The Building
Blocks for Net Zero
Transformation
A practical guide to embedding net zero
aspirations and actions within and acrossyour business
A contribution to the Transform to Net Zero initiative
September 2020

Presented in association with

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Foreword
Even as COVID-19 takes hold of our attention, the pressing challenge of climate changeremains. With a view out beyond the current crisis, arguably the greatest transformation
challenge humankind has faced is staring right at us: the world has 10 years to halve global
greenhouse gas emissions and avoid global warming of above 1.5°C. Beyond this point ofwarming, the more devastating impacts of climate change become irreversible. Put simply,
this gives us just over two business cycles to transform every sector of the global economy.
The good news is that we have recently seen a wave of bold business commitments – justunder 300 global companies have now made net zero before 2050 pledges1. But there is still
so much more to do. Only around 5% of the world’s largest companies represented by the
Global Fortune 500 have pledged to become net zero2. For those that have, there are varying
levels of robustness.
What we do know is that leading net zero commitments have certain attributes. They are
science-based. They take responsibility for tackling value chain emissions including
suppliers, products, services and investments. They also explicitly recognize that net zerorequires a reshaping of corporate strategy and in turn a firm’s operating model. And they
allocate substantial funding for skills, innovation and R&D to reflect the importance of newcapabilities, technologies and business models.
In this PwC and Microsoft report, contributed to the new Transform to Net Zero Initiative, wehave come together to create a ‘blueprint’ to help guide companies as they move fromambition to action. We have a shared belief that delivering on net zero requires wholesale
business transformation, and that functions across the organization need to play a vital role
- from strategy, product development, sales and marketing, and innovation and R&D, tocorporate finance, risk and compliance, procurement and people. That is why, together, andwith case studies from the initiative’s founding members, we undertook this work to create
a good practice guide on net zero transformation for stakeholders across a business.
Transform to Net Zero is about leading companies stepping up to accelerate thetransformation of businesses and industries to achieve a socially just net zero future.
Companies like ours are well placed, and have a duty, to drive efforts and demonstrate what
net zero transformation looks like so that companies of all sizes can do the same.

Celine Herweijer

Lucas Joppa

Global Climate Change Leader,Partner, PwC UK

Chief Environmental Officer,
Microsoft

Microsoft | PwC 2

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

About
This report - produced by PwC and commissioned byMicrosoft - is the first of many contributions to theTransform to Net Zero initiative. It sets the scene forwhat is meant by net zero transformation forbusinesses, and provides a consistent narrative andframing for the work of the Transform to Net Zeroinitiative.
It outlines the key building blocks for business
transformation needed to deliver net zero, providing a
coherent, holistic, and good practice framework thatbusinesses can use to inform and guide how to embed
net zero into a company’s strategy and operating model.
For each building block of the transformation journey,
this report describes a comprehensive checklist of key
actions businesses need to undertake over time,
explains why they are important and provides practicaland actionable guidance that companies can follow toachieve them. Whilst comprehensive, this checklist is
not exhaustive and different companies may choose tofocus on specific actions most relevant to theiroperating context. We also expect this checklist to
evolve with time, as more lessons are learned on
implementing effective net zero transformation.
This document is intended to be used by businessexecutives and function heads as a framework, settingout how to translate a net zero commitment into thebusiness transformation that is required to build abusiness fit for the future. It is sector and size agnostic,
and contains case studies from Transform to Net Zerofounding members to bring the building blocks to life.

About Transform to Net Zero
Transform to Net Zero intends to develop anddeliver research, guidance and implementableroadmaps to enable all businesses to achieve
net zero emissions. It will focus on enabling
the business transformation needed toachieve net zero emissions no later than 2050,
in addition to driving broader change, with afocus on policy, innovation, and finance. The
initiative intends to complete the outputs ofthis work by 2025, and these will be available
to all.
The Initiative will be led by founding members
including A.P. Moller – Maersk, Danone,
Mercedes-Benz AG, Microsoft Corp.,
Natura&Co, NIKE, Inc., Starbucks, Unilever,and Wipro, as well as Environmental Defense
Fund (EDF). The Initiative is supported by BSR,
which is serving as the Secretariat for theInitiative.
This report, written by PwC, wascommissioned by Microsoft as a firstcontribution to the objectives of Transform to
Net Zero. It does not necessarily reflect theviews of the Transform to Net Zero members.
This document seeks to complement the work of other business-focused climate action
initiatives, including SBTi, CDP and the GHG Protocol, and WBCSD’s SOS1.5 program, as well as
sectoral efforts such as the World Economic Forum’s Mission Possible Platform and the Net Zero
Asset Owner Alliance. Going forward the Transform to Net Zero initiative will collaborate with,and leverage the diverse work, good practice and research of these initiatives, and integratethem with Transform to Net Zero tools and resources. Transform to Net Zero’s aim is to enable
companies of all sizes, everywhere, across industries and value chains to fast follow.

Microsoft | PwC 3

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Contents
Introduction

5

Overview: Building Blocks for Corporate Net Zero Transformation

7

Ambition: Aligned to achieving global net zero by no later than 2050
& to limit warming to 1.5oC

9Governance: Accountability driven from the top

12Strategy: Embedded and aligned net zero into company strategy

15Enterprise transformation: Key operating model changes in supportof transformation

19

Supply Chains: Transformed net zero supply chain

23

Innovation: Developed innovation and technologies to deliver net
zero

28

Finance: Financing the net zero transformation

34

Transparency: Communicating action

37

Engagement and influence: Enhancing the pace and scale of net
zero action

40

Conclusion

43

Microsoft | PwC 4

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Introduction
What does climate science tell us?

Why is business action critical?

In November 2018, the Intergovernmental Panel on Climate Change (IPCC) publishedresearch3 warning of the devastating impacts of global warming of 1.5°C above preindustrial levels on natural and human systems. The impacts include the loss of arctic ice
sheets, sea level rise, warming oceans, biodiversity loss, increasingly severe extreme
weather events, such as heatwaves, droughts, storms, coastal and inland flooding, leading togreater food insecurity, destruction of livelihoods and assets, and loss of life.

There is an ever increasing gap between actual emissions reductions commitments
made by countries (Nationally Determined Contributions - NDCs) and those necessary
to limit warming to 1.5°C. Based on current unconditional NDC pledges, the world isheading for a 2.8°C temperature rise4. In reality this number may be even higher as NDC
implementation is uneven and patchy.

At current emissions rates, human-induced warming is adding around 0.2°C to global
average temperatures every decade. If this rate continues unabated, global warming
could reach 1.5°C by as early as 2030. The science makes it clear that to have more than a
50% chance of avoiding catastrophic climate breakdown, we must halve global greenhousegas (GHG) emissions by 2030 (from 2010 levels) and reach net zero global emissions around
2050.

Figure 1: Low Carbon Economy Index 2019: Transition pathways (Source: PwC)

Whilst countries are expected to significantly raise their climate commitments in
2020, we stand far away from the pace and scale of reductions needed to keep the
1.5°C goal within reach. PwC’s Low Carbon Economy Index 20195 shows that global
progress on emissions reduction has worsened in recent years and the gap between theactual decarbonization rate (-1.6%) and that needed to keep warming to 1.5°C (-11.3%) is
growing.
Companies have a pivotal role to play in closing this emissions gap. Their actions,
resources, ability to innovate, and wide-reach are critical to rapidly decarbonizing
industries, infrastructure, value chains, and what we produce and consume. Action overthe next decade - which equates to the next two business cycles - will be critical to make itpossible to limit warming to 1.5°C . Companies have a responsibility to drive thistransformation, and to protect their employees, customers, investors, and most critically,
the societies they serve.

What does net zero mean for business?
Net zero is a “state in which the activities within the value chain of a company resultin no net impact on the climate from greenhouse gas emissions”.
A credible net zero strategy means eliminating sources of emissions in the value chain at apace and scale consistent with limiting global warming to 1.5°C as far as possible, and after
this point removing any residual emissions that remain unfeasible to eliminate throughpermanent carbon dioxide removals. It is recommended that all interventions adhere tostrict social and environmental safeguards, and those with strong social andenvironmental co-benefits are prioritized. A foundational guide for the science-based
assessment of corporate net zero targets has been provided by the Science Based Targets
Initiative (SBTi)6.

Microsoft | PwC 5

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Introduction (continued)
The moment in time
Today as the world grapples with COVID-19, we are experiencing a global crisis thatknows no borders, has impacted billions of lives, and has left no organization or
economy untouched. It’s shown how systemic risks can have exponential repercussions —on human health and loss of life, business and supply chain performance and survival,
employment, inequality and the global economic outlook. The immense scale and diversityof the challenges sound very familiar to those who have long championed urgent action toheed the science and avert catastrophic climate change.
The difference with climate change is we know what the costs will be if we don’t act
now. We know the costs are rising, and will continue to rise exponentially with every
fraction of increased global warming. Current estimates suggest global losses from climatechange could total US$600 trillion7 by the end of the century.
The good news is the tide on climate action is beginning to turn. Governments andjurisdictions are ratcheting policies and regulation to support decarbonization in line withbolder climate targets. Investors increasingly recognize the implications on investment
performance and value creation and destruction: over US$45 trillion assets undermanagement (AUM)8 - close to half of total AUM9 - is held by investors that have pledged todrive climate action. And close to 300 global companies have now made so-called “net-zero
before 2050” pledges since 2019, spurred by pressure from investors, customers, consumers
and employees alike. There is an increasing recognition that many levers to cut operationalemissions present a good return, and that industries will together need to solve some of thetechnological innovation challenges for harder to abate emissions.

The recent surge in corporate net zero commitments is a vital and promisingdevelopment, but there is still much more to do. Out of the close to 300 companies withpublic net zero pledges today, many commitments remain vague in how value chain emissions
will be tackled, and in particular downstream emissions from products, services andinvestments. These are the largest sources of emissions for most companies (referred to as
Scope 3 emissions) and failure to address these emissions will result in failure to achieve a net
zero economy. Furthermore, companies are still at the very early stages of embedding net zero
into business and supply chain strategy and transformation efforts. As net zero requires fullvalue chain transformation, companies cannot act alone and success will be dependent on acommon and accelerated path forward.

Resetting and reconfiguring for the future
Critically, the end goal is not just net zero, but a thriving, socially just, net zero future.
Marginalised groups and low-income communities often bear the greatest impacts of climatechange and there will be transitional implications for workers, sectors, communities andregions that will need to be managed.
Companies must help enable the conditions needed to achieve effective, just and sustainableclimate solutions for people of all gender, race and skills. Examples include proactively driving
inclusivity and social impact of new net zero products and solutions, upskilling and reskilling toenable an inclusive workforce transition, upskilling and broader support for SME partners andsuppliers, integration of social metrics into reporting and disclosure around net zero, andincorporating inclusion and a “just transition” into policy advocacy efforts.

Microsoft | PwC 6

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Blocks for Corporate Net Zero Transformation
To deliver on their net zero commitments, companies will need to undertake end-to-end
business transformation. This includes understanding the implications of net zero for acompany’s growth strategy and operating model, and embedding net zero across all
business functions from governance, to supply chains, to finance and innovation.
To support companies on their net zero journeys, PwC has defined nine key building blocks for corporate net zerotransformation. This ‘blueprint’ seeks to help companies move from ambition to implementation. For each building
block, this report:●●●

Defines the checklist of critical actions companies need to undertake to transform to net zero;
Explains why these actions are important; andProvides practical and actionable guidance for companies to follow.

The report also includes case studies from ‘Transform to Net Zero’ founding members, which are intended to help bring
the guidance to life and share successes, lessons learnt and future plans and roadmaps.
The building blocks, and checklists, include actions and suggestions that even today’s most leading companies on
climate action may only just be embedding, or even considering. It is intended as a forward-looking framework to guidethe net zero transformation journey rather than steps that are expected to be in place from Day 1.

Figure 2: Building Blocks for Corporate Net Zero Transformation (Source: PwC)
Align organization around net zero
1|
Ambition2|
Governance

Bring others along

Enable business transformation
3|
Strategy

4|Enterprise5|
Supply Chains

6|
Innovation

7|
Finance

8|
Transparency

9|
Engagement

Microsoft | PwC 7

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Checklist of key actions
Aligned to achieving global net zero
1 Ambition:
by no later than 2050 & to limit warming to 1.5 C

2 Governance: Accountability driven from the top

Embedded and aligned net zero into
3 Strategy:
company strategy

Alignment of company
Checklist of key actions:✓ Set a net zero vision that follows aambition to achieving
science-based approach
global net zero by no later
than 2050, underpinned by ✓ Understand total emissions impact
across value chain
science-based targets
approach to limit warming ✓ Prioritize actions to deliver your net zero
to 1.5oC of warming. Define
commitment
what good practice on✓ Develop a credible carbon offset
ambition looks like.
approach (including measures to avoid,
reduce and remove emissions)

Oversight andaccountability for net zerodriven through the entire
organization, including at
the highest levels of thecompany and Enterprise
Risk Management.

Net zero is embedded Checklist of key actions:
into company strategy, ✓ Understand how net zero is changing
market dynamics and value
including growthstrategy and functional ✓ Assess capabilities required to succeed
under net zero future
strategies to maximize
value and build✓ Identify options to deliver net zero strategy
resilience in a changing ✓ Develop business case to deliver net zeroclimatestrategy✓ Align operating model blueprint to deliver
net zero strategy

transformation: Key operating
4 Enterprisemodel changes in support of transformation

chains: Transformed net zero supply
5 Supply
chain

Developed innovation and6 Innovation:technologies to deliver net zeroCompany is structured toachieve net zero with theoperating model designed
to deliver net zero targets.
A holistic change
management program isdesigned and executed
where required.

Net zero integrated across Checklist of key actions:✓ Leverage existing supply chain
the whole supply chain totransformation efforts to deliverbuild a well connected,
emissions reductions
smart, efficient and low✓ Assess emissions and climate impacts
carbon supply chain
across whole supply chain
ecosystem. Includes✓ Incentivize suppliers to reduce
adapting supply chain
emissionsstrategy, aligning with
✓ Build supplier capacity to deliver net
existing transformation
zero
efforts, and supporting the✓ Build a connected and smart supply
supply chain to
chain ecosystem amongst suppliers
decarbonize

Company invests in R&D
and builds innovation intoways of working toharness emerging
technologies and develop
new solutions to deliver
net zero at pace. Net zerois embedded in to
innovation/R&D strategy,
in to product and service
development, andcorporate ventures.

7 Finance: Financing the net zero transformation

8 Transparency: Communicating action

and influence: Enhancing the
9 Engagement
pace and scale of net zero action

Substantial commitment
and willingness to financenet zero transformation
through existing and new
finance functions andmodalities.

Provides transparent andbalanced information on
progress against net zeroambition, including
business transformation.

Engages and influences
stakeholders acrossecosystems to enablechange at pace and scale.

o

Checklist of key actions:✓ Establish clear structure of
responsibilities and accountabilities todeliver net zero
✓ Harness culture and people✓ Establish policies, processes and ameasurement framework to deliver net
zero transformation✓ Engage customers✓ Leverage technology and digitisation
programChecklist of key actions:✓ Develop investment strategy✓ Embed into corporate finance decisionmaking✓ Identify and prioritize sources offinancing✓ Deliver investment

Checklist of key actions:✓ Those at highest level of organization
assume responsibility for delivering net
zero transformation✓ Establish net zero and climate change as
standing agenda items at executive level✓ Assign management oversight of net
zero transformation✓ Evaluate net zero incentives structure

Checklist of key actions:✓ Communicate your net zero strategy✓ Disclose progress against your net zerostrategy✓ Disclose with clarity and transparency

Checklist of key actions:✓ Ensure net zero is embedded incorporate R&D and innovation✓ Provide finance to develop innovative
net zero solutions✓ Innovate to develop products andservices that deliver net zero
✓ Leverage Corporate Innovation to
unlock internal barriers to net zerotransformation✓ Build innovation ecosystem throughpartnerships

Checklist of key actions:✓ Develop engagement strategy✓ Inspire and lead by example✓ Influence value chain✓ Promote policies and behaviors thatenable and accelerate progress

Microsoft | PwC 8

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Ambition
A credible and leading net zero ambition should align to the achievement of global net
zero emissions by no later than 2050, consider the whole value chain, and be supported bya science-based targets approach.

