makes the Trade-Offs?
Whether net-zero targets are genuinely embedded in business management is often tested not when a commitment is announced, but when the company faces competing business priorities.
For example, a company planning to expand production capacity may have two equipment options: one with a lower upfront cost, and another expected to consume less energy and generate fewer emissions, but requiring a higher initial investment.
How would the company compare them? Beyond the purchase price, would it consider equipment lifespan, energy costs, operational requirements and emissions implications? If the final choice is inconsistent with the original emissions reduction plan, who would approve it and assess the implications for the overall target?
These questions cannot be answered by the sustainability team alone.
Clear responsibilities are needed for how finance assesses investments, how procurement sets requirements, how operations implements decisions, and how management resolves competing objectives. Otherwise, departments may support the same net-zero ambition while applying different criteria when making decisions.
Companies can review whether their existing governance processes clearly define:
Who develops proposals and provides supporting information: Which department brings together the cost, energy, emissions and operational data needed for assessment?
Who assesses the different implications: Who considers financial returns, implementation risks and emissions reduction benefits together, rather than relying on a single metric?
Who approves significant trade-offs: At what level should decisions be made when business requirements conflict with emissions reduction plans?
Who monitors the consequences: Once a decision has been implemented, who tracks its effects on emissions and the original target?
The point is not that every decision must favour the lowest-emissions option. It is whether the company can explain the role its net-zero target played in the decision, the rationale for the final choice, and how the resulting implications will be managed.
If a company can state its targets but cannot explain who has the authority to resolve trade-offs during implementation, it should reconsider whether its commitments are adequately connected to corporate governance.
Net zero is not simply a task for a dedicated team. It is also an important consideration in resource allocation and business decision-making.
How Does the Company Respond When Progress Falls Short?
Even the most comprehensive roadmap must accommodate changes in the business environment.
Equipment upgrades may be delayed, expected energy savings may not be fully realised, and business growth may alter emissions trends. The key is not whether a company can guarantee that every measure will proceed exactly as planned, but whether it can identify deviations early, analyse their causes and take appropriate action.
Imagine investors asking a follow-up question:
“If emissions reductions fall short of expectations this year, who will know? Who will address the issue? What happens next?”
Statements such as “we will continue to monitor progress” or “we will maintain our efforts” are not sufficient answers. Companies need to explain how monitoring works and how emissions performance informs management decisions.
A review can focus on the following areas:
Review frequency: How often does the company assess implementation progress and emissions performance? Is the frequency appropriate to the project’s implementation cycle?
Accountability: Who compiles the data, analyses gaps and reports to the relevant management?
Response procedures: What circumstances trigger changes to measures, additional resources or escalation to a higher level of management?
Follow-up records: When adjustments are made, are the reasons, expected effects and next review date documented?
Companies also need to distinguish between different types of deviation. If emissions performance falls short of expectations, is it because measures remain incomplete, the measures themselves are less effective than anticipated, or business activity and emissions accounting boundaries have changed? Different causes require different responses. A single increase or decrease in reported emissions is not enough to assess effectiveness.
Equally, when total emissions decline, companies should explain how much of the reduction reflects actual improvements and how much results from changes in production volumes, operational scope or other factors. Achievements and shortfalls should be assessed on a consistent analytical basis.
Where measures, timelines or targets need to be revised, companies should explain the reasons and implications and retain the corresponding internal decision records, rather than simply updating external statements.
The ability to review progress and make adjustments is an important indicator of implementation capability. Compared with a plan that remains unchanged but no longer reflects actual conditions, adjustments supported by evidence, clear accountability and follow-up actions provide a more meaningful view of how a company is managing its transition.
Start with the Records: Take Stock of Your Net-Zero Commitment
Answering these questions does not necessarily require another lengthy report. Companies can start with existing budgets, project documents, meeting minutes and reports to prepare three concise summaries.
Targets and Resources
Set out the principal emissions reduction measures, the targets they support, budget status, implementation timelines and expected contributions. For projects that have not yet been confirmed, identify outstanding decisions and conditions that could affect progress.
This summary should answer: What resources does the company intend to use, and which specific actions will they support?
The objective is not to label every project as confirmed, but to distinguish clearly between arrangements that have been approved, remain under assessment or are still awaiting confirmation.
Responsibilities and Decisions
Identify who is responsible for implementing each measure, who has approval authority, and how significant issues are escalated. Where a project involves multiple departments, specify the information each must provide, their respective responsibilities and who coordinates the work.
This summary should answer: Who drives implementation, and who makes decisions when trade-offs arise?
Naming a responsible department may not be enough. The company also needs to establish whether that department has the necessary authority and which matters require approval from other members or levels of management.
Progress and Adjustments
Set out interim results, deviations from the original plan, their causes and subsequent actions, together with follow-up arrangements and the next review date.
This summary should answer: How does the company determine whether its plan is effective, and what does it do when results fall short?
Records should go beyond a summary of achievements. They should also retain the rationale for significant adjustments, enabling management to understand the relationship between decisions and outcomes.
If these three summaries are difficult to prepare, the company should first establish whether information is dispersed across departments or whether the underlying arrangements have yet to be clarified.
These are different problems requiring different responses. The former calls for better information gathering and coordination. The latter requires management decisions on resources, responsibilities or governance processes; it cannot be resolved simply by producing additional documentation.
The value of this review extends beyond making external questions easier to answer. It also helps management identify the remaining gaps between its net-zero commitment and implementation.
Use NZAfE Participation to Review Your Decision-Making Framework
For companies considering participation in NZAfE, preparing an application can provide an opportunity for a structured internal review. Using the formal assessment framework and application requirements, companies can take stock of their governance arrangements, implementation outcomes and supporting documentation, identifying what is already substantiated and what requires further evidence or clarification.
Start by checking three things: what the company has committed to, what it has actually done, and what evidence supports its statements.
The preparation process should also distinguish between complete documentation and effective management arrangements. Having documents does not necessarily mean measures have been implemented; equally, action may have been taken without being clearly documented. Both need to be presented accurately. Polished wording is no substitute for addressing gaps in implementation.
No award or assessment result should be regarded as a guarantee of investor trust. Companies must continue to explain their execution capabilities, results and limitations so that stakeholders can understand the reality behind their commitments.
The credibility of a net-zero commitment depends not simply on how far into the future its target extends, but on whether today’s budgets, decisions and accountability arrangements are aligned with it.
Disclaimer
This article is provided for general information and business strategy reference only. It does not constitute an entry guide for the Net Zero Awards for Excellence (NZAfE), nor does it supplement, amend or interpret the official judging criteria. The views, analyses, frameworks, examples and recommendations presented in this article should not be regarded as entry requirements. Adopting these recommendations does not establish eligibility or guarantee any rating or award. Eligibility, application procedures, submission requirements, judging criteria and related arrangements are governed by the latest published official documents and guidelines. In the event of any inconsistency between this article and those documents, the official documents and guidelines shall prevail.
