As governments continue to make aggressive climate commitments to build net zero carbon economies over the next 30+ years, financial regulators around the globe stand to benefit from early adoption of holistic climate risk assessment tools that monitor both physical and transition risks and opportunities to financial institutions.
On September 22, 2020, Chinese President Xi Jinping announced that China would achieve carbon neutrality by 2060. This was a groundbreaking proclamation, given that China is the largest emitter of carbon dioxide emissions.
China’s actions on curtailing emissions cannot be underestimated if our global economy is to make meaningful progress on becoming net zero. “Net zero carbon economies” may not reduce all of their carbon emissions across sectors to real zero; however, the “net” concept offers several options; purchasing offsets or investing in carbon removal technologies.
In Europe, several countries have made formal net zero by 2050 commitments via the United Nations climate convention (Sweden, United Kingdom, France, Denmark, New Zealand, and Hungary); the European Union (EU), Spain, Chile, and Fiji are all following closely behind with proposed legislation.
As legally binding commitments expand, financial markets will need to shift away from sectors associated with high emissions and instead prioritize investments in clean energy. Scalable software-as-a-service solutions that screen for high-carbon investments will assist financial markets and investors to reallocate their capital accordingly.
Today, investors are taking advantage of software to identify and quantify physical and transition risk in their portfolios. For example, hurricanes and coastal flooding are physical climate risks that pose both acute and chronic threats to companies and their underlying assets, which may impact their valuations when business interruption occurs or when unplanned capital expenditures become unmanageable. Investors will be planning for the transition to a low-carbon economy, and they will also be factoring in the risk of climate change to their assets in a quantifiable and material manner.
Emissions reporting will continue as standard practice as climate risk reporting gains traction and is also predicted to become compulsory. The Task Force for Climate Related Financial Disclosures (TCFD) is the most widely accepted framework used by investors to report their climate-related physical and transition risks and opportunities in a consistent format.
Early adopters of climate risk assessment tools for financial institutions will be rewarded with a seat at the table when these standards around climate risk reporting require formal definitions and associated metrics. Additionally, there will be competitive advantage in reducing portfolio risk while investing early in the largest climate risk-adjusted opportunities across regions and sectors.
We are at a turning point in the climate conversation, and we have the opportunity to turn what were once qualitative theories about climate change impacts into quantitative risk results that Chief Financial Officers or Risk Managers can clearly understand. Climate risk will become an essential component of fiduciary responsibility, as a result of country mandates and customer demands. Where will you be when international support for net zero reaches a tipping point, and investors have nowhere to go except towards green, clean investments?
In exploring this question we reached out to leading experts in the ESG investing industry to find out their responses, and this is what we found…
QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERKristin Barbato, CEO & Founder of Build Edison, Co-Founder of Dynamo Energy Hub
ANSWERWe have the technology for clean energy, air, water, and food. What we don’t have are clear paths to unstopper their promulgation at scale. The largest obstacle to scaled implementation is mostly due to a combination of lack of accessible capital and a patchwork of complex regulatory rules. Therefore, I believe the path to scaling clean solution implementation is streamlined capital and permitting.
QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERSarah Adams, Chief Sutainability Officer, Vert Asset Management
ANSWERGlobally, physical assets and supply chains are facing increasing risks from climate change. The investment community is more closely evaluating the role of science-based emissions reduction targets in corporate strategy to keep global warming to 1.5°C above pre-industrial levels. We believe all companies will need to plan for net-zero pathways.
ANSWERAs investors in real estate, for us “net-zero energy” or “net-zero carbon” is about getting buildings to only consume as much energy as they procure from renewable sources. Buildings can achieve net zero through a combination of energy efficiency, electrification, and renewables procurement, and many have done so already and are saving money by doing so.
ANSWERBuildings consume 40% of the world’s energy and create 33% of global greenhouse gas emissions. Real estate owners can look at the transition to a low-carbon economy as an opportunity to both lower their carbon footprint and their utility bill.
QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERTodd Arthur Bridges, Partner & Global Head of Sustainable Investing and ESG Research at Arabesque
ANSWERBased on scientific observational data and future scenarios, achieving net-zero emissions – the balancing of anthropogenic (human-induced) emissions with the carbon removal of GHGs already in atmosphere over a given period – will require fundamental shifts in how our economies, societies, and political systems operate. An unprecedented global collaboration across all stakeholders – countries, states, cities, companies, and investors – is needed if we are to achieve net-zero by 2050. Arabesque believes there are significant opportunities associated with a zero-carbon future and that we can play our part in helping clients with data, research, advisory, and technology solutions. As one small actor in this global stakeholder collaboration, we will do our best to create value by designing solutions such as the S-Ray Temperature Score that can help corporations make long-term strategic plans and investors to make sustainable strategic allocations aligned with the net-zero target.
QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERNet Zero Carbon is an emissions target where the same amount of human-caused GHG emissions are removed from the atmosphere. It is possible to achieve but will take the international community to agree on decarbonizing their economies. The Paris Climate Agreement was the first international agreement with widespread support and commitments to do so. It is also a good example of what nations can do together to combat the effects of climate change.
QUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERTo achieve global carbon neutrality we must capture the global imagination. Big, easy to see and easy to understand wins are essential. At Beam Global we are focused entirely on the intersection of clean energy and transportation. Why? 70% of US greenhouse gas emissions come from transportation and the generation of electricity. Our products eliminate both sources. To fully electrify transportation we need rapidly deployed, highly scalable infrastructure solutions which are independent of the centralized vulnerabilities of the grid. Our products are the fastest deployed, most scalable EV charging infrastructure solutions in the world and they are powered entirely with locally generated and stored renewable energy. Driving on Sunshine delivers. Beam Global – Clean Mobility For All. (NASDAQ: BEEM).
QUESTIONQUESTIONWhat is the most practical business solution with the largest potential impact in the race to net zero carbon?
ANSWERPeter Fusaro, Partner, and Head, ESG and Impact AV Group Limited.
ANSWERNet Zero Carbon is technically possible but it will take a long-term time horizon. Realistically, 2050 is the date to achieve that goal through three market drivers: energy efficiency i.e. not consuming as much energy, and that means efficiency in the 80+% range which is doable in both buildings and transportation. A much more global deployment of renewable energy and energy storage to replace most of fossil energy in all its forms including natural gas. Finally, a robust deployment of hydrogen for both transportation and electric power generation. This means marrying hydrogen to solar and wind farms to make green hydrogen for both charging electric vehicles and running power stations, trains, and ships.
Before the sun is just a bright spot in the night-time
Out where the rivers like to run
I stand alone and take back something’ worth rememberin
– Out in the country – Three Dog Night
By now you’re probably aware of considerable ads from companies that proudly boast they are well on their way to “net zero carbon” by 2030, or 2040, or 2050, or even now are already there, or maybe claim they have always been – and some of these proclaimers may surprise you.
Challenge accepted and victory within our grasp? We’re going to be just fine, right?
We focus our 6th issue of the Socially Inspired Investor digest/podcast on one of the most important aspects of the Paris Climate Agreement and a founding principle of the United Nation’s sustainable development goals, the Net Zero Carbon initiative.
Carbon neutrality, or having a net zero carbon footprint, refers to achieving net zero carbon dioxide emissions by balancing carbon dioxide emissions with carbon removal – not necessarily ceasing to produce carbon dioxide entirely, but offsetting its deleterious effect on the environment with actions that will help the environment
Can we get there? Will it work? What does it mean if we do get there? What would have to change? What is the downside? Does it mean loss of jobs? Is it bad for business or good for business? Bad for investors or good for investors? We thought it was important to shine light on all these questions as we continue to coach you through the journey of becoming a socially inspired investor.
We are happy to include for this issue two podcasts.
Co-author of the new book, “Smart Cities, Smart Future: Showcasing Tomorrow” Cornelia Levy-Bencheton describes fascinating ways some localities around the world are taking on the challenges of both reducing carbon footprint while increasing live-ability.
We also hear from Mark Campanale Founder of Carbon Tracker, a London based think-tank researching the impact of climate change on financial markets. His assessment is that the net zero carbon revolution has already achieved an unstoppable momentum. Winners and losers are becoming easier to define. But of course the question is will it be fast enough?
Our Spotlight On section poses this question to experts in the field:
What is the most practical business solution with the largest potential impact in the race to net zero carbon?
As you will see, the answers seem to depend more on will and commitment, rather than the need for more funding or expanding beyond existing technology, both encouraging and surely befuddling. Please enjoy this issue of the Socially Inspired Investor digest/podcast and pass it along. When it comes to investing for the future remember it’s your money and your choice.
The world is able to achieve its net zero emissions goal by 2050 if it sinks considerable investment into the cause, according to a report by the Energy Transitions Commission (ETC)
The global coalition of 40 energy producers, industrial companies and financial institutions said it would cost an estimated $1tn to $2tn (£774.83bn to £1.55tn) a year. This is equivalent to 1-1.5% of global gross domestic product (GDP).