This section isimportant for:Heads of
Sustainability,
Corporate Social
Responsibility (CSR)
Team, Business Unit
Heads, Supply Chain
Lead, CEO & Seniorleaders.

Checklist of key actions:Set a net zero vision for company that follows a science-based approach toensure warming is limited to 1.5oC and covers the full value chain by: developing
a net zero commitment that is inclusive of operations and value chain, and isunderpinned by a science based approach aligned with limiting warming to 1.5oC.

Understand total emissions impact across the value chain and identify thelargest emissions sources by: conducting a value chain GHG baseline assessment;
supplementing company data with environmental modelling techniques; repeat
footprinting annually.

Prioritize actions to deliver your net zero commitment by: gathering information
to identify GHG emission reduction levers across the value chain; assessing the GHG
reductions impact, costs and return on investment, feasibility, risks andopportunities to prioritize GHG reduction levers.

Develop a credible carbon offset approach (including measures to avoid, reduceand remove emissions) to reach net zero before 2050 by: developing a robust
carbon offset strategy including an emissions mitigation hierarchy; analyzing themarket for offsets; developing a management/ assessment/ certification process.

Microsoft | PwC 9

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Ambition: Aligned to 1.5 degree warming✔Set a net zero vision for company that follows ascience-based approach to ensure warming islimited to 1.5oC and covers the full value chain
There is currently no consistent definition of “net zero”. Without arobust definition grounded in a 1.5°C aligned science-based target,
companies face reputation risk and reduced investor confidence.
Sustainability and CSR leads should work closely with the highest
levels of leadership in the organization to approve a net zerocommitment. This should be underpinned by a science based targetaligned with limiting warming to 1.5oC. A robust target should meet
Science Based Targets Initiative (SBTi) approval, include interim
targets, and evolve with any emerging SBTi Net Zerostandard/framework, including Foundations for Science-based Netzero Target Setting in the Corporate Sector7. The net zero vision
should set out timeframes and accountability, how the company
intends to decarbonize emissions from its operations and value
chain, its approach to hard to eliminate residual emissions throughoffsetting, and an enabling investment strategy.

✔Understand total emissions impact across thevalue chain and identify the largest emissions
sourcesA value chain-wide greenhouse gas footprint is essential to baseline
impact and translate the net zero implications into business specificparameters.
Companies should conduct a value chain GHG baseline andfootprint assessment to understand total GHG emissions impact
and identify the largest emissions sources across the business,business units, geographies, product lines, supply chain and tiers,
downstream in logistics, product use and end of life. The assessment
should have an executive sponsor and audience, but can be driven by
the Sustainability function who are familiar with these assessments.
Data gaps, particularly in scope 3 for supply chain and product use,
can be filled using environmental modelling techniques e.g. InputOutput models and/or life cycle assessments. GHG footprinting
assessments should be conducted annually or at least every two
years, and changes monitored regularly.

✔Prioritize actions to deliver your net zero commitment.

Practical advice for:Companies will need to understand the nature and cost of their critical GHG reduction
levers in the short, medium and long term. This should inform the net zero aligned
corporate strategy and business transformation.

Companies just starting their net
zero journey:

Companies should gather information across their operations and value chain, toidentify GHG emission reduction levers. This should involve engagement withbusiness and functional heads across the organization to identify efforts underway andbuild consensus on key new levers to pursue.
Assessment and prioritization of key operational and value chain GHG reduction levers
would include GHG reduction quantifications, costs and return on investment, feasibility
and risks, and wider business contingencies and impacts (e.g. people - upskilling, reskilling, technology). In addition wider social and environmental impacts should be
identified (e.g. biodiversity, water use, waste, human rights, social inclusion).
Once formulated, a company’s net zero implementation plan should be embedded
within its broader corporate strategy and operating model. This should be an
inclusive exercise bringing in leads from all business functions, and leverage theexpertise of the organization's Sustainability and CSR leads.

✔Develop a credible carbon offset approach to reach net zero before
2050, including measures to avoid, reduce and remove emissions
Companies are offsetting emissions through actions that help society avoid or reduce
emissions outside of their value chains (compensation measures) and actions that remove
carbon from the atmosphere within or beyond their value chains including natural climate
solutions (neutralisation measures). Both measures can play a critical role in society
reaching net-zero, but should not be used as a substitute for reducing value chain
emissions in line with 1.5°C.
Companies should develop a strategy that follows the mitigation hierarchy of first
reducing actual emissions as far as possible, then offsetting those that remain to bring
the balance of emissions to net zero at the target date. Nature-based and engineered
solutions offer ways to remove carbon from the atmosphere and can be used to offset a
company's residual emissions. For all carbon removal options, in addition to verification,
the permanence of removal and broader social and environmental impacts should beassessed.
Companies should analyze the market for offsets - considering how price of carbon
offsets might change and assessing the landscape of offsetting schemes and ‘in house’
options. The strategy should also include a management/ assessment/ certification
process to ensure offsets are credible, and robust social and environmental safeguards.

Who is responsible for delivering Net Zero Ambition:
Heads of Sustainability, Corporate Social Responsibility (CSR) Team, Business Unit Heads, Supply Chain Lead, CEO &Senior leaders.

Start by clearly defining net zero and what
it means for your business. It may be
helpful to conduct an executive briefing, toensure leadership are aligned around acommon view of what net zero is, why it isimportant to follow a good practice
approach, key business drivers, and theimplications (including challenges andopportunities) involved.

Mature companies seeking to be
net zero leaders:
It is the robustness, breadth and pace ofchange of a net zero ambition, and explicit
integration into corporate strategy, thatwill set leaders apart. Leading net zerocommitments:● Set a 1.5°C aligned science-based
ambition for the business● Take responsibility for the greatest
sources of emissions, including supply
chain, products and service use, andinvestments● Outline how net zero translates into
corporate strategy and business
transformation● Dedicate innovation/R&D funding to
net zero technologies and products● Align corporate advocacy with net zero
● Apply robust carbon offsets to bringforward net zero target date
● Actively manage wider social andenvironmental impacts

Microsoft | PwC 10

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Ambition case studies
A.P. Møller - Maersk

DanoneMaersk has set a target to have net-zero CO2 emissions from its own operations by 2050, which
includes having commercially viable, net-zero vessels on the water by 2030. In addition to this, thecompany aims to deliver a 60% relative reduction in CO2 emissions by 2030 compared to 2008 levels
and has committed to setting a formal science-based target (SBT).

Danone has set an ambition for zero net carbon emissions across its full value chain by 2050,
including an absolute reduction of Scope 1 and 2 emissions by 30%, and a 50% reduction in emission
intensity full scope by 2030 (compared to 2015). The company’s 2030 reduction targets whereapproved by the Sciences-Based Targets initiative in line with 2C warming. Danone is currently
working on new reduction targets in-line with 1.5°C.

Wipro

Mercedes-Benz AG

Wipro has set and registered a science-based target for its own
operations that is consistent with reductions required to keep
warming to well-below 2C. The target includes absolute
reductions in Scope 1 and 2 GHG emissions of 48% by 2030 andin Scope 3 GHG emissions (business travel, employee
commuting, upstream fuel and energy-related emissions) of
30% by 2030.

With Ambition 2039, Mercedes-Benz plans to bring its new car
fleet to net zero CO2 within less than 20 years, going beyond
operations and along the entire value chain. In 2019, the
Sciences-Based Targets initiative approved the company’s
targets. Starting in 2022, passenger cars and vans will be
produced CO2-neutrally in the more than 30 plants of MercedesBenz AG worldwide.

Ambition

UnileverMicrosoft

Unilever has attained the most advanced status within the SBTi,
having set and registered a 1.5 degree-aligned science-basedtarget of net zero emissions across all products by 2039, fromsourcing to point of sale. Unilever annually calculates its value
chain-wide GHG footprint for 14 key countries across 12 productcategories.

Microsoft plans to be carbon negative by 2030 and to remove its
historic scope 1 and 2 carbon emissions by 2050. It will achieve
the latter part of this target through a strategy that goes beyond
achieving carbon neutrality through avoided emissions, to focus
on carbon removals.

Starbucks

Nike

Natura & Co

Starbucks has committed to set a science-based GHG reduction
target and is also a signatory of the UN Global Compact’s
Business Ambition for 1.5°C commitment. Starbucks tracks andquantifies the company’s GHG emissions across Scopes 1, 2 and
3 and has set a public aspiration to be “resource positive”,
including through GHG emissions reductions.

Through its Move to Zero journey towards zero carbon and zerowaste, Nike has made a pledge to be net zero by 2050. Nike has
attained the most advanced status within the science-basedtargets initiative, having set and registered a 1.5°C aligned
science-based target. The company has also committed to theUnited Nations’ Fashion Industry Charter for Climate Action.

Natura & Co has set an ambition to achieve net zero carbon
emissions by 2030, across both operations and value chain, for its
four brands - Avon, Natura, The Body Shop and Aesop. Its net
zero commitment covers scope 1 : own emissions, scope 2 :purchased energy, scope 3: upstream (all company activities andsuppliers) and downstream (consumers, waste disposal, etc.).
Natura & Co is a founding member of the UN Global Compact"Business Ambition for 1.5°C: Our Only Future.

Microsoft | PwC 11

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: GovernanceStrong governance is critical to ensure accountability for net zero is driven throughout theorganization, starting from the top. Frameworks should be in place to enable decisionmaking on the basis of meeting long-term net zero ambition.

This section isimportant for:
Senior Management.

Checklist of key actions:Those at the highest levels of the company assume responsibility for delivering
net zero transformation by: incorporating net zero into understanding of directors’
duties, and appointing oversight of net zero transformation at the highest levels of
the company

Establish net zero and climate change as standing agenda items at the executive
level by: structuring senior committees to ensure holistic oversight of net zero;assessing senior leaders’ command of climate change and net zero in relation to thecompany’s strategy and operating model.

Assign Senior Management responsibility for, and oversight of the delivery of
net zero strategy and transformation by: putting policies and reporting structuresin place throughout the organization to deliver relevant Management Information.

Evaluate net zero incentives structure, including at the highest levels of thecompany by: re-evaluating any existing incentives that may hinder progress on net
zero transformation, and considering creating incentives to support management todeliver on net zero milestones and targets.

Microsoft | PwC 12

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Governance: Accountability driven from the top✔Those at the highest levels of the company assume
responsibility for delivering net zero transformation
Climate change, and the net zero transition, is a foreseeable financial
risk and opportunity within mainstream investment and planninghorizons. Those at the highest level of a company, should therefore be
accountable for the net zero transition in the same way they are for othercompany decisions about long-term strategy. This will help ensure thelong-term resilience, viability and success of the business.
Net zero should be incorporated into the understanding of directors’
duties by ensuring that net zero considerations systemically informnear-term and long-term strategic planning and decision-making
processes, and are embedded into the management of risks andopportunities across the company. There should be oversight of net
zero transformation at the highest levels of a company.

✔Establish net zero and climate change as standing
agenda items at the executive level
To enable the net zero transformation to take place in a joined-up way, it
should be a standing agenda item at Executive Committee level.
Senior committees should be structured in a way that enables holistic
oversight of, and engagement with, net zero. This is facilitated whenassessment of plans and progress related to net zero feature on theagendas of one or more relevant senior committees, including thosethat cover strategy, planning, risk management, metrics andperformance. These committees should also share regular progress
updates with each other.
It is essential that those at the highest levels of the organization bring a
mix of informed perspectives that enable effective long-term decision
making. This can be achieved by tasking a director, committee orexternal advisor with assessing senior leader’s understanding ofclimate change and net zero to ensure that, at the highest level, thecompany is sufficiently diverse in knowledge, skills, experience andbackground to effectively debate, and take decisions to support, thenet zero transition.

✔Assign Senior Management responsibility for,and oversight of the delivery of net zerostrategy and transformation
Management oversight and incentivization will drive successful
delivery of the net zero strategy and transformation across theorganization by setting the tone at the top.
Companies should assign oversight and delivery of the net
zero transition and climate-related issues to accountable
member(s) of management.
Structures and processes should be established (through new
or existing channels) to compile timely, relevant and highquality management Information, which management canuse to regularly report net zero progress at the highest levels of
the organization. This will empower management toeffectively deliver the net zero strategy and take intervening or
mitigating actions if required.

Practical advice for:Companies just starting their net zero journey:
Companies can begin by consulting publicly available sourcesof information for effective climate governance. The FSB Task
Force on Climate Related Financial Disclosures10 (TCFD), andWEF Climate Governance Principles and Guiding Questions11
provide detailed guidance, and may help those starting their
net zero journeys to build an understanding of the key issues.
An executive ‘net zero’ working session can be an effective firststep. Working sessions should be interactive, and challenge
executives to consider the business implications of climatechange and how net zero fits into the broader company
strategy. A helpful output of a ‘net zero’ working session is aroadmap of actions (e.g. addition of net zero to relevant
committee agendas, further training, assignment of delivery
oversight to Management, investor engagement), that can betaken to the highest level of the organization for approval.
The Sustainability function will likely have the technicalknowledge required to shape and facilitate these sessions.

✔Evaluate net zero incentives structure,including at the highest levels of the company

Mature companies seeking to be net zero leaders:That which gets incentivized gets done. Yet, corporate
management is typically incentivized on a vast number of
topics, many of which are short-term in nature. At times, theseshort-term incentives can conflict with the longer term goals
associated with the net zero transition, hindering effective
delivery of net zero strategy.

For companies to be leaders, it is essential that the highest
levels of leadership are fully engaged with the net zero business
transformation. Both groups need a clear understanding of therelationship between the company’s action on net zero andbroader company strategy and operating model. Seniorleadership should also champion net zero publicly.

In light of the above, as a company matures in its net zerojourney senior leaders should re-evaluate any existing
incentives that may hinder progress on net zerotransformation and consider creating incentives to support
management to deliver on net zero milestones and targets.

Furthermore, oversight of the net zero transformation should
be clearly embedded in senior committee structures andregularly featured on relevant committees. This includes in the
remuneration committee, which should consider goodpractices as they evolve, including trends on compensation
and KPIs.

Who is responsible for delivering Net Zero Governance:
Senior Management.

Microsoft | PwC 13

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Governance case study: examples from Danone, Unilever & Wipro
DanoneUnileverWipro

At Danone, accountability for the company’s action on climatechange has been clearly assigned at the Board and Senior
Management levels. Danone’s CEO is responsible for the company’s
vision and climate strategy. Furthermore, because the global
Cycles and Procurement team has been tasked with driving climate
action, Board-level responsibility for climate change sits with a
Board Director who is also Executive Vice President and Chief
Financial Officer of Cycles and Procurement.

At Unilever, it is the responsibility of the Board and CEO to review,monitor and guide the company’s climate strategy. The Board’s
Corporate Responsibility Committee tracks progress and monitors
risks linked with the Unilever Sustainable Living Plan which
includes sixteen climate-related targets. The Corporate
Responsibility Committee provides regular updates on progressand risks to the Board. Unilever’s CEO also publicly leads by
example. In 2018, he served as Chairman of the International
Chamber of Commerce, Chair of the B Team, and Vice-Chair of the
UN Global Compact, where he has championed the role of businessin addressing the Sustainable Development Goals, including
climate action (SDG13).

At Wipro, oversight for climate sits with the Chairman of the Boardand the CEO. Within the Board, strategic oversight and quarterly
review of Wipro’s sustainability program (which includes climate
related programs) is the responsibility of the Governance,
Nomination and Compensation Committee, which is chaired by anindependent director. Within Senior Management, the Chief
Sustainability Officer (CSO), holds responsibility for climate change
and reports directly to the Founder-Chairman of the Board. A
portion of the CEO’s variable compensation is based on theperformance of business units that carry oversight andresponsibility for delivery of climate solutions for customers,
including those related to energy management and smart grids.
The CSO’s annual salary increment is dependent on theachievement of Wipro's sustainability goals for the year, which
include targets for GHG emissions reductions.

Danone also implements monetary rewards for Senior
Management in order to incentivize delivery of climate-related
objectives. A portion of long-term incentive compensation is basedon the company’s climate performance score in its annual CDP
disclosure. These measures have helped to clarify accountability
for climate within the company, raise the profile of climate changeon the Board’s agenda, and drive action on emissions reductions.

One element of Unilever’s remuneration policy is a share matching
scheme based on company performance called the Management
Co-Investment Plan (MCIP). Twenty-five percent of the total MCIP
award is assessed on sustainability considerations throughUnilever’s Sustainability Progress Index, a joint assessment madeby the Corporate Responsibility & Compensation Committees.
These two committees determine a rating each year, which takes
into account Unilever’s wider progress on sustainability together
with the company’s publicly reported targets (including Unilever’s
commitment to reduce the GHG impact of products across the
lifecycle). From 2018, Executive Directors (CEO & CFO) have beenrequired to invest at least 33% of their annual bonus in MCIP.

Microsoft | PwC 14

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Strategy
Net zero is a strategic issue that is critical to companies determining how to growprofitably and maximize value and resilience. It requires an understanding of theassociated transition risks and opportunities in the next 1-2 business cycles and beyond,
how to minimize value destruction and unlock value creation, what this means for the sizeand shape of the business portfolio and organic versus inorganic growth, and how totranslate this into strategic business planning.
This section isimportant for:
CEO, Corporate Strategy/ Chief Strategy Officer,
Senior leaders, Head of
Sustainability.

Checklist of key actions:
Understand how net zero is changing market dynamics and impact on value
creation by: assessing market disruption under net zero, analyzing changes incustomer preferences, quantifying risks and opportunities, and assessing thecompetitive landscape.
Assess and develop capabilities required for the company to succeed under a net
zero future by: conducting a net zero capabilities assessment and gap analysis, inform
capability-based strategy, inform People strategy and M&A strategy.
Identify options to deliver capabilities driven net zero corporate strategy by:assessing changes to portfolio, customer offering, growth levers and pricing and asset
valuation.
Assess options and develop a business case for net zero corporate strategy by:quantifying key drivers for action, cost and benefit assessment including value
creation, return on investment and holistic criteria including wider business,environmental and social impact.
Reshape and/or align operating model blueprint to deliver net zero strategy andcapabilities by: blueprinting operating model and developing an implementation
roadmap.

Microsoft | PwC 15

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Strategy: Embedded and aligned net zero into company strategy✔Understand how net zero is changing market
dynamics and impact on value creation✔Assess and develop capabilities required for thecompany to succeed under a net zero future✔Identify options to deliver capabilities-driven net
zero corporate strategy

The transition to net zero is complex. It is important to assessmarket dynamics to ensure both upside opportunities and downside
risks are captured to understand net zero implications on businessgrowth and where re-shaping or re-invention is needed.

There is a huge opportunity for businesses that have differentiatedcapabilities and a coherent portfolio of products and services
geared to a net zero future to gain competitive advantage.

Companies need to turn net zero ambition and strategy into
tangible actions and initiatives to ensure transition at pace andscale.

Corporate strategy, supported by Sustainability/ Climate experts
can develop a shortlist of key capabilities - including systems
and tools, people and skills, and knowledge and behaviors required to succeed in a net zero future. These could include, forexample; engineering and technical excellence to develop, test
and scale business-critical low carbon solutions, or sustainablesupply chain expertise.

There will be multiple options for achieving the strategy, so
breaking down into tangible actions allows each to be assessed
and to define a clear path forward. Corporate Strategy should leadan exercise to identify delivery options, and coordinate input fromexecutive team, Market and Functional Heads and Sustainability.

To achieve this, companies should conduct scenario analysis toevaluate how changes related to the net zero transition (including
policies and regulation, technology, customer preferences,
investor demands and talent) could impact business performance.
The FSB Task Force on Climate-Related Financial Disclosuresprovides a framework that can be harnessed.
Strategic insight from scenarios should be used to identify thevalue creation and destruction drivers across business in the
short, medium and long term, including estimates of financial
materiality.
When determining a winning strategy, a comprehensive market
assessment is critical, including customers and competitors. The
assessment should consider how the market (and market
adjacencies) may fundamentally shift, including disruptive newtechnologies and business models, and emerging customer needs
and preferences.
Findings should be shared with the CEO and Senior Management
team to inform future strategy development and implications forthe operating model.

Companies can then assess how well positioned they are forsuccess vs critical gaps, by comparing current distinctive
capabilities against those required for net zero. It is importantto highlight strengths and areas of alignment as well as potential
areas of improvement. These should consider where are gaps
including workforce upskilling , reskilling and recruitment and how
best to embed diversity, inclusion, and belonging considerations.
As business strategy is reshaped to align with a net zero future, theexecutive team should pursue a corporate growth strategy thatleverages existing and targeted differentiated capabilities criticalto competitive advantage and growth. These winning capabilities
around net zero need to be coherently integrated intofunctional strategies, and the corporate innovation strategy and
M&A strategy.

Options include:● Portfolio management: when and how do products andservices need to change, which areas will benefit frominvestment, and which require accelerating, reshaping ordivesting?
● Customer offering: how will net zero impact channels androutes to market? How will expectations of customers change?
How can net zero impact customer perception of brands andvalue pricing? Do any brands need re-defining?
● Growth: consider organic and inorganic growth levers
including when and how mergers, acquisitions and disposals
can be leveraged, and alliances to deliver differentiated net
zero solutions. Think about the expansion opportunities net
zero capabilities can present in adjacent businesses - andwhen and how to react.
● Pricing, profitability and asset valuation: when and how canpricing and revenue models change?

Who is responsible for delivering Net Zero Strategy:
CEO, Corporate Strategy / Chief Strategy Officer, Senior leaders, Head of Sustainability

Microsoft | PwC 16

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Strategy: Embedded and aligned net zero into company strategy✔Assess options and develop a business case fornet zero corporate strategy✔Reshape / align operating model blueprint todeliver net zero strategy and capabilities

It is important that the actions and transformation undertaken toachieve net zero deliver maximum benefit to the business, andsociety at large. A clear and compelling business case for net zerotransformation will help to bring along leadership, management
and people, and amplify investor engagement.

Companies must put net zero capabilities at the core of theoperating model to ensure the day-to-day actions of individual
employees, and of business units and functions, work towards thedelivery of net zero ambition and company strategy.

Companies should develop a business case that includes key
business drivers for a net zero transformation, and where possible
a financial materiality assessment of a “do nothing versus businessas usual” approach, and a quantification of the costs and benefitsof action. This can include quantifying value creation opportunities(including customer growth, pricing, cost efficiencies), return on
investment, and assessment of wider social and environmental
impacts, including impact on employees and communities. This
will ensure conflicts of interest are identified early, and that the net
zero transformation delivers maximum benefit to the business, tosociety and to the environment.
The business case narrative should be created early, and used instakeholder engagement.

Companies should develop an operating model blueprint thatputs differentiating capabilities to deliver net zero at its heart. An
operating model determines behavior, workflow and process
design, technology decisions, and investment decisions.
Companies should consider what their differentiating capabilities
mean for: people and organization, processes and controls, tools,
data and technology, culture, measures and motivators.
Companies should develop a business transformation roadmap,
including corporate, business unit and geographical/market
actions and milestones for delivery of net zero aligned strategy andoperating model transformation. They should ensure criticalchanges are made first, quick wins are actioned, and key
dependencies are identified and embedded.

Practical advice for:Companies just starting their net zero journey:
A comprehensive understanding of what net zero is and how itwill create and destroy value is a critical first step to reshaping
corporate strategy to align with a net zero future. Companies
new to net zero can begin by quantifying the financial
materiality of ‘transition’ risks and opportunities and to informa business case for transformation. The recommendations of
the FSB TCFD provide a framework for assessing climaterelated risks and opportunities that companies may findhelpful to follow.
Companies could also set up a collaborative steering group
including functional heads from across the organization, with
Sustainability leading the technical analysis, and presentation
to the CFO and wider senior leadership.

Mature companies seeking to be net zero leaders:
Leaders will have net zero fully embedded into corporate
strategy and will have followed the detailed steps outlined inthis section. At a minimum, companies looking to lead on net
zero should have:● Developed and engaged around a business case for net
zero transformation across corporate leadership● Identified differentiating capabilities to deliver net zero● Reshaped the company growth strategy to align with a net
zero future, and these differentiated capabilities● Identified adjustments to operating model required todeliver net zero aligned growth strategy

Who is responsible for delivering Net Zero Strategy:
CEO, Corporate Strategy / Chief Strategy Officer, Senior leaders, Head of Sustainability

Microsoft | PwC 17

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Strategy case study: Wipro
How Climate Risks will inform our enterprise risk
assessment and corporate strategy
Wipro partnered with KPMG and IIT-Delhi, a leading academic
institute with expertise in climate modeling, to commission a
Climate Change Risk Assessment Report. This was an 18- monthstudy completed in July 2020.
The goal of the study was to analyze climate change risks to
Wipro's operations, specifically infrastructure, employee healthand wellbeing, and the business portfolio.
Projections of climate risks were completed through to the year
2100, applying two climate scenarios: Optimistic (akaRepresentative Concentration Pathway (RCP) 4.5) and BusinessAs-Usual (aka RCP 8.5).
Here is a summary of findings related to likely risks to ouroperations, employee health, and business:

With regard to health impacts, the study focused on India. In 4 of
12 cities, we project a likely increase in cases of fatigue andheadaches due to more hot days and heatwaves. In two cities,
increased cases of upper respiratory disorders are projected.
Across locations, increased cases of seasonal flu and allergies areprojected.
With regard to business impacts to Wipro, we anticipate significant
financial impacts to our business, especially related to customers
in specific relevant business units, including energy, utilities,
manufacturing and health. In addition, there are newopportunities that can emerge from these climate change
scenarios.
We are in the process of formally included this as part of ourenterprise risk management and operational decision making
framework.

The physical risks assessment covered 12 cities in India and 6
countries outside of India in terms of extreme hot days,
heatwaves, Urban Heat Island (UHI) effect, air quality, warm
nights, extreme rainfall days, urban flooding, water stress, and risk
coverage.
In the RCP 4.5 scenario, the report suggests that water stress inIndia will be aggravated in 8 out of the 12 cities studied while heatwaves are expected to worsen in 6 out of the 12 cities.
In terms of countries outside of India:● Germany and United Kingdom are phasing out dependence on
coal and nuclear-powered plans, which could lead to increased
electricity prices and impact operations.
● In Romania, increased flood levels are expected● In the Philippines, we are likely to see more serious floods andcyclones.
● In the United States, the present government is moving awayfrom clean power plan, considered a regressive step, leading to
uncertainty in terms of climate policy.

Microsoft | PwC 18

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Enterprise transformation
A transformation program is needed to execute the strategy and embed net zero into
corporate structure, business functions, and business capabilities. This change effort will
include realizing quick wins and, in parallel, work on longer-term operating model changes
to deliver on the strategy.
This section isimportant for:
Head ofTransformation/
Transformation
Director, Operations
and Functional Leads,
CEO sponsorship.

Checklist of key actions:
Establish a clear structure of responsibilities and accountabilities to deliver net
zero aligned corporate strategy by: assessing organizational and corporate
structures; establishing responsibility and accountability across organization, including
impact on decision making, roles and responsibilities, information flow, spans ofcontrol, communication channels and relationship management.
Harness culture and people to deliver net zero transformation by: conducting aculture assessment; assessing and redefining core competencies; developing aworkforce plan including upskilling and reskilling, and building net zero into rewards
and recognition.
Establish policies, processes and a measurement and reporting framework todeliver on net zero transformation by: reviewing and updating policies, processes
and decision making principles, developing new processes, defining internal net zero
KPIs, and establishing a net zero measurement and reporting framework.
Engage customers and harness customer channels to accelerate net zero value
creation by: executing on sales strategies and goals for net zero-relevant products andservice lines; integrating net zero into marketing campaigns; building net zeroconsiderations into regular customer engagement and support.
Leverage Technology and Digitization programs to deliver broader value creation
including decarbonization by: digitally enabling processes; embedding net zerorelated benefits into digital transformation efforts and into technology andarchitecture; and entering flexible partnerships with IT providers.

Microsoft | PwC 19

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Enterprise: Key operating model changes in support of transformation✔Establish a clear structure of responsibilities andaccountabilities to deliver net zero aligned
corporate strategy
The right organizational structure will ensure functional leads andemployees are aligned around a common understanding of theirrole in the delivery of the net zero corporate transformation and that
there is sufficient management attention and accountability to keep
the company on track.
Companies should assess their current organizational andcorporate structures and identify what needs to change and how,in order to deliver net zero transformation efforts. For example,
what functions, divisions, geographies will be critical fortransformation efforts and are there key gaps in delivery.
Companies should ensure they have a clear structure of
responsibilities and accountabilities for net zero throughout theorganization. This should extend beyond Sustainability teams andacross functions and business units including, e.g. Operations,Customer Services, Investor Relations. Companies should clearly
articulate what needs to change and the impact on decision
making, roles and responsibilities, information flow, spans ofcontrol, communication channels and relationship management.
Companies should then step a level deeper into assessing theiroperating models against net zero, covering all aspects of theorganization such as people, culture, processes, incentives,
information, tools and technology.
The rest of this section deep dives in the key operating modelchanges likely required to deliver net zero.

✔Harness culture and people to deliver net zerotransformation
Creating coherence across an organization's culture, strategy andoperating model and updating its talent strategy will drive
behaviors required to deliver the net zero transformation, and canmake companies more attractive to its current employees, potential
employees and customers.
Companies should consider how their culture and employees’
values link to their net zero strategy. Companies should assess
their culture to identify existing limiting values within theorganization which make it difficult to achieve net zerotransformation, such as frequent business travel; as well as
specific strengths of the culture that will help to accelerate thetransition, such as collaborative and innovative thinking.
An actionable roadmap and engagement plan should then be
built and delivered to address these limiting values and capitalizeon these strengths. This should include identification of leaders
and influencers across the organization to support culture change
and net zero alignment.
It is also critical that an organization’s people have the required
skills and competencies to deliver the net zero aligned corporate
strategy. Companies should first assess and (if necessary)
redefine their core people skills and competencies. They should
analyze gaps with existing competencies and develop aworkforce plan including talent attraction, retention, anddevelopment to meet net zero core competencies, focusing on an
inclusive transition for workers and communities throughupskilling and reskilling and embedding diversity, inclusion, andbelonging considerations.
Companies should also motivate and challenge employees toembed net zero considerations into their day to day and ensure
the net zero transformation is a part of employees core priorities.
Companies could consider building net zero incentives into
rewards and recognition at all levels of organization.

Who is responsible for delivering Enterprise for Net Zero: Head of Transformation/
Transformation Director, Operations and Functional Leads - CEO sponsorship✔Establish policies, processes and a measurement
and reporting framework to deliver on net zerotransformation
Policies, processes and KPIs are important as they create themechanisms to deliver net zero transformation, provide users withinformation they need (at the right granularity) to embed net zero
into decision making, and articulate expectations of employees.
Companies should review and update (where necessary) policies
to ensure net zero is embedded e.g. prioritizing GHG savings andrenewable energy use.
Process owners should work with sustainability / climate /operational specialists to conduct a review of existing processes- including activities and tasks - to identify net zero improvements
such as low carbon substitutions, alternative delivery models andemissions reductions; and develop new and integrated
processes for net zero services and products, where required, witha focus on keeping processes lean. They should develop internal
net zero KPIs and specific and ‘SMART’ targets for each corebusiness process; developing data requirements; and establishinga KPI tree to show where existing process level KPIs indicate
positive or negative performance towards net zero.
Process KPIs should feed into a net zero measurement
framework that considers all levels of the organization and is
optimized for accuracy, relevance, timeliness and flexibility. There
should be a single point of ownership for net zero reporting,responsible for establishing, communicating and integrating theframework across the organization, and ensuring data analytics iseffectively leveraged. The framework should build on an
established measurement standard such as the GHG protocol,and define how companies measure and monitor operational andvalue chain emissions. It should provide information for decision
making at the Strategic (i.e. Executive), Tactical (i.e. Programme/
Project) and Operational (i.e. Process) level. Companies should
also enable and develop long term sustained value creation,and the reporting needed to facilitate this, so that net zero aligned
activities are sufficiently considered and prioritized alongside
short term objectives.
Microsoft | PwC 20

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Enterprise: Key operating model changes in support of transformation✔Engage customers and harness customer
channels to accelerate net zero value creation
The front office is the direct customer interface and delivers thetypes of products and services that are sold, so it is critical thatincentives and structures are aligned to accelerate net zero-related
value creation. Net zero should become a part of regular andeveryday customer connection, go-to-market, and marketing andcommunications.
The Sales function has a vital role to play in creating demandfor emerging sustainable and net-zero aligned products andservices. Upskilling will be key, in addition to creative sales
strategies, including promotions and pricing strategies, newpathways to purchase, and client experience in order to promotesales growth. Sales goals for net zero within the incentive structure
for the sales function can help to accelerate growth andproductivity.
Companies should consider integrating net zero considerations
into existing and new marketing campaigns to, for example,
promote low carbon products and services, encourage sustainablebuying practices, and promote net zero brand values. Includes
focused outreach to amplify key net zero value messages,
connecting with customers and influencers, and maximizing
engagement and demand.
Build net zero into the customer experience and journey,
where applicable, to meet emerging customer demands andexpectations. Leverage insights from customer engagement
channels to inform product development functions around new
net zero aligned products and services that meet customer wants
and needs. Also use engagement channels to help customers
understand the value of products and services that are net zeroaligned (see Engagement building block).

✔Leverage Technology and Digitization programs,
to deliver broader value creation including
decarbonization
Many companies are undergoing a technological and digitaltransformation, with automation, advanced analytics, connected
solutions, and new technologies more broadly creating newopportunities to cut GHG emissions whilst creating commercial
value. Embedding net zero considerations into technologicaltransformation efforts can therefore create a win-win.
New technologies can be a critical enabler of net zerotransformation efforts across business operations through systemefficiency gains linked to automation and smart insight
generation, but also through enabling new industrial systems (e.g.
decentralized energy grids, smart homes, mobility on demand).
The technology and data architecture itself can also have asignificant contribution to the operational GHG footprint. It istherefore important to embed net zero as a key consideration oftechnology and digital transformation efforts.
Examples include planning for a digital workforce (e.g. virtual
working technology, mobile applications and digitally empowered
staff), mapping and actively monitoring energy use of systems andinfrastructure (including data centers), developing a technology
GHG reduction plan, and establishing new technology capabilities
to support delivery of net zero ambition.

Practical advice for:Companies just starting their net zero journey:
Think of your current and upcoming large scale transformation
programs, consider how you can incorporate net zero anddecarbonization benefits into them e.g. does your technology
upgrade have capability to optimize GHG emissions andimprove data? Can you include net zero performance as a key
design principle in your org redesign, alongside resilience andcost savings?
Your business transformation roadmap should identify quick
wins versus longer term changes. Tackle the low hanging fruit
early, to make an immediate impact and to build leadership,
employee and external stakeholder confidence in your net zerotransformation.

Mature companies seeking to be net zero leaders:
Leaders should be embedding net zero transformation at thecore of all current and future transformation programs. Expect
an operating model blueprint explicitly developed/redesigned
around net zero transformation and a series of large scale
programs to deliver the change - prioritized for actions thatwould have biggest decarbonization impact and return on
investment.

Companies should consider net zero action during technology
procurement processes. IT providers are key parts of thecompany value chain, and impact can be maximized throughpartnerships with companies that have a shared ambition to findand realize emissions reductions.

Who is responsible for delivering Enterprise for Net Zero: Head of Transformation/
Transformation Director, Operations and Functional Leads - CEO sponsorship

Microsoft | PwC 21

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Enterprise Case study: Mercedes-Benz AG“

At Mercedes-Benz, individual
mobility is the purpose of ourwork and the legacy of our
founding fathers. Our mission
for the future is to preserve thisasset – and we will change inorder to achieve this. A lanechange is necessary. We knowthat and we are working on itwith all our efforts. This lanechange is mainly connectedwith two issues:
decarbonization anddigitization. Success withdigitization will determine thefuture of many companies;
success with decarbonization
will determine the future of ourplanet.

Ambition 2039: Our path to CO2-neutrality

CO2-neutral production as of 2022

An emission-free fleet of vehicles: With this vision, we are committed to climate
protection and air pollution control. That is a core element of our sustainablebusiness strategy. Our ambition is to make our fleet of new cars CO2-neutral
by 2039 and to have no relevant impact on inner-city air quality. We take aholistic approach to climate protection: Our goals cover all stages of theautomotive value chain – from technical development to the extraction of raw
materials, to production, service life and recycling.

As early as 2022, our own Mercedes-Benz car and van plants worldwide will
be producing CO2-neutral vehicles. This applies to more than 30 car and vanplants. An important element is battery production, which will also be CO2neutral worldwide as of 2022. The second battery plant in Kamenz, which
was opened in 2018 and is the center of competence of the Mercedes-Benz
global battery production network, was designed from the outset to be a
CO2-neutral plant and already meets this requirement today. The Kamenz
site is responsible for the production of battery systems for Mercedes-Benz
Cars hybrid, plug-in-hybrid and battery-electric vehicles.

In the coming two decades, we at Mercedes-Benz Cars & Vans will
fundamentally change our product portfolio. Our path toward zero
emissions includes electric vehicles, further efficiency improvements
through hybridization, and the further development of our vehicles withstate-of-the-art internal combustion engines.
Mercedes-Benz Cars is planning electrification in all segments, from thesmart to our SUVs. To this end, we are investing about ten billion euros in the
expansion of our electric fleet, more than one billion euros in thedevelopment of battery production, and we are systematically driving
forward the transformation to the electric future of our company bypurchasing battery cells for more than 20 billion euros.
In the car segment, we will focus in the coming years especially on plug-inhybrid technology and purely battery-powered models. Five all-electricmodels and more than 20 model variants of plug-in hybrids will already befirmly established in our car product range by the end of this year. Purely
electric variants in the compact segment and the all-electric EQS forsustainable luxury in the premium segment are already in the starting
blocks.

Our milestones until 2039:
Ola Källenius
Chairman of the Board ofManagement of Daimler AG and
Mercedes-Benz AG● 2022: Several electrified variants in all segments of Mercedes-Benz Cars.
● 2025: Up to 25 percent of unit sales to be accounted for by all-electricvehicles (depending on the framework conditions).
● 2030: Achieving more than 50 percent of car unit sales with plug-in
hybrids or all-electric vehicles.
● 2039: A CO2-neutral fleet of new cars.

At the Mercedes-Benz plant in Sindelﬁngen, we have put into operation oneof the most modern automobile production facilities in the world: Factory56.
It has been supplied with CO2-neutral energy since it went into operation.
The photovoltaic system on the roof supplies the building with green
electricity.
Our suppliers are also part of our holistic approach to climate protection. We
want to implement effective climate protection measures together with ourpartners in the supply chain. The starting point is the creation oftransparency. To this end, we are working with organizations such as CDP in
the car sector to assess the environmental impact of our supply chain. We
are in close contact with our most CO2-intensive suppliers to identify
effective measures for reductions. We will make CO2 targets a key criterion
for decisions on suppliers. The first models of the next EQ generation,
starting with the EQS, will already be equipped with CO2-neutral battery
cells.
● Farasis: In September 2019, we entered into a sustainability partnershipwith battery-cell supplier Farasis Energy (Ganzhou) Co., Ltd. – a Chinese
developer and supplier of lithium-ion battery technologies. In addition tothe observance of human rights in the supply chain and the issue ofrecycling, the partnership also covers battery-cell procurement from
CO2-neutral production.
● CATL: Within the framework of the strategic partnership, CATL is also
fully committed to the sustainability goals of Mercedes-Benz AG. This
includes the sustainable production of battery products with renewableenergies, minimizing the CO2 footprint in terms of logistics within theentire supply chain, and consideration of all aspects of social
responsibility.

Microsoft | PwC 22

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Supply chains
Supply chain emissions are often a major, if not the major, source of a company’s GHG
emissions. Enabling and supporting emissions reductions at all levels of supply chain is
critical to achieving net zero transformation. Existing supply chain transformation efforts,
including digital transformation and programs driven by resilience or efficiency, candeliver dual benefits of optimizing for decarbonization. A critical element will be theevolution of traditional supply chains toward a connected, smart, and highly efficient
supply chain ecosystem.
This section isimportant for:
Head of Supply Chain,
Head of procurement,
Sourcing Managers &Directors, Procurement
function, Sustainability
function.

Checklist of key actions:
Leverage existing supply chain transformation efforts to deliver emissions
reductions: reviewing supply chain strategy and design, embedding net zero into
existing and future digitization, and developing and delivering a strategic roadmap.

Assess emissions and climate impacts across whole supply chain by: conducting avalue chain GHG footprint assessment, supplementing company data withenvironmental modelling techniques, and repeating foot printing annually.

Incentivize suppliers to reduce emissions by: embedding into procurement cycle
and contracting principles, providing funding and financial incentives, as well as
adopting innovative collaboration models.

Build supplier capabilities to deliver net zero by: engaging in partnerships, training
and programs. Collaborate with peers who share supplier base to scale impact.

Build a connected and smart supply chain ecosystem amongst suppliers by:mapping key suppliers against net zero commitments, adopting collaborative
practices, applying agile methodologies to test and scale supplier solutions andconducting scenario analysis on supply chain.

Microsoft | PwC 23

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Supply chains: Transformed net zero supply chain✔Leverage supply chain programs to deliver
broader value creation including decarbonization✔Assess emissions and climate impact across full
supply chain

Putting net zero at the heart of supply chain strategy, program andany digitization and transformation efforts will ensure net zero is
not sidelined and is considered alongside other critical metrics suchas cost and customer service.

Most companies have limited data or visibility of the supply chain
beyond tier 1 or 2. This is a key barrier to net zero action that must
be solved.

Leveraging information from the value chain GHG baseline andfootprint assessment, companies should review their supply
chain strategy and design against the supply chain framework(e.g. Plan, Source, Make, Deliver, Return) to assess the priority of
net zero and GHG reductions at each stage of the chain against
other metrics including cost and customer service. Net zeroconsiderations should be embedded into procurement andsourcing approaches for products, services, materials andinfrastructure. They should also consider alternative supply chain
models (e.g. shorter supply chains, localized supply, resilient andflexible supply chains) to identify dual benefits of decarbonization.
As digital transformation provides a unique opportunity to alsodeliver carbon reduction solutions or help solve challenges in
reducing supply chain emissions, companies should also embed
net zero into existing and future digitization efforts.
Companies should be developing and delivering a strategic
roadmap across the supply chain - including a technology
roadmap - to decarbonize at pace and scale.

Companies should assess GHG emissions across the supply
chain beyond tier 1 and 2 to identify where the biggest emissions
are and to assess data availability, data quality, data gaps and key
issues and existing supplier commitments arounddecarbonization.
The procurement team should work with sustainability andsourcing experts to define net zero KPIs and targets to assess
performance across supply chain (e.g. by function, commodity,
raw material, geography and supplier). This may require new tools
for engagement and the sharing of best practice. Base KPIs in
supply chain should also be redefined to incorporate impact of
new net zero targets (e.g. customer service, productivity, budgets).
Companies should establish a reporting framework to manage
supply chain emissions, embedding this into existing processes
where possible. They should develop and deliver a plan to improve
depth of visibility across the supply chain, improve data quality
and address key data issues and regularly survey and monitor
suppliers to understand challenges and requests for support.

✔Incentivize suppliers to reduce emissions
Companies need to create the business case for suppliers todecarbonize their own operations and supply, and support the net
zero transformation. Contractual terms, procurement requirements
and financial incentives are key levers to hold suppliers accountable
for net zero action.
The procurement team should embed net zero consideration
into all applicable supplier policies, with regular reviews to
update with new guidance and/or regulation as required, including
supplier onboarding, code of conduct and contracting principles.
Net zero activities and emissions reduction performance should beembedded into every stage of the procurement cycle including
in requirement definition, tender, evaluation criteria andassessment scorecards and contract requirements. Net zero and
GHG reductions performance should be included in scoring criteriaof RFP responses.
Companies should consider providing funding and financial
incentives to drive suppliers to prioritize net zero programs in theorganization, including KPIs that are financially linked to emissions
performance; co-investing in net zero solutions and enteringgainsharing arrangements. This will require companies to create
sources of finance by building net zero targets into the budgets
by function, supplier, and manage costs to targets. Companies canalso explore and engage in supply chain finance programs and new
funding mechanisms.
It may be helpful to segment suppliers and tailor incentives tomaximize impact, considering your influence, spend and scale ofsupplier emissions. For example, which suppliers should you
partner with to innovate and co-create? Which suppliers neededucation and support? Which suppliers or supplier groups aremost at risk or well-placed to deliver opportunities presented by
the transition?

Who is responsible for delivering Net Zero Supply Chains:
Head of Supply Chain, Head of Procurement, Sourcing Managers & Directors, Procurement function,
Sustainability function

Microsoft | PwC 24

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Supply chains: Transformed net zero supply chain✔Build supplier capabilities to deliver net zero
The net zero transformation may lead to fundamental changes
to business strategies and models, requiring radically different
capabilities and competencies from suppliers. This risks leaving
many disadvantaged. Training, capacity building andengagement across all tiers of supply, will be critical to ensure
suppliers are able to deliver the transformation and reduce theirown operational emissions, as well as ensuring the transition
benefits all and has a positive social impact.
Companies should look to expand relationships and delivercapacity building programs across the supply chain, beyond
tier 1 and focused on those areas with the greatest emissions.
These could take the form of semi-regular working sessions.
Partnerships should cover all operational activities, including
strategic change programs as well as trainings and capacity
building programs.
It is important to ensure a just net zero transformation.
Therefore the focus of actions and interventions should be tocreate the enabling conditions (retraining, reskilling,
redeploying, creation of new decent jobs) for workers andcommunities across the supply chain to contribute to thetransition.

