Earth Day 2021 Earth Day 2021: A big day for Net Zero?
What to look for in commitments
Over the last decade Earth Day has become synonymous with press releases from companies launching new sustainability commitments and initiatives. It offers a good opportunity to create momentum and raise profile and awareness, with the media usually on standby to fill column inches. Net-Zero and other big climate pledges are once again centre stage, but companies should expect increasing scrutiny on the anatomy of these goals and what sits behind them.
In the last 24 hours HP has celebrated earth day with an impressive Net-Zero climate ambition and set of targets and we have spotted several others following suit today. Net-zero goals generally speaking commit a company to directly cutting their value chain emissions as close as possible to zero, and then offsetting the rest through funded projects that either capture carbon from the atmosphere or reduce emissions outside of their own value chain.
HP’s recent announcement is just one of many recent corporate Net-Zero climate goals launched over the last couple of years. But companies should be prepared for increasing scrutiny in the coming months and years on the exact anatomy of their goals and the approaches and actions that sit behind them.
Why? Because, while the concept might seem binary – you are either Net-Zero or not – the reality is a bit more nuanced and we see a lot of different interpretations and resulting approaches.
As the Science Based Targets Initiative (SBTi) stated last September
“Corporate net-zero targets are being approached inconsistently, making it difficult to assess these targets’ contribution to the global net-zero goal.”
Within this wider analysis there are reasons for positivity. A recent report on the climate commitments of 401 companies across energy, transport, consumer goods and industrials sectors found that the uptake of "genuine" Net-Zero targets has more than doubled in the past year.
With Earth Day 2021, we wanted to break this down, to explore some key variations and what it means to develop genuine Net-Zero targets and approaches. We think there are four key dimensions to consider.
1. The emissions sources included
Some companies define their net zero emissions narrowly focusing only on their direct operations. It’s crucial to look at the whole picture because for most companies a far bigger proportion of emissions comes from upstream supply chains or the downstream use of their products and services (both of which form part of what are called Scope 3 emissions). For example, a number of oil companies have set Net-Zero goals for the extraction of oil and gas at their wells, but this doesn’t cover the far greater emissions arising from their many customers use of fuel.
2. The use of offsets
While it has been recognised that the use of credible offsets can play a critical role in accelerating the transition to net-zero emissions at the global level, it’s critical that companies focus predominantly on decarbonising their direct value chains with offsetting only used to counter for the most difficult to cut emissions. This is backed up by the science and UNFCC scenarios developed for global Net-Zero by 2050. Now this is where it starts to get really complicated, but the key point is that if we focus on offsetting at the expense of deep cuts in value chain emissions we won’t hit 1.5 degrees.
3. The timeline to Net-Zero
Many companies are developing a single 2040 or 2050 net-zero goal. But that’s a long way off and the science shows that the level and pace of emissions abatement is important with some activities and emissions sources across our economies needing to decarbonise by 2030. In fact the UN estimates that we need to halve emissions by 2030. That’s why some leading companies have set interim targets to ensure they remain on track and build momentum towards Net-Zero.
4. Plans to achieve Net-Zero
The majority of corporate Net-Zero goals are a bit of a black box. It’s not clear in most cases how the company thinks it will achieve the goal. Of course there are huge uncertainties with such stretched timelines, but some leading companies such as Microsoft have published pathways that break down emissions sources and profile reductions year-on-year. In Microsoft’s case this is backed up by a wide range of very specific interim targets throughout the 2020's.
This is important to investors in particular who want to understand companies’ decarbonisation strategies in as much detail as possible. This includes elements such as changes to the technology or product mix, supply chain measures, R&D spending.
In fact, Climate Action 100+ an investor-led initiative focused on driving the world’s largest corporate greenhouse gas emitters to take faster action on climate change, has developed a Net Zero company benchmark. This framework helps investors assess companies’ ambitions and strategies based on their publicly disclosed information and covers a range of indicators from long, medium and short term goals, to decarbonisation strategies, capital allocation alignment, climate policy engagement, and climate governance.
In the coming days as we digest the most recent slew of Earth Day commitments it will be interesting to see how they match up to some of the good practices outlined above.
What’s more in November this year the SBTi will be launching its new Net-Zero Standard, no doubt to coincide with COP 26. With the UNFCC’s 2021 Race to Zero campaign in full swing it’s as important as ever for companies to be thinking carefully about how they both construct and communicate their Net-Zero commitments and approaches.
Later this year in the lead up to COP26 we are planning to host a small series of discussions focused on Net-Zero approaches bringing together experts from within and beyond the corporate sector. Get in touch if you’d like to be involved.
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