“There is no doubt that it is technically and economically possible to reach the zero-carbon economy which we need by 2050; and zero must mean zero, not a plan which relies on the permanent and large-scale use of “offsets” to balance continued GHG emissions. But action in the next decade is crucial — otherwise it will be too late,” ETC co-chair Adair Turner said.
The group laid out three key ways for an economy to achieve net zero status:
Annual global electricity supply will have to grow four to five times to reach 90,000-115,000 terawatt hours and the annual pace of wind and solar capacity will need to significantly improve by five to six times that of what it achieved in 2019.
Meanwhile a number of large businesses and banks are pledging to help the cause.
Earlier this year, Barclays (BARC.L) became one of the first banks to publicly sign-up to a new cross-industry initiative aimed at increasing the flow of financing of ‘green’ projects.
Barclays was among five banks to commit to the Bankers for NetZero project in July, alongside Sweden’s Handelsbanken (SHB-A.ST), ethical bank Triodos, the Ecological Building Society, and fintech Tide.
“The capital ratio is much higher for an obviously green project than for a non-green project because it’s deemed more risky,” Louise Kjellerup Roper, chief executive of research and advisory firm Volans, told Yahoo Finance UK.
“We have to look at why that is if we want to go towards renewables and retrofitting and some of those less carbon intensive industries — why are we deeming them more risky?”
Global warming: a collision of science, economy and politics. Could finance be the key?
Greenhouse gas emissions are at record levels and showing little sign of slowing. The global average temperature during the last decade was the highest on record compared to pre-industrial levels, as reported by three global agencies, and the trend is expected to continue.
World leaders and citizen groups are regularly gathering at climate change meetings and demonstrations around the world to voice their concerns about the deleterious effects of global warming and to emphasize the urgency of creating robust and realistic schemes to meet Paris reduction targets.
The ultimate goal is aspirational: net-zero by 2050. By net zero, carbon neutrality is implied, namely a post-carbon economy with a net zero carbon footprint, achieved by harmonizing carbon emissions with carbon removal.
Climate action groups and youth movements are beginning to experience some reasonable successes in focusing the attention of governments, financial stakeholders, and civil society to the existential challenges of climate change and the collective benefits of well-planned, speedy action. The zeitgeist seems right for achieving a net zero world.
Significantly, Mark Carney, economist and banker, former Governor of the Bank of Canada and Bank of England and now Special Envoy on Climate at the United Nations, considered as one of the world’s foremost leader’s championing climate change financing and policy, has recently stepped up to the plate with many world leaders to take action in dealing with the perceived crisis. He has been inspirational in formulating legislation and monetary policy for governments and businesses to accept and reconcile the effects of global warming and commit to the goal of a net-zero world by 2050.
His appointment to the United Nations, which starts around April 2020, and his commitment and determination to resolve climate change issues and plan climate finance solutions provides a great chance to influence and expedite ideas for a concerned global community.
It’s an ambitious mission as the economic growth of many countries is reliant on the continued production of fossil fuels to power industries, buildings and homes, and run transportation systems. As the key to success in this energy revolution has a strong economic component, it is crucial to de-risk the effects on the economy of implementing a gradual diversification of energy systems from ones based on non-renewable fossil fuels instead to those founded by renewable solar and wind energy over the next three decades.
This can be achieved by making financial policy a centerpiece for governments, businesses, and partnerships, in striving to achieve a net-zero economy. A challenge in realizing these goals is comprehensive transparency by all climate stakeholders on climate change, risk management, and investment to help companies deal with the financial stress on profits, investment, supply and demand, all associated with the perceived disruptive effects of the envisioned transition of the global energy infrastructure.
Any analysis of the risks involved to achieve net-zero emissions will involve stress testing of the financial sector to define whether the damage imposed by the change can be managed on a country-to-country basis without major economic disruption to the government, industry, and the private sector, while protecting the health and well-being of civil society and the environment.
Meanwhile, some of the world’s largest financial institutions (i.e., depository: banks, building societies, credit unions, trust, mortgage and loan companies; contractual: insurance companies and pension funds; investment: banks, underwriters and brokerage firms) are seeking to reduce their risk by divesting their investments in fossil fuel industries and aligning their loan portfolios in support of companies that are backing the transition to a net-zero industrial ecosystem.