✔Build a connected and smart supply chain
ecosystem amongst suppliers
Supply chains in a net zero world will need to be holisticallyefficient, minimizing not just cost and time-to-market, but also
GHG emissions and climate risk. A critical element will be theevolution of traditional supply chains toward a connected,
smart, and highly efficient supply chain ecosystem.
Companies should adopt collaborative practices andinnovative models amongst suppliers. For example,
establishing regular supplier forums to share learning on net
zero, or digital collaboration platforms to enable suppliers todevelop solutions to net zero challenges or provide net zeroaligned products and raw materials e.g. zero carbon steel andbuilding materials.
Companies should also adopt agile methods to rapidly
prototype, test and scale supplier solutions. These should
be designed to allow effective engagement with the start-up
ecosystem, who will be a key supplier of net zero solutions tocorporates.
It is important to also conduct scenario analysis on supply
chains, to understand the physical and transition risks posed
to companies. This can inform decisions on smarter sourcing for example, where best to work with multiple suppliers tominimize the threat of disruption from net zero policy shifts or
extreme weather events.

Who is responsible for delivering Net Zero Supply Chains:
Head of Supply Chain, Head of Procurement, Sourcing Managers & Directors, Procurement function,
Sustainability function

Practical advice for:Companies just starting their net zero journey:Start with a top down review of your supply chain bringing
together Procurement and Sustainability - what do you know
about GHG emissions hot spots? Where are your challengeareas or knowledge gaps?
If you don’t understand where the biggest GHG impact isacross your supply chain or what drives that - you should start
there. Also identify if there are key tier 1 suppliers that you canengage with immediately to make some significant changes.
Then think about how you can adopt new strategic
engagement approaches including collaboration with industry
peers who share your supplier base to enable scale. Evaluate
where new supply chain models can deliver dual benefits ofdecarbonization and performance. E.g. what is the rightdecision over packaging materials? Where can you adopt
circular models? How can new technologies optimize
traceability of emissions or incentivize payment for
performance models?

Mature companies seeking to be net zero leaders:
Net zero transformation, as well as incentivizing andsupporting suppliers to decarbonize, should be a top strategic
priority for the procurement and supply chain function.
Leaders will be expected to quickly demonstrate tangible andinnovative changes to supply chain models and procedures todeliver net zero. For example; sustainable procurement policyaligned to net zero, fully circular products, emissions
traceability and life cycle assessments embedded as due
process, fully EV target for third party logistics fleets.

Microsoft | PwC 25

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Supply Chain Case study: Danone“

This Innovating with farming partners
across our supply chain is critical toDanone’s strategy to achieve net
zero emissions and build more
resilient regenerative agriculture
systems. Together, we look forward
to scaling-up our progress throughcreative solutions such as
digitalization of complex farming
systems and new models of finance,
both efforts which we intend toenhance with our participation inTransform to Net Zero.

Eric Soubeiran
CEO of the Danone Ecosystem Fund, Vice President
for Nature and Water Cycle, Danone

Establishing our goals
As a multi-local food and beverage company, agriculture is at theheart of Danone’s business. 57% of Danone’s carbon emissions arelinked to agriculture, making it a key lever of reduction. With
58,000 farmers worldwide, our supply chain is a key component of
our strategy to find solutions to mitigate climate change.
Danone conducted a full scope analysis from our direct business
operations all the way to our supply chains. This process allowed
us to establish a Science-Based Target with an intermediate goalof 50% reduction in emission intensity for full scope & 30%
absolute reduction in scope 1 and 2 by 2030. We aim to be net zerocarbon by 2050. In 2019, we signed the “Business Ambition for
1.5°C” commitment.
Our supply chain—most significantly farming partners—will be
crucial to achieving these goals with over half of our overall GHG
footprint coming from agricultural systems.

Taking action in our supply chain
By creating new ways of doing business, Danone has built direct
relationships and partnerships with farms in key supply chainssuch as dairy, often using long-term contracts to reduce risk andmarket volatility for both the farms and the company. These longterm relationships create a different business culture and assist
with investments in regenerative farming practices.
Danone defines regenerative agriculture across three pillars—soil
health, animal welfare and developing the next generation of
farmers—as it invests in its agricultural supply chains.
Regenerative farming, for example, looks beyond just minimizing
harm by way of actual restoration of the soil. We also believe ahigh level of animal welfare is key to the regeneration of farms andresults in improved economic sustainability, performance andcompetitiveness. Finally, because farmers understand theiroperations best, our goal as a partner is to help them succeed sothat they can pass their business on to the next generation.

While farming systems are dynamic and can offer various
opportunities to reduce emissions, soil health is a cornerstone of
the regenerative agriculture and our climate strategy. Key farming
practices such as cover crops, reduced tillage, crop rotations andreducing energy intensive inputs such as herbicides, pesticides
and synthetic fertilizers not only build carbon stocks via soil
sequestration, but also can reduce other GHG emissions such as
NO2 and methane emissions related to the overall managementchanges implemented by farms. By reducing the dependence ofsynthetic inputs, we believe that farms can also increase theirresilience and financial autonomy. Overall, regenerative farming
systems can, over time, contribute significantly not only to a net
zero GHG strategy but to the economic well-being of farms.
Danone is experimenting with distinct farming networks acrossthe world. In France, for example, Danone is using innovative
financing tools funded annually from one day of sales—
approximately € 5 million—to help farms overcome initial costs
associated with new management practices. Meanwhile, Danone
invested $6 million to create a soil health platform in the U.S.
which benchmarks farms with a data-centric process and creates
continuous improvement plans to support farms in their journey
to identify opportunities both within cropland and dairy systems.
Danone is also implementing a variety of financial incentives andblended financing approaches for farms; including directcontractual incentives, leveraging government programs, andcreating access to low interest loans.
Danone intends to continue to build quantitative proof points withfarming partners of all sizes and types, to measure not just positive
climate impact, but also assist farms who want to create a new
economic models of food systems. Through these new
foundations, we can fully transition our supply chains toregenerative farming.

Microsoft | PwC 26

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Supply Chain Case study: Starbucks“

At Starbucks, we are deeply rooted in our
mission to inspire and nurture the humanspirit. At the core of this is coffee. We arecommitted to sourcing coffee responsibly,
for the betterment of people and planet,
while we also work to empower farmers,
improve their livelihoods and positively
impact their communities, thus ensuring asustainable future of coffee for all. Our
ethical sourcing standards, called C.A.F.E.
Practices, has provided a strong foundation
toward our company-wide aspiration to beresource positive. We look forward to
sharing our learnings and working withothers as part of Transform to Net Zero tofurther our mutual goals of a moresustainable future.

Reducing Carbon in Coffee Supply Chains
Starbucks mission to inspire and nurture the human spirit extends
well beyond its customers, partners and cafes. The company takes
pride in conducting business responsibly and supporting
communities where they do business, from bean to cup. As acompany that buys approximately four percent of the world’s
coffee, sourced from more than 400,000 farmers in 30 countries,
we understand the importance of ensuring a sustainable future ofcoffee for all.
Since 2015, Starbucks coffee has been verified as 99 percent
ethically sourced. The cornerstone of our ethical sourcing
approach to buying coffee is Coffee and Farmer Equity (C.A.F.E.)
Practices, which was one of the coffee industry’s first set of ethicalsourcing standards when it launched in 2004. Developed incollaboration with Conservation International, C.A.F.E. Practices isa third-party verification program that assesses farmer adoptionof economic, social and environmental criteria, that if followed,
help sustain and strengthen communities that grow coffee while
maintaining Starbucks high-quality standards, now and into the
future.
The open-sourced program consists of a scorecard with more than
200 indicators which are used to evaluate a coffee supply chain’s
performance. In the area of environmental leadership, it includes
indicators addressing energy conservation, climate change,
conservation area management, water protection, surface erosion
and soil management, amongst many others. In addition, there iszero tolerance for conversion of natural forest to agricultural
production since 2004.

Evidence shows that farmers participating in C.A.F.E. Practices
have higher productivity than the country averages. Suppliers arealso incentivized financially as they are paid premiums for highquality coffee that is verified as ethically sourced by C.A.F.E.
Practice standards. Through the program Starbucks also provides
financial incentives to reward those supply chains that show
continuous improvement across C.A.F.E. Practices.
Not only has C.A.F.E. Practices helped us create a long-term supplyof high-quality coffee while positively impacting the lives andlivelihoods of coffee farmers and their communities, but it has alsodelivered measurable results in reducing the companies’ carbon
footprint. According to Starbucks 2018 Environmental Footprint
Report developed in partnership with Quantis and World Wildlife
Fund, C.A.F.E. Practices increases in yield per hectare on coffee
farms and its zero-deforestation policy reduces Starbucks carbon
footprint for coffee by 50%, resulting in a 10% reduction in
Starbucks overall carbon footprint. By implementing thesestandards, the company has halved what our coffee’s carbon
footprint would have been otherwise.
C.A.F.E. Practices has built a solid foundation for Starbucks longterm aspiration to be resource positive. Future work is focused ongoing further to reduce our carbon footprint in coffee bydeveloping on-farm solutions that equip farmers to succeed
during challenges like climate change and helping to spark
solutions for the industry at large.

Michelle Burns
SVP Global Coffee, Tea and Cocoa, Starbucks
Coffee Company

Microsoft | PwC 27

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Innovation
Achieving net zero will require the deployment of existing low-carbon technologies atscale, and developing and adopting innovative new solutions and processes, many ofwhich are at R&D or other early stages of demonstration and commercialization.
Companies need to invest heavily and build innovation into their ways of working toharness emerging solutions, including new technologies, at pace.
This section isimportant for:Heads of Innovation,
Innovation Managers,
Product Developers,
Product Owners.

Checklist of key actions:
Ensure net zero implications are embedded in corporate R&D and innovation
function: including net zero as a core objective of corporate R&D/ innovation
strategy; Setting net zero objectives within corporate innovation channels.

Provide finance for innovative solutions to net zero by: ringfencing funding
through a dedicated fund or explicitly as a percentage of corporate R&D or innovationbudget and M&A or CVC funds.

Innovate to develop products and services that deliver your business objectives
for net zero by: incentivizing net zero across the product development lifecycle.

Leverage Corporate Innovation to unlock internal barriers to net zerotransformation by: identifying key internal barriers to net zero transformation andleveraging corporate innovation programs and incubators to find solutions internallyand externally. Rapidly prototype, pilot and roll out solutions.
Build an innovation ecosystem for net zero through partnerships by: actively
monitoring and engaging in partnerships with relevant start-ups and research, anddriving industry and cross industry corporate partnerships.

Microsoft | PwC 28

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Innovation: Developed innovation and technologies to deliver net zero
✔Ensure Corporate Innovation function delivers
net zero ambition✔Provide finance for innovative solutions to net
zero✔Innovate to develop products and services thatdeliver your business objectives for net zero

Delivering net zero in ‘hard to abate’ parts of the value chain will
require deployment of solutions that today are at R&D or early stageof demonstration. Investment in innovation will be critical tocommercializing these key technologies in the coming one to two
decades.

Finance is a prerequisite for action, and investment must be madeat a level commensurate with the challenge in order to rapidly
decarbonize over the next decade.

Net zero products and services provide an opportunity forcompanies to reduce their value chain footprint and also meetgrowing demand from customers looking to deliver their own net
zero ambitions. Achieving net zero will require full alignment acrossthe portfolio, so any new products or services also need to beassessed against this ambition.

To achieve this, companies must put net zero transformation asa core objective of its R&D and innovation strategy. This
includes both a roadmap to tackling the key technologicalchallenges critical to achieving net zero for the organization andsector, and identification of wider net zero business model“disruptors” including in the start-up ecosystem. In practice thiswill mean embedding net zero considerations into corporate
innovation channels including corporate research, corporate
venture capital, accelerator and/or incubator, and M&A.
Equally, setting innovation KPIs allows the company to measureand monitor the decarbonization impact from innovation. Theseshould focus on a mixture of scaling up approaches and solutions
that are delivering significant, and measurable, emissions
reductions; alongside a portfolio of higher-potential, but perhaps
individually less certain, early stage approaches and solutions. For
example, these could include emissions reduction achievable in afive-year period, or total lifetime emissions reduction potential.
This approach balances the desire to achieve quick and important
wins, with the need to also explore more innovative approaches totransformation.

Companies should ring fence funds and invest in innovative
solutions to net zero at an amount consistent with other strategic
corporate priorities.
This investment can be internally-focused at first i.e. providing
grants for innovation and innovation partnerships, and then canevolve to be more externally-focused to create a bigger societal
impact and / or to address gaps the organization needs to meet tofulfil its goals.
This can be achieved through a dedicated Climate Innovation
Fund or explicitly as a percentage of the innovation budget. Someof this funding may come from ESG-focused investors, for example
through the green bond market.
Companies should also develop a framework business case fornet zero investments, and put in place appropriate tools andmethodologies to support their product developers effectively,
and consistently articulate the value of net zero projects.
Lessons learned from net zero investments should be sharedtransparently, to bridge the existing knowledge gap on net zero,and enhance the development of future business cases.

Who is responsible for delivering Innovation for Net Zero: Heads of Innovation, Innovation
Managers, Product Developers and Product Owners.

Net zero should be embedded into product development
strategy across relevant business functions. Net zero products
and services are a major business opportunity. A robust innovationand product development strategy for net zero will curtail the riskof efforts being haphazard, delayed and costing far more than
expected.
Companies can incorporate net zero objectives across the
product development cycle and consider incentives to do so.
Innovation and product development teams should factor in thegrowing importance of net zero when thinking about future
markets, customer wants and needs, and evolve products andservices to meet net zero requirements.
Unintended social and environmental consequences from new
products and services also need to be managed. GHG emissions
savings should be introduced as a key metric for new productand service development. Solutions that deliver dual benefit ofvalue creation and decarbonization should be prioritized.

Microsoft | PwC 29

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Innovation: Developed innovation and technologies to deliver net zero
✔Leverage Corporate Innovation to unlock internalbarriers to net zero transformation
To meet the challenges posed by a net zero transformation, whole
new approaches and ways of thinking will be required. Innovation
teams are a critical tool which companies have at their disposal tounblock internal challenges with new approaches and solutions.
Iteration is important, so solutions should be rapidly
prototyped, piloted and rolled out at scale by innovation teams,
to maximize emissions reductions in the short term. Sustainability
grants can help support this key aspect of the innovation process.
Companies should also identify key internal barriers to net zerotransformation that would benefit from a technological, innovative
or disruptive approach (e.g. a lack of data or information, or
limited ability to interact with suppliers or customers).
These problems should feed into corporate innovation
programs and pipelines to ensure all functions within businesses
are aligned and optimized to deliver emissions reductions.

✔Build an innovation ecosystem for net zero
System-wide changes require collaboration and coordination
across actors, industries and value chains. Academics are driving
leading thinking and developing technologies at the frontier ofclimate technology, and a rapidly growing number of startups in the
climate tech space present the opportunity for companies toleverage new and disruptive solutions, to diversify into new areas,
as well as portfolio digitization.
Companies should build an innovation ecosystem by actively
monitoring, then engaging, start-ups and academia which are
relevant for industry, and identifying priority actors forpartnerships, corporate venturing or M&A.
In support of this, companies should refresh their partnershipstrategies, and their build-incubate-invest-buy-partner
framework, to align with their updated net zero strategy.
It is also important to actively seek and drive industry and crossindustry corporate partnerships to accelerate innovation around‘harder to abate’ or more technologically challenging solutions(e.g. sustainable aviation fuels, clean steel, or hydrogen fuel cells).
It is critical that companies focus on engaging in partnerships totake solutions beyond pilot stage rapidly in order to reach thescale required to realize significant emissions reductions.

