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Understanding The Difference Between Carbon Neutral and Net Zero


By Ayna Custovic

As businesses of all sizes work to reduce their environmental impact, two common terms regularly come up and have led to some confusion between their differences: carbon neutral and net zero. While these terms may sound similar, they refer to distinct goals regarding a company's emissions.

For start-ups and small and medium-sized enterprises (SMEs), it's important to understand the difference between these two concepts in order to develop an effective sustainability strategy and to understand Environmental, Social, and Governance (ESG) impacts.

What is Carbon Neutral?

This means that a company has calculated its total greenhouse gas emissions and has taken specific actions to offset the equivalent amount of emissions - leading to carbon neutrality. These days, this is usually done through getting involved in carbon offsetting projects by purchasing ‘carbon credits’ which fund initiatives that remove or reduce greenhouse gasses from the atmosphere. Examples of carbon offsetting projects include reforestation, renewable energy, or carbon capture initiatives such as methane or direct carbon capture.

It’s important to understand that carbon neutrality doesn't necessarily mean a company has reduced its own emissions. Instead, the company compensates for its emissions through its involvement in offsetting projects which remove carbon elsewhere. A company can continue to produce the same level of emissions as long as they purchase enough carbon credits to match their footprint.

This can be a relatively simple way for SMEs to take tangible action for sustainability. The process generally involves:

1. Calculating the company's total annual greenhouse gas emissions from sources like pollution, energy use, and waste.

2. Purchasing carbon credits to offset those emissions.

3. Becoming carbon neutral.

Many SMEs choose to start with the goal of becoming carbon neutral before working towards deeper emissions reductions that would lead them to net zero. Carbon neutrality allows companies to show their commitment to the environment and sustainability whilst they plan, forecast, and implement longer-term strategies which will actually reduce their own carbon footprint.

What is Net Zero?

Being net zero means that a company has reduced its own greenhouse gas emissions as much as possible, and any remaining emissions are balanced out by removing the equivalent amount of carbon. This approach is more holistic and ultimately more effective and environmentally friendly than simply offsetting emissions.

Achieving net zero means that companies need to take the following steps:

1. Measure and report on all of their greenhouse gas emissions across Scope 1, 2, and 3 (see our previous article ‘Understanding the differences between Scope 1, 2, and 3 emissions’ for further details on what the different Scopes mean).

2. Develop and implement plans to exponentially cut those emissions through actions such as using renewable energy, choosing sustainable sources for transportation, and reducing waste.

3. Invest in carbon removal solutions such as reforestation, afforestation, blue carbon removal, and biochar removal to balance out any residual emissions in order to achieve net zero.

These actions mean that companies are actively reducing their own environmental footprint rather than simply compensating for it. This process is more ambitious, challenging, and resource-intensive, but it results in tangible, long-term results rather than just offsetting.

For SMEs, achieving net zero status requires significant planning, investment, and commitment. Finance teams in particular will need to build net zero targets and strategies into their business plans and budgets.

Which is right for your company?

Both carbon neutral and net zero are an important step towards prioritizing the environment. The right choice for your company depends on your resources and sustainability goals.

Carbon neutrality can be a good starting point in order to take immediate action on offsetting your emissions. However, net zero should ultimately be the end goal as it is a more comprehensive and impactful approach to addressing climate change. Whichever route you choose, the key is to start measuring, reporting, and reducing your emissions today.

What are the next steps?

Unsure of how to begin measuring and reporting your emissions, let alone figuring out which actions you need to take for reducing them?

The first step is to invest in a robust reporting system, such as neoeco, which will do the hard work of calculating your emissions and creating audit-ready reports. With neoeco’s software, you can set benchmarks, goals, and get insights into how to achieve your targets - whether you’re aiming for carbon neutrality or net zero.

Get in touch today to find out more and schedule your free neoeco demo.

Your goal - to become more sustainable. Our goal - to enable sustainable progress for people, profit, and planet. Together, this can be achieved.

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