The role of the financial institutions to provide finance for research and development of alternatives to fossil fuels is also key to achieving the targets set for a net-zero economy. Objectives of these institutions should be to develop alternatives that are competitive or even cheaper than fossil fuels. Then, users of fossils fuels will likely be encouraged to move away from fossil fuels instead of being compelled to move away from their use. An injection of significant institutional funding to achieve net zero will help the transition although targets for research and development spending set out in the Paris agreement are apparently insufficient. Financial institutions could be backing the research and development needed for a net-zero economy, particularly if they are divesting their investments in fossil fuel companies.
As illustrative of this trend, some of the world’s principal financial institutions with more than $2 trillion in assets have committed to develop eco-friendly investment portfolios by 2050. In addition, undertakings to reduce emissions have been made by major companies with aggregate market capitalization of more than $2.3 trillion. Also, around 33% of the global banking sector have committed to follow the Paris agreement with their investment portfolios.
A net-zero world is an incredibly ambitious vision, especially at a moment when oil prices are low and impacting the fossil fuel sector of the economy. This problem is exacerbated by some of the largest greenhouse gas emitters trying to maintain growth of their industries while reducing emissions, whereas others are weakening their climate commitments to boost economic growth. To avoid a climate catastrophe and meet Paris emission reduction targets, it will be necessary to leave a good proportion of the remaining supply of fossil carbon in the ground with a smart approach to protect investor’s economic returns.
It is clearly a balancing act of unprecedented proportions to reduce greenhouse gas emissions while not bringing non-renewable energy companies and their employees to poverty.
If not checked, an increase in greenhouse gas emissions may result in health and poverty issues related to the effects of global warming. So, the costs of financing this sector is also an issue that needs to be assessed. What will influence the health of people more: climate change or poverty?
Nevertheless, the climate finance debate is anticipated to motivate governments, business leaders, and civil society as well as energize climate youth movements to face the challenges of a significant readjustment of the financial market that will enable the gradual shift from fossil to non-fossil energy.
A recent report described what it would take technologically to create a net-zero-emissions energy infrastructure. It was proposed that known clean technologies, creatively integrated into essential energy systems and energy intensive industries, could enable a net-zero ecosystem, Figure 1.
The viability of this transition from non-renewable to renewable technologies, however, will be contingent on the reliable provision of vast amounts of low-cost renewable electricity; trustworthy grid balance of variable electricity generation, demand, and storage; electrification of energy intensive materials and manufacturing processes like steel, cement, chemicals, and petrochemicals; as well as transportation systems amenable to electrification. Large-scale, long-distance cargo ships, trucks, and passenger planes that cannot easily be electrified can be powered by carbon neutral fuels made by capturing and recycling carbon dioxide chemically or biologically.
One strategy aimed at decarbonisation of stubborn emissions is to centralize, unite, develop, and deploy candidate renewable energy technologies as depicted in Figure 1. This vision of integration of essential energy and industry operations could enhance the economics and efficiency of costly assets, facilitate cooperation of stakeholders, simplify the essential knowledge base required by policy makers, regulators, and legislators and minimize risk to investors to enable dependable and economically responsible provision of these net-zero services.
The economic and technological challenges of transitioning to a net-zero energy world are substantial. It remains to be demonstrated by continued research and development, scaling, and deployment of candidate clean technologies, which will prove to be most efficient, reliable, and cost-effective in future net-zero emission energy systems.
ArcelorMittal produces more steel than any other company. It is also taking a leading role in developing technologies to reduce CO2 emissions from steel-making.
One of the greatest challenges in the fight against climate change is figuring out a clean way to make steel.
We’re talking about a skyscraper-sized challenge with foundational stakes, because steel is essential for our economy but it is also responsible for 8 percent of the world’s carbon emissions, according to one estimate.
So it’s a huge deal that the world’s largest steel company, ArcelorMittal, said last week that it is setting a target of net-zero emissions by 2050.
“If the world is to achieve net-zero by 2050 it will require all parts of the economy in all regions of the world to contribute,” Aditya Mittal, ArcelorMittal’s president and chief financial officer said last week at the Financial Times Commodities Conference.
The most common process for making steel uses a blast furnace followed by a “basic oxygen” furnace. In the blast furnace, extremely hot air is injected into a continuous feed of iron ore, purified coal and lime. This removes oxygen from the iron and imbues the iron with carbon, producing “pig iron” or raw iron. The pig iron is then fed into the basic oxygen furnace, which blows oxygen into the molten iron to reduce the carbon content and remove impurities, resulting in liquid steel. (ArcelorMittal explains this on its website. Industry groups have their own explainers, including this one.)
While that’s the process for forging new, or “primary” steel, there is a process for making recycled steel that produces lower emissions. Producers use electric arc furnaces to heat scