Over the past decade, net zero emissions targets have become mandatory for a company to be taken seriously on sustainability.
Why it matters: Net zero targets could produce real progress toward reducing greenhouse gas emissions within the next few decades — assuming the targets will actually be met and not leave out important factors like the emissions from using a company’s products.
Over the past decade, net zero emissions targets have become mandatory for a company to be taken seriously on sustainability.
Why it matters: Net zero targets could produce real progress toward reducing greenhouse gas emissions within the next few decades — assuming the targets will actually be met and not leave out important factors like the emissions from using a company’s products.
The big picture: Getting to net zero emissions — the point at which a company’s emissions equal the amount of its greenhouse gases being absorbed by the land, sea, and if proven to work at scale, carbon capture devices — is a relatively new goal.
- The UN Intergovernmental Panel on Climate Change (IPCC) gave this concept a major boost with a special report in 2018.
- This report looked at the feasibility and implications of holding global warming to the more ambitious target under the Paris Climate Agreement, which is 1.5°C of warming compared to preindustrial levels by 2100.
- The report contained stark findings, namely that to meet the target, the world would have to cut emissions by 45% by the end of this current decade, down to zero by 2050, and then go to net negative emissions by the end of the century .
By the numbers: Net zero corporate pledges have taken off since 2018, as the IPCC report spurred an uptick in investor activism.
- This takes the form of proxy battles at annual shareholder meetings, with investors urging companies to disclose more about their climate risks and efforts to cut emissions.
- Investors are also threatening to pull money out of companies, or in the case of Exxon, elect new board members who are more aggressive on the topic of climate action.
One measure of the enthusiasm for net zero commitments is to examine trends in the Climate Action 100+, an initiative that works with heavy-emitting companies to advance their decarbonization strategies.
- As of September, 111 out of 167 “focus companies,” which are some of the biggest corporate polluters, had made net-zero commitments. This number first started to increase in October 2018 and took off starting in the summer of 2019.
- Companies like Shell, BP, Delta Airlines, American Airlines and BASF have all pledged net-zero emissions by 2050.
- If these commitments are met, they would remove 9.8 billion metric tons of carbon dioxide emissions annually, according to an analysis by BloombergNEF.
- That works out to more than 20% of global annual emissions.
Between the lines: There are more stringent initiatives whose goal is to raise the level of climate ambition further, beyond net zero goals. For example, the Renewable 100 (RE100) had a record year in 2021, with 67 new companies pledging to get 100% of their power from renewable sources.
- Similarly, the Science Based Targets Initiative, which aligns company emissions targets with the goals of the Paris Agreement, also saw a record surge in signups in 2021, according to BloombergNEF.
What we’re watching: The extent to which regulatory agencies hold companies accountable for meeting their targets is not yet clear, but at the very least, the first draft of the SEC’s disclosure rules is coming as soon as March 21.
- Another trend is the extent to which investors themselves are goal-driven, with their own net zero targets they need to meet. This introduces a pressure point for companies lagging behind on their emissions reduction plans.
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