Who is responsible for delivering Innovation for Net Zero: Heads of Innovation, Innovation
Managers, Product Developers and Product Owners.

Practical advice for:Companies just starting their net zero journey:
Develop a roadmap for change that will embed net zero acrossthe innovation function, which needs to include a critical earlymilestone, and quick-win, to secure dedicated funding.
Begin with a high-level review of your innovation function
against net zero objectives and milestones. Does your current
innovation strategy and approach deliver substantive
decarbonization benefits? In what areas can innovation reallyshift the dial on your value chain GHG impact i.e. what are thekey challenges and products / services that present the biggest
risks and opportunities?

Mature companies seeking to be net zero leaders:
Leaders will be publicly committing large-scale budgets for net
zero innovation, that are meaningful amounts with anassociated time-bound impact target (the range of $500m to$1 billion USD is increasingly becoming a market benchmark).
Companies should be scaling innovative solutions over the
next 1 - 5 years, sharing learnings and best practice with themarket as they go. Innovative, net zero aligned products,
services and business models should be fundamentallychanging the business to take emissions out of the innovation
journey, with net zero being the design-phase benchmark for
all new innovations. Companies should be actively engaged
with the innovation ecosystem, with defined avenues forpartnerships aligned with strategy.

Microsoft | PwC 30

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Innovation case study: Unilever“

The transformation to Net Zerorequires innovation at every point
Unilever’s value chain – from the way
we source materials and operate
factories, to the way design products
and deliver them to the consumer,
and even the way they are used in
the home. Our responsibility as
business leaders is to drive that
innovation and radical thinking in a
way that can open up newopportunities for zero-carbon growthwith products and services that meetthe needs of today’s and future
generations.

Marc Engel
Chief Supply Chain Officer, Unilever

Sustainable innovation for a net zero world
Innovation is essential to enable the transition to a low-carbon
economy – and opening up the business opportunities this willbring.
We’re drawing on our expertise in innovation and R&D to bringpeople everyday products that have lower climate impacts – whenthey’re made and when they’re used.
Sustainable innovation and design are also vital to the growth ofour business. The latest “Who Cares, Who Does” report by
Kantar/GFK indicates that 67% of consumers surveyed across theworld are actively trying to buy products produced in anenvironmentally friendly way.

Eliminating fossil fuels from cleaning products
We apply a lifecycle approach to our products to identify where thebiggest impacts lie and help us understand how we can reducethem. The lifecycle analysis shows the need to have different
approach to reducing carbon across the various divisions ofUnilever.
In our Home Care business, the chemicals used in our cleaning
and laundry products make up the greatest proportion of theircarbon footprint (46%) across their lifecycle. Most cleaning andlaundry products available today contain chemicals made fromfossil fuel feedstocks, a non-renewable source of carbon.
On September 2nd 2020, Unilever announced that it will eliminate
100% of the carbon derived from fossil fuels in its cleaning andlaundry product formulations and replace it with renewable orrecycled carbon by 2030. This move to renewable or recycled
sources of carbon for these chemicals is a deliberate shift awayfrom the fossil fuel economy. It is an important step towards thecompany’s pledge of net zero emissions from its products by 2039.
Indeed, by using renewable and recycled carbon in our cleaning
and laundry product formulations, we are reducing the extractionof fossil fuels that would otherwise add to the atmospheric carbon
burden through ingredient biodegradation. We are expecting a

reduction of up to 20% of the product formulations’ GHG
emissions from this alone.

Carbon Rainbow powered innovations
Central to this commitment is our ‘Carbon Rainbow’, an approachto diversify the carbon used in our cleaning and laundry productformulations. Non-renewable fossil sources of carbon (identified in
the Carbon Rainbow as black carbon) will be replaced using
captured CO2 (purple carbon), plants and biological sources (green
carbon), marine sources such as algae (blue carbon), and carbon
recovered from waste materials (grey carbon). This transformation
through the Carbon rainbow will take time but we have alreadyput it in action through some innovations:Purple carbon: New technologies, like carbon capture, offer huge
potential as a source of renewable or recycled carbon for
ingredient production. Soda ash is a key ingredient in laundry
detergents due to its ability to help cut through grease and soften
water. We are partnering with Tuticorin Alkali Chemicals (TAC) insouthern India and Carbon Clean Solutions (CCSL). They havedeveloped technologies to capture the CO2 from their use ofenergy in their production processes and turn it into soda ash.
Green Carbon: When it comes to surfactants – the compounds
that create foam and allow cleaning products to work by breaking
down oil, grease and soil – there are few sustainable alternatives
out there. But we’ve made a breakthrough with one of the world’s
leading biotechnology companies – Evonik Industries. They’re
producing Rhamnolipids – a biosurfactant made from naturally
occurring fermentation and which is 100% biodegradable andrenewable. It gives superior cleaning performance and mildness
on skin. We are working towards building large-scale production ofthis ingredient, and it’s already in some of our dishwashingproducts in Chile and Vietnam.

Microsoft | PwC 31

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Innovation case study: A.P. Møller - Maersk“

We have begun a journey towards
having net-zero CO2 emissions fromour own operations by 2050. This is
an important ambition and one we
can only deliver on in collaboration
with many other stakeholders.

Responding to the call for innovation

Our R&D milestones

The shipping industry contributes 2–3% of the world’s greenhousegas emissions. Maersk has had a strong focus on climate change
and energy efficiency for many years, achieving close to 42%
reductions in relative emissions in 2019 compared to a 2008
baseline. But improving efficiency is not enough.

In addition to biofuel, Maersk is also looking into other possible
lower emission sources such as alcohol. Because of the long asset
lifecycle of container vessels, to reach the 2050 ambition there
must be a commercially viable net-zero vessel at sea already by2030. Our R&D strategy includes the following milestones:

In 2018, we committed to achieve net zero emissions from our own
operations by 2050. The roadmap to deliver on this ambition
covers three broad workstreams, technology development,
market acceleration, and policy engagement, to develop the
carbon-neutral fuels for container shipping that do not exist today,
and at the same time to support market demand and theregulatory framework to incentivize the use of carbon neutral
fuels.

2020-23: Explore and invest in the most likely future fuels
2023-27: Vessel design, supply chain pilots
2027-30: First vessels in production
2030: First carbon-neutral vessel in business viable operation
2030-50: Change fleet to carbon-neutral vessels

The main challenge is not at sea but on land. The technologicalchanges inside the vessels are minor compared to the massive
innovative solutions and fuel transformation that must take placein the fuel supply chains to produce and distribute entirely newenergy sources. To make this happen, we are working in coalitions
across sectors and partners including customers, technology
developers, researchers, investors, and industry peers, forexample the Getting to Zero Coalition and the Mærsk Mc-Kinney
Møller Center for Zero Carbon Shipping.

Søren Skou
CEO, A.P. Møller - Mærsk A/S

We are seeing growing customer interest in low- or zero-carbon
container transportation, and at least 60 of our 100 mostimportant customers have set ambitious carbon emission
reduction targets for the next decades. Some of Maersk’s largest
customers are taking part in the innovation projects and pilots totest the future fuels. In spring 2019, a pilot with second-generation
biofuel was successfully completed. Following that, we launched
the first carbon-neutral ocean shipping product, Maersk ECO
Delivery, to our customers.

Microsoft | PwC 32

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Innovation case study: NIKE, Inc.

“

When it comes to protecting theplaying field we share—our planet—
there isn’t a moment to lose. That’s
why we’re coming together as global
leaders to create climate action
solutions. If we act now, and work
together, we can drive meaningfulprogress toward a more sustainable
future. We’ll be relentless in our
pursuit to help ensure a healthyplanet for generations of athletes tocome.

At Nike, Inc., we believe we must all come together to have a morepositive impact on our planet. As creators it’s our obligation toconsider how we source, make, use, return and then reimagine theproducts we design.
Our sustainable design ethos is to design products with better
materials, made with fewer resources and assembled with the end
in mind. We believe sustainable technologies can help unlock new,fresh perspectives and create products that have a lighter
environmental impact.
In 2020, Nike introduced a footwear collection made from our“space junk,”- scrap material from factory floors - and transformed
it into a radical design, with circularity as the core inspiration.
Every detail of the Nike Space Hippie footwear capsule collection,from material choices to methods of make to packaging, waschosen with consideration for its environmental impact, adding up
to the lowest carbon footprint score for Nike footwear.
The concept began in 2017 when new research allowed Nike topinpoint CO2e emissions of individual materials andmanufacturing processes in putting together a shoe.
Space Hippie Flyknit yarns include at least 85% rPoly – made fromrecycled plastic water bottles, t-shirt and yarn scraps – creating
engineered knit uppers with an expressive sustainable aesthetic.
Each of Space Hippie’s four silhouettes provide a unique fit option— traditional laces, lace-less and Flyease — for the lifestyle ofpeople on-the-go. Crater Foam tooling uses 15% Nike Grind rubber
and is combined with 100% recycled ZoomX foam scraps for amore sustainable, lightweight and responsive feel during city
exploration.

Andy Campion
Chief Operating Officer, NIKE, Inc.

Microsoft | PwC 33

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: FinanceBusiness transformation for net zero requires investment across several building blocks
and on a scale commensurate with investment in other strategic corporate priorities. It
also requires embedding net zero value creation and erosion considerations across all
corporate finance functions including operations, financial planning, business strategy &development, facilities, corporate venture investing, and treasury. The net zero corporate
investment strategy should ensure alignment and complementarity across priorities
required to deliver business transformation.
This section isimportant for:
CFO, CIO, Head ofCorporate Finance,
Head of Venture Capital,
Finance Managers,
Business Strategy &Development, Facilities
and Operations.

Checklist of key actions:
Develop a net zero corporate investment strategy by: assessing assets underownership/control; analyzing value chain opportunities/ risks; developing a net zero
investment portfolio and working closely with business strategy & development andsales teams to understand how the portfolio can be realized and its potential impact.
Embed net zero considerations across Corporate Finance function by:
establishing net zero criteria for economic assessments and integrating net zero
Finance Transformation efforts, including into Treasury, Risk, Audit, M&A andstrategic and financial planning.
Identify and prioritize financing mechanisms and sources by: evaluating internal
revenue raising and external financial options for financing net zero relatedtransformation efforts.

Embed net zero into corporate venture capital and corporate accelerators/
incubators by: setting net zero as a strategic investment area for corporate ventureand start-up investment.

Microsoft | PwC 34

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Finance: Financing the net zero transformation✔Develop a net zero corporate investment strategy
The net zero transition will require companies to proactively
minimize value erosion and maximize value creation impacts.
Business transformation means a new way of doing things, which inturn will require investment, and a re-engineering of the investment
appraisal and decision making process to factor in transition
impacts.
Companies should develop a net zero aligned corporate
investment strategy; considering five key elements:● Operational assets: quantify investment needs and return on
investment for GHG reduction levers, estimate asset value
creation/destruction on assets (infrastructure, fleets, products,
technology).
● Value chain opportunities: assess investment needs
including funding for supplier engagement and support newtechnologies.
● Identify actions that require dedicated (new or reallocated) funds i.e. finance for R&D and innovation (seeInnovation building block); finance to support a just transition
for employees through investment in up/re-skilling; newproduct/service development costs; finance to acquire new
critical capabilities/talent; investment in offsets or insets forcarbon removals.
● Investment portfolio: assess financial materiality of net zerotransition risk across investments, identify green investment
opportunities (including nature-based solutions) and requireddivestments.
● Companies may wish to consider and evaluate thepotential of company acquisitions to support businessrationalization and inorganic growth to deliver net zerotransformation.
Development and implementation of the net zero corporate
investment strategy should be driven by an inclusive andstructured process that includes the identification and setting ofobjectives; monitoring, evaluation and learning; and regular
milestones for progress assessment and review.

✔Embed net zero considerations across Corporate Financefunction
Achieving net zero will require it to sit at the heart of the business and for all decisions to
be looked at through a net zero lens.
The Finance function, led by the CFO, will need to holistically incorporate net zero
impacts on value creation and destruction, and risk management more broadly.
Finance transformation efforts, therefore, should look to embed net zero as a key
business and value driver.
This will include embedding net zero impacts into business processes with respect totax, operational risk management, strategic planning, financial planning, transactions,
reporting and compliance, internal audit, investment and appraisal processes,
analysis of product lines and pricing, and business partnering.
Treasury, Risk, Audit, Tax, Operations, and M&A functions will need to expand theirmandates and work closely with Sustainability and wider technical support.

✔Identify and prioritize financing mechanisms and sources
Internal revenue raising and external financing options will provide finance options todeliver the investment strategy.
Internal options include an internal carbon price with fees pooled and linked to acentral fund for net zero investment. External options include: PPPs for capitalprojects (Concessional Green Loans; Special Purpose Vehicles for specific net zero
investments; and government subsidies, incentives and/or rebates to implement
net zero aligned activities.

✔Embed net zero into corporate venture capital and corporate
accelerators and/or incubators
The entrepreneurial ecosystem will generate many of the disruptive innovations critical
for realizing net zero within specific sectors.
Corporate Venture Capital should evaluate potential net zero investment
opportunities, and consider embedding net zero as a strategic investment area forearly stage investment where there is scope for value creation and emissions
reduction. This will enable companies to identify, support and scale key
transformative technologies and businesses strategically aligned to their organization.
Many of the disruptive solutions for net zero are emerging from the entrepreneurial
ecosystem.

Who is responsible for delivering Finance for Net Zero: CFO,COO, CIO, Head of Corporate Finance, Head of Venture
Capital, Finance Managers

Practical advice for:Companies just starting their net
zero journey:
Begin by undertaking an assessment of yourfinancial exposure to climate risk to enable
the CFO and Finance leads to understand thevalue drivers of net zero and the company’s
current status, and improve investment
decision-making.
Undertake a high level assessment of your net
zero investment needs, and identify key
Finance function processes that need toincorporate net zero implications. Engage
with the CFO and senior Corporate Financestakeholders, and incorporate into strategicplanning and financial planning.

Mature companies seeking to be net
zero leaders:
Leading companies will have holisticallyintegrated net zero implications into FinanceFunction transformation efforts.
Leaders will be unlocking finance in thebillions to enable enterprise and supply chaintransformation, raised through internal andexternal (public and private) mechanisms.
Good practice internal efforts include
integration of a robust carbon price into
operations and strategic decisions including
new investments and risk management, in
addition to a pooled levy to fund innovation.

Microsoft | PwC 35

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Finance Case study: Microsoft“

We’re making investments in climate
technologies because the best available
science says that we must, but also because ofincredible customer demand for these digitalsolutions. Through our targeted investments ininnovation via our Climate Innovation Fund, we
aim to ensure that the capital that we put out is
as additional as possible, drives climate equity
and puts us closer to a net zero future.
Dr. Lucas Joppa
Chief Environmental Officer, Microsoft

While the world will need to reach net zero carbon, those who canafford to move faster and go further should do so. That is why
earlier this year, Microsoft announced its intent to become carbon
negative by 2030. In addition, Microsoft committed that by 2050, it
will remove from the environment all the carbon the company has
emitted either directly or by electrical consumption since it was
founded in 1975.
This kind of transformation requires not only bold goals andorganizational commitment, it will require new financing models
inside the company to accelerate progress as well as the
deployment of capital to accelerate innovation outside our four
walls as well.
Microsoft has utilized an internal carbon fee since 2012. Unlike
some other companies, our internal carbon fee isn’t a “shadow
fee” that is calculated but not charged. Our fee is charged to eachdivision in our business based on its carbon emissions, and thefunds are used to pay for sustainability improvements, with theintention of creating a virtuous cycle of carbon reduction. The fee
has funded the development and deployment of new innovations
in energy efficiency technologies and strategies, the purchase ofrenewable energy and carbon removal credits, and programs suchas AI for Earth.
Currently this fee is $15/metric ton and covers all scope 1, 2 and 3
emissions. We charge a lower price per ton for scope 3 and we willphase in increases over time until all our scope 1, 2, and 3
emissions are charged the same rate. This will both increase
incentives across the company to reduce all scope 3 emissions andfund the added work to reduce our own scope 3 emissions andinvest in carbon removal activities.
Solving our planet’s carbon issues will require companies andgovernments not only to reduce their own operational footprints,
but to invest in innovation in the broader market to deliver thenecessary carbon reduction and removal solutions. That’s why asignificant part of our endeavor involves putting Microsoft’sbalance sheet to work to stimulate and accelerate thedevelopment of sustainability technologies such as carbon
removal. Our Climate Innovation Fund will invest $1 billion overthe next four years into new technologies and innovative market
solutions. We understand that this is just a fraction of theinvestment needed, but our hope is that it spurs moregovernments and companies to invest in new ways as well.
We will primarily deploy this capital in two areas: (1) to accelerateongoing technology development by investing in project and debt
finance; and (2) to invest in new innovations through equity anddebt capital.
We’ll focus our funding on investments primarily based on four
criteria: (1) strategies that have the prospect of driving meaningfuldecarbonization, climate resilience, or other sustainability impact;(2) additional market impact in accelerating current and potential
solutions; (3) relevance to Microsoft and our customers indelivering technologies we can use to address our current andfuture emissions; and (4) consideration of climate equity, including
for developing economies.

We will primarily invest in climate solutions that have beendeveloped and need capital to scale in the market. We aim to
make investments that will accelerate existing climate solutions
and create new technologies. We’ll invest directly in companies aswell as investment funds, to scale new innovative solutions in themarket, to demonstrate the viability of new technologies, and topartner with other investors to meet the world’s climate
objectives. An investment will be prioritized if it ensuresdeveloping economies and underserved communities will benefit
from the climate solution.
Microsoft has already begun making investments to advance oursustainability objectives. In July, we announced a $50 million
investment in Energy Impact Partners’ (EIP) global platform forinnovation of new technologies to transform the world’s energy
and transportation systems, the two sectors that account for the
majority of greenhouse gas emissions. We followed that with a $30
million investment in Closed Loop Partners’ funds, announced inAugust, to help accelerate the infrastructure, innovation andbusiness models for supply chain digitization, e-waste collection,
food waste reduction, and recycling industry products to build amore circular economy at scale . In September, we announced a$10 million investment in Emerald Technology Ventures’ Global
Water Impact Fund, a collaborative venture capital initiative tosupport sustainable innovation in the water sector. Taken
together, these early partnerships signal our commitment to three
key pillars of Microsoft’s sustainability strategy – carbon, waste,
and water.
It’s clear that progress and innovation across all of these pillars will
be needed to mitigate the climate challenge at Microsoft andaround the world. In particular, through intensive and directed
investment, we believe the price of carbon reduction and removal
technologies can be reduced while maturing the market. We’remaking a bet on certain technologies that don’t exist at the scaleor price point we need them. If we want to get them, we need tostart investing. This is how innovative financing can help deliver
both nature-based and engineered solutions at a price point andscale we need.

Microsoft | PwC 36

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Transparency
Companies will need to provide transparent and balanced reporting on progress against
net zero ambition, including pace of business transformation, implementation of strategy,
and progress against KPIs including actual emissions reductions achieved. This promotes
accountability for transformation, drives progress and informs relevant stakeholders,
including investors, enabling them to accurately price risk.
This section isimportant for:Heads ofCommunication, Public
Affairs & Corporate
reporting, Sustainability& CSR managers.

Checklist of key actions:
Communicate your net zero strategy and what it means for the future of thebusiness by: disclosing how net zero is embedded into business strategy andtransformation in, for example, annual financial reports / 10-K filings, considering therecommendations of the FSB TCFD.

Disclose progress against net zero strategy by: defining and reporting on net zero
KPIs, calculating and disclosing societal and environmental impacts, reporting on net
zero incentives.

Disclose with clarity and transparency by: reporting publicly andcomprehensively, highlighting areas for improvement, articulating barriers toprogress, highlighting innovation and actions to enable conditions needed to achieveeffective, just, and sustainable climate solutions, considering external, independent
review of net zero KPIs and results.

Microsoft | PwC 37

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Transparency: Communicating action✔Communicate your net zero strategy and what itmeans for the future of the business
Stakeholders, including investors, want to see evidence of the realaction that has been taken by the business to embed net zero into its
business model, operations and decision making. Transparency andbetter access to data will also enhance how climate-related and/or
net zero risks are assessed, priced and managed, allowing
companies to more effectively measure and evaluate their own
risks, those of their supplies, and of their competitors.
Companies should be disclosing how net zero is embedded intobusiness strategy and transformation in their annual financial
reports / 10-K filings. Practically, this translates to the disclosure ofactivities and outputs from buildings blocks on Ambition, Strategy,Enterprise Transformation and Supply Chains.
The recommendations of the FSB TCFD provide good practiceguidance in disclosures to stakeholders on the financially material
impacts (including risks and opportunities) of climate change tothe business.

✔Disclose progress against net zero strategy
Setting targets with milestones over time demonstrates anorganization's accountability and commitment to its net zerotransformation. Clear presentation of progress towards targets isevidence that transformation efforts are taking place at the paceand scale required to deliver the ambition.
Companies should therefore define and report external net zero
KPIs (at minimum scope 1,2 and 3 GHG emissions, both absoluteand intensity) and consider further KPIs beyond GHG impact. The
KPIs should have specific, quantifiable and science-based short,medium and long term targets set against them and the financial
implication behind each KPI should be defined.
It is also important to calculate and disclose the societal andenvironmental impacts of net zero transformation, going beyond
climate impact and considering impacts on other material
sustainability issues (e.g. water, biodiversity, plastics, humanrights,local communities and diversity and inclusion). These disclosures
should also be quantified in monetary terms where possible.
Companies should report on how staff at both senior and juniorlevels are engaged and incentivized to deliver on the net zerostrategy throughout the company. This may include financial andnon-financial incentives (e.g. remuneration, employee awards,
performance grades).

✔Disclose with clarity and transparency
Clear and transparent disclosures are critical for businesscredibility. For net zero it is especially important as companies need
to be aware of avoiding ‘greenwash’.
Disclosures should:● Provide clear and consistent messages and data points(along with basis of reporting), enabling those outside theorganization to form a view and compare across organizations.
● Highlight progress being made and - critically - areas for
improvement to ensure disclosures are balanced and to giveconfidence that the organization is fully aware of its impacts
and is honest and transparent about progress towards net
zero.
● Articulate barriers to progress across the company, value
chain and ecosystem, and structural changes required toenable net zero transition.
● Include focus on innovations as well as actions to help
enable the conditions needed to achieve effective, just, andsustainable climate solutions for people of all gender, race,or skills.
External, independent review is also advised as it enhances
credibility of disclosures. It provides additional confidence tomanagement/ senior leaders on the organization’s performanceover time and to external stakeholders on the company’s progress
and plans.

Who is responsible for delivering Net Zero Transparency and Accountability: Heads ofCommunication, Public Affairs & Corporate Reporting; Sustainability / CSR managers.

Practical advice for:Companies just starting their net zero journey:
It is critical for companies to set out their ambition and therationale for the chosen level of ambition in the context of thebusiness. Companies will not be expected to have fully
developed their plans nor have all aspects of a net zero strategy
embedded across the entire organization. However, theprogress made, as well as realistic expectations for the shortand medium term, should be articulated.
It may be helpful to complete a rapid gap analysis assessment
against the TCFD recommendations and develop a plan of what
to disclose, when and through which communication channels.
An important step within the above will be to ensure thatexisting external disclosures of governance arrangements
incorporate considerations of net zero. It may also be helpful tohave workshops or learning sessions on net zero with those
responsible for all forms of external communication.

Mature companies seeking to be net zero leaders:
For mature companies it is expected that many net zeroactivities and initiatives will be taking place therefore
disclosures should focus upon what is ‘material’ to thecompany as well as other stakeholders. Companies should lookat the inventory of all primary external disclosures, including
investor presentations and roadshows as well as regulatory
disclosures, and to consider the need to include or exclude
relevant aspects of net zero implementation and outcomesachieved to date.
Companies should have clearly defined rationale and objectives
for utilizing external assurance. This will help ensure that theright level of assurance using the right assurance provider isselected.

Microsoft | PwC 38

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Transparency case study: Mercedes-Benz AG and Microsoft
Mercedes-Benz AG

Microsoft

In our sustainable business strategy, we have set ourselves the overall goal of making themobility of the future carbon-neutral. To measure our effectiveness we’ve established asustainability KPI system.

IReal progress requires real transparency. Microsoft has long been committed to transparency on
climate and carbon performance, reporting on climate performance to CDP and on our CSR reports fornearly a decade.

Within the context of our “Ambition 2039” and our strong commitment to the Paris Agreement
on climate protection, we combine both internal and external performance reviews in ourmanagement approach. In line with this approach, we derive measures for ensuring that wereach our goals and assess our implementation of these measures. Each unit conducts internal
reviews in its area of responsibility at short intervals throughout the year. The external review
consists of an annual audit of a selection of our corporate goals and our attainment of themthat is conducted by an auditing company. In addition, the Science Based Targets Initiative(SBTI) monitors and confirms the conformity of our path toward goal attainment with the Paris
Agreement on climate protection.

Microsoft embraces transparency on its performance. Reporting on progress – as well as challenges – isa responsibility Microsoft has to its shareholders and employees, and is also an opportunity to make iteasier for others to find their way from ambition to action more easily and efficiently. Given its more
ambitious carbon goals announced this year, to become carbon negative, this reporting is even more
important. As such, Microsoft will now deliver a Sustainability Report annually.

Not only does our annual Sustainability Report outline our strategic goals and measures, it also
documents current actuals. Starting with the report 2019 we are including a reference table for
the TCFD disclosure. For climate-related activities and the related performances, we also
disclose via CDP Climate Change questionnaire.
As far as individual vehicles are concerned, we publish a “360° Environmental Check” in which
we summarize the results of the life cycle assessment in material resources, energy
consumption and CO2 emission.
In the environmental workshop at our annual Daimler Sustainability Dialogue, we conduct indepth discussions with environmental institutes and NGOs. Throughout the year, there are
numerous discussions and direct exchanges with our Board of Management on the subject ofclimate protection. In addition, the feedback we continually receive from government and the
public lets us know how the sustainability goals we have set for ourselves are being perceived
and evaluated.

In addition, Microsoft is practicing transparency in disclosing its roadmap, and incremental steps along
the way. A key example is the issuance of a new request for proposal to source carbon removal
solutions that are net negative and verified to a high degree of scientific integrity. To ensure that ourfunding will maximize carbon being taken out of the atmosphere, we are doubling down on scientificverification of each project, and using this RFP to harvest and share best available science and market
intelligence on carbon removal. Microsoft has committed to publicly sharing the learnings from thisprocess to accelerate carbon removal efforts of others.
This transparency carries through to products. Microsoft introduced a new feature, the Microsoft
Sustainability Calculator. It provides Azure cloud customers transparency into their total carbon
emissions – Scopes 1, 2 and 3 – resulting from their cloud usage.
In addition, Microsoft committed to playing a role in accelerating greater transparency beyond its four
walls. It stated it will support strong industry-wide standards for transparency and reporting on carbon
emissions and removal and apply these to itself. To that end, Microsoft has a certified Science Based
Target and is also a signatory to the United Nations’ 1.5-degree Business Ambition Pledge.

The attainment of our fleet’s CO2 emission targets in EU has already been a component of the
remuneration of our Board of Management for years now. In 2020 we will further differentiate
this system and expand it to involve the entire senior management structure, from thedepartment heads on up. We expect this process to motivate everyone involved even morestrongly to reach the sustainability goals we have set for ourselves.

Microsoft | PwC 39

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Building Block: Engagement
Companies will need to engage and influence stakeholders across a variety of ecosystems
to deliver emissions reductions at pace and scale, and create the enabling conditions foran accelerated transition. Leading companies also have an important role to play ininspiring and spurring greater action through demonstration, cooperation, collaborationand sharing of information with key stakeholders.
This section isimportant for:
Head of Partnership &Engagement, Corporate
Affairs, Corporate Social
Responsibility,
Communications,Marketing, Brand
owners, Climate &Sustainability experts.

Checklist of key actions:

Develop a net zero-aligned stakeholder engagement strategy by: identifying
critical stakeholders to engage on the net zero transformation journey; developing
tailored content and using innovative approaches to engage stakeholders.

Inspire others and lead by example by: mobilizing and convening stakeholders toshare experiences; engaging with climate and net zero initiatives and platforms;
demonstrating progress through consistent absolute reductions and consideration ofsocial alongside environmental impact.

Influence value chain partners and customers by: listening to customer andpartner experiences; educating customers about their impact; collaborating with
upstream and downstream partners to deliver systems change.

Use influence to promote policies that enable and accelerate progress by:advocating for net-zero aligned policies including a focus on actions that help enable
the conditions needed to achieve effective, just, and sustainable climate solutions forpeople of all gender, race, or skills; engaging with civil society and NGOs; using brandcommunications and marketing campaigns to encourage customers and consumers
to reduce emissions.

Microsoft | PwC 40

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Engagement and influence: Enhancing the pace and scale of net zero action✔Develop a net zero-aligned stakeholder engagement
strategy
Net zero requires collaboration across all stakeholder ecosystems. It is
important that shareholders and investors are ‘bought in’ to support
transformation efforts; and that customers, NGOs and civil society trust
companies’ commitments to transformation else run the risk of reputational
damage and greenwash.
Companies should assess the landscape to identify critical stakeholders
to engage on the net zero transformation journey, including investors,
employees, customers, governments, NGOs and civil society. Companies
need to develop tailored and proactive engagement strategies based on
stakeholder requirements and expectations. Shareholders and investors
will be interested in your transformation strategy, approach and metrics(economic, environmental and social). While employees, customers, NGOs
and civil society will be interested to understand if you are delivering asocially-just transition, robust results, and whether you are on track tomeet your commitments.
Companies should adopt innovative approaches to engage stakeholders
on net zero and to showcase results. For example, through targeted
outreach such as events showcasing results, creation or use of virtual
platforms for information exchange, or newsletters to share knowledge.

✔Inspire others and lead by example
The pace and scale of the challenge requires a focus on action and tangible
emissions reductions. Cooperation and sharing learnings and best practices
enables quicker identification and scaling of solutions, and greater overall
mitigation of emissions.
Companies should use their size and influence to mobilize and convene
stakeholders across ecosystems, including peers, to share best practice,learn, address common barriers and structural challenges. They should
jointly invest in these opportunities and develop publicly available
research, roadmaps, data, tools and low carbon solutions.
While commitment initiatives are important, companies should also
engage in initiatives and platforms that focus on action such as REBA,
RE-Source, REscale, 100s, etc.

To lead by example, it is critical for companies to demonstrate progress
through consistent and absolute reductions beyond scope 1 and 2
emissions, company wide and by geography, business unit, and productand services.

✔Influence value chain partners and customers
In many sectors, the most material emissions are in product use and end of
product life. Engaging, educating and supporting customers to change
behaviors; and working extensively across value chain partnerships is crucial
to achieve net zero.
Product owners, environmental specialists, communications, marketingand brand managers should work together to educate customers about
their impact when using products or services. They can do this byidentifying ways to reduce impact and leveraging brand and marketing
channels to encourage behavior changes.
Companies should collaborate extensively with upstream and downstream
partners to enable transformation across the whole value chain including a.
focus on circular models of consumption. Support should be provided to
SMEs to enable inclusion.

✔Use influence to promote policies that enable andaccelerate progress
Governments, NGOs and civil society are all important in creating the drivers
and enabling conditions for companies to transform to net zero:
Governments want to understand what the business community needs to
unlock emission reductions at pace and scale; and NGOs and civil society arepushing for greater ambition and green policies in the midst of turbulent
global events and politics.
Companies should advocate for policies that create the market conditions
to accelerate emissions reductions and create wider social impact, andprovide the evidence to support these policies. Companies should engage
with civil society and NGOs to leverage their influence to create political
momentum for policy change. Companies should leverage their brandcommunications channels and marketing campaigns to encourage
broader civil society to adopt more sustainable behaviors.

Who is responsible for delivering Engagement for Net Zero: Head of Partnership & Engagement, Corporate Affairs,
Corporate Social Responsibility, Communications; Marketing, Brand owners; Climate & Sustainability experts

Practical advice for:Companies just starting their net zerojourney:
Start by defining your ecosystem. Who areyour key stakeholders? What does net zeromean to, and imply for, each stakeholder
constituency? What are your stakeholders’expectations, needs, and incentives? Where do
you operate and how might that alter yourengagement approach? What material will you
develop and share to influence yourstakeholders and attain buy-in? Which climate
initiatives are most relevant to you? Whatlevers are available to you to engage value
chain partners, customers, governments,
NGOs and civil society? Use this exercise to
inform your engagement strategy, and identify
initiatives you would consider joining as a firstaction.

Mature companies seeking to be net
zero leaders:
Leaders need to be driving initiatives, inspiringothers to take action, and openly sharing theirexperiences and lessons learned. Cruciallyleading companies need to ‘walk the talk’ bydemonstrating absolute GHG reductions
across their value chains and engaging adiverse range of stakeholders to identify ways
to deliver a just transition and to create theconditions for further and faster emissions
reductions.

Microsoft | PwC 41

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Engagement Case study: Natura &Co“

At Natura &Co, we believe we can’t
run a business on a dead planet. We
will address the climate crisis by
working on science-based solutions
to become a carbon neutral businessby 2030. In order to achieve this, wewill engage with a broad range ofstakeholders and together, we willfind solutions that create a wider
positive impact. Businesses,
governments, civil society, and thescientific community must act
together, but we must be even more
ambitious and act with urgency
before it’s too late. This is an
important part of our Commitment toLife vision for 2030.
Roberto Marques
Executive Chairman of the Board and Group CEO,Natura & Co

Our commitment

Engaging local communities

Natura &Co is a global, purpose-driven, multi-channel and multibrand cosmetics group which includes Avon, Natura, The Body
Shop, and Aesop. Each of the four companies that form the groupis committed to generating positive economic, social, andenvironmental impact.

With this, we are seeking to broaden relations with thecommunities supplying biodiverse ingredients in the region,
underscoring the fact that it is economically feasible to reconcile
production and keeping the forest standing. The lower the
deforestation in the area, the higher the financial return fromenvironmental services for the agricultural producers.

In June 2020, we published our Commitment To Life for 2030, acomprehensive sustainability plan to address some of the world’s
most pressing issues.

Creating circular carbon
To combat deforestation in the Amazon and to encourage family
agricultural producers to conserve local vegetation, we developed
a first project that pays for carbon offsetting in our production
chain, known as Circular Carbon (or carbon insetting). The project
pays the families of smallholders not only for the purchase of raw
materials and benefit sharing, but also for environmental
conservation services.
The project was undertaken initially in partnership withreforestation cooperative Cooperativa de Reflorestamento
Econômico Consorciado e Adensado or RECA, consisting ofagricultural producers in Porto Velho (Rondônia) and surrounding
regions in the states of Acre and Amazonas. Through the payment
for environmental services, a practice known as carbon insetting,Natura is seeking to work with communities on three integrated
fronts:● Ingredients purchases● Benefit sharing for access to traditional knowledge/genetic
heritage● Forest conservation

The RECA cooperative, which has supplied ingredients for Natura’s
Ekos product line since 2001, is located in one of the regions in
Brazil under the greatest pressure from deforestation, both bylivestock breeding and by the exploitation of timber. For thisreason, in 2013 the area was chosen for the pilot project,
developed in partnership with the sustainable development body
Idesam (Instituto de Conservação e Desenvolvimento Sustentável
da Amazônia).
The land and farms involved in the RECA cooperative project havesignificantly helped conserve the forests. The work has helped
strengthen the local economy and protect the native forest areas.
The program creates a virtuous circle because it gives theingredients suppliers additional income and increases theresilience of the chain.
Between 2013 and 2016, the deforestation rate in the surroundingarea averaged 1.9% per year, while the 126 properties
participating in the project had a rate of 0.93% - less than half thedeforestation rate of its surroundings. An area equivalent toapproximately 190 football fields pitches was conserved during theperiod, avoiding 104,000 tons of carbon gas emissions in theatmosphere.
The payment for this environmental service from 2013 to 2016 wasequivalent to the amount Natura &Co paid RECA for the
ingredients it supplied during the period (around US$500,000).
The goal is to improve the resilience of the chain and reduce
RECA’s deforestation rate to zero, as well as to replicate this modelin other communities in the Amazon region.

Microsoft | PwC 42

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Conclusion
This document provides a ‘blueprint’ for a company starting out on, or on their net zero journey. The
framework outlines the key building blocks for business transformation needed to deliver net zero. It is
intentionally holistic, wide ranging and sector neutral, such that it can be engaged with by any company.
The next step is for companies to apply the framework in a way that works for their business. Here are someways companies can use this framework:●

Deploy the building blocks checklists as a diagnostic tool to help identify current strengths andimprovement areas, and where to direct effort and resource.
● For companies just starting their net zero transformation journey:
Establish a cross functional working group to follow our practical advice for each building block; which
would include– An articulation of ‘net zero’ and what it means in your business context– A high level market assessment to highlight strategic risks and opportunities– Briefings to share results and establish a roadmap of key actions that should cover:– Oversight and management of net zero from the highest levels of the organization– Review of Corporate Strategy, Innovation Strategy, Operating Model, Supply Chain Strategy andInvestment Strategy to determine quick wins for embedding net zero and key next steps andbusiness owners– Review of existing and priority enterprise and supply chain transformation programs to ensure net
zero is embedded in programs underway● For mature companies:
Deep dive into key building block areas you know you need to focus on. Read the framework and ensure
there is a program of work, with designated resource to deliver against each of the action points.

There is an immediate need for companies to move from ambition to action and take apragmatic approach to transformation to deliver on next zero in the next 1-2 business cycles
Microsoft | PwC 43

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Acknowledgements
PwC and Microsoft would like to acknowledge the valuable contributions of thefollowing people in the development of this document:
Lead authors
Dr Celine Herweijer (PwC UK), Abigail Paris (PwC UK), Madeleine Karn (PwC UK)
PwC project team
Benjamin Combes (PwC UK), Kiran Sura (PwC UK), Marisa Donnelly (PwC UK),
Helen Edwards (PwC UK), Frankie Howland (PwC UK), Steve Jennings (PwC UK),
Alyssa Martin (PwC US), Arthur Mitchell (PwC UK), Tarik Moussa (PwC UK), Robert
Moline (PwC US), John Ni (PwC UK), Tazik Rashid (PwC UK), Katherine Risk (PwCUK), Ella Sexton (PwC UK), James Wark (PwC UK), Monica Zolczer (PwC UK), Sara
Ahlberg (PwC UK), Mary Davies (PwC UK).
Microsoft project teamLucas Joppa, Michelle Lancaster, Elizabeth Willmott, Brandon Middaugh and Joel
Combs
Case study contributors
A.P. Moller – Maersk, Danone, Mercedes-Benz AG, Microsoft Corp., Natura &Co,
NIKE, Inc., Starbucks, Unilever, and Wipro

Microsoft | PwC 44

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Abbreviations and terminology
Net Zero

Assets under management (AUM): The total market value of the investments that a person or entity manages on behalf of clients
Dual benefits: When an activity results in a reduction in GHG emissions as well as/ alongside its primary business objective

Net zero is a “state in which the activities
within the value chain of a company resultin no net impact on the climate fromgreenhouse gas emissions.”
A credible net zero strategy means
eliminating sources of emissions in the value
chain at a pace and scale consistent withlimiting global warming to 1.5°C as far as
possible, and after this point removing any
residual emissions that remain unfeasible toeliminate through permanent carbon dioxide
removals.
Companies can avoid or reduce emissions
outside of their value chains (compensation
measures) or remove carbon from theatmosphere within or beyond their value
chains (neutralisation measures). Bothmeasures are being used by companies tooffset emissions, and include natural climate
solutions such as tree planting andecosystem restoration.
Reducing emissions in line with 1.5°C meansaligning to, where possible, the de facto
standard set by the Science-Based Targets
Initiative, which also provides external
validation of companies’ public targets
against that standard.
Emissions are categorised into three scopes:
operational emissions consist of Scope 1 and2 emissions and value chain emissions
consist of Scope 3 emissions.

Decarbonisation: Refers to reduction and/or elimination of GHG emissions
Financial Stability Board Task Force on Climate-related Financial Disclosures (FSB TCFD): The TCFD develops recommendations for voluntary
climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and provide decision-useful information to lenders,insurers, and investors. On June 29, 2017 the Task Force released its recommendations report, that provides context, background, and the generalframework for climate-related financial disclosures along with more detailed and technical guidance for companies to explain how to implement therecommendations. As of February 2020, 1,027 organizations, representing a market capitalization of over $12 trillion support the TCFD.
Greenhouse gas (GHG): The atmospheric gases responsible for causing global warming and climate change: Carbon dioxide (CO2), methane (CH4),
nitrous oxide (N20), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6).
The Intergovernmental Panel on Climate Change (IPCC): The United Nations body for assessing the science related to climate change. The IPCC
provides regular assessments of the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation.
Paris Agreement: At the Paris climate conference (COP21) in December 2015, 190 nations adopted The Paris Agreement. Its central aim is tostrengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above
pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C.
Nationally Determined Contributions (NDCs): The Paris Agreement requests each country to outline and communicate their post-2020 climate
actions, known as their NDCs. Each climate plan reflects the country’s ambition for reducing emissions, taking into account its domestic
circumstances and capabilities.
Representative Concentration Pathway (RCP): To model and predict future climate it is necessary to make assumptions about the economic, socialand physical changes to our environment that will influence climate change. Representative Concentration Pathways (RCPs) are a method for
capturing those assumptions within a set of scenarios. The conditions of each scenario are used in the process of modelling possible future climate
evolution.12
Science-Based Targets (SBT): Science-based targets provide companies with a clearly defined pathway to future-proof growth by specifying how
much and how quickly they need to reduce their greenhouse gas emissions. Targets adopted by companies to reduce greenhouse gas (GHG) emissions
are considered “science-based” if they are in line with what the latest climate science says is necessary to meet the goals of the Paris Agreement – tolimit global warming to well-below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C.
Science-Based Targets initiative (SBTi): The Science Based Targets initiative champions science-based target setting as a powerful way of boosting
companies’ competitive advantage in the transition to the low-carbon economy. The initiative showcases companies that set science-based targets,
defines and promotes good practice and offers resources and independently assesses and approves companies’ targets.

Microsoft | PwC 45

Introduction

Overview
Building Blocks

Building Block:Ambition

Building Block:Governance

Building Block:
Strategy

Building Block:Enterprise

Building Block:
Supply Chains

Building Block:Innovation

Building Block:
Finance

Building Block:Transparency

Building Block:Engagement

Conclusion

Endnotes
1 UN Global Compact (2020) Business Leaders Taking Action: https://www.unglobalcompact.org/takeaction/events/climate-action-summit-2019/business-ambition/business-leaders-taking-action (Accessed:
21st September 2020).
2 Fortune (2020) Global 500: https://fortune.com/global500/ (Accessed: 21st September 2020).
3 IPCC (2018) Special Report: Global Warming of 1.5 ºC: https://www.ipcc.ch/sr15/ (Accessed: 21st
September 2020).
4 Climate Action Tracker (2019) Temperatures: https://climateactiontracker.org/global/temperatures/(Accessed: 21st September 2020).
5 PwC (2019) The Low Carbon Economy Index 2019: https://www.pwc.co.uk/services/sustainabilityclimate-change/insights/low-carbon-economy-index.html (Accessed: 21st September 2020).
6 Science Based Targets and CDP (2020) Foundations for Science-based Net-Zero Target Setting in the
Corporate Sector: https://sciencebasedtargets.org/wp-content/uploads/2020/09/foundations-for-net-zerofull-paper.pdf (Accessed: 21st September 2020).
7 Wei, Y., Han, R., Wang, C. et al. (2020) Self-preservation strategy for approaching global warming targets inthe post-Paris Agreement era: https://doi.org/10.1038/s41467-020-15453-z (Accessed: 21st September2020).
8 Climate Action 100+ (2020) Investors: https://climateaction100.wordpress.com/investors/ (Accessed: 21st
September 2020).
9 PwC (2020) Asset & Wealth Management Revolution: https://www.pwc.com/gx/en/industries/financialservices/asset-management/publications/asset-wealth-management-revolution.html (Accessed: 21st
September 2020).
10 Task Force on Climate-related Financial Disclosures (2020) Task Force on Climate-related Financial
Disclosures: https://www.fsb-tcfd.org/ (Accessed: 21st September 2020).
11 World Economic Forum and PwC (2019) How to Set Up Effective Climate Governance on Corporate
Boards: Guiding principles and questions: https://www.weforum.org/whitepapers/how-to-set-up-effectiveclimate-governance-on-corporate-boards-guiding-principles-and-questions (Accessed: 21st September2020).
12 Met Office (2018) UKCP18 Guidance: Representative Concentration Pathways:
https://www.metoffice.gov.uk/binaries/content/assets/metofficegovuk/pdf/research/ukcp/ukcp18guidance---representative-concentration-pathways.pdf (Accessed: 21st September 2020).

Microsoft | PwC 46

We hope this document - produced by
PwC and commissioned by Microsoft proves a useful contribution toTransform to Net Zero and helps
accelerate the transformation journey
for companies of all sizes andgeographies.

This report has been prepared for Microsoft Corporation (“Microsoft”) by PricewaterhouseCoopers LLP (“PwC”), and solely for the purpos e and on the terms agreed between Micros oft and PwC. Micros oft and PwC
accept no duty of care to any person for the preparation of the report. Accordingly, regardles s of the form of action, whether in contract, tort or otherwise, and to the extent permitted by applicable law, Micros oft and PwC
accept no liability of any kind and dis claim all responsibility for the consequences of any person acting or refraining to act in reliance on the report or for any decisions made or not made which are bas ed upon suchreport. This report is not intended to form the bas is of any investment decisions .
In this document, “PwC”refers to the UKmember firm,and may ometimes refer to the PwC network. Each member firm is a separate legal entity.
Pleas e s ee www.pwc.com/s tructure for further details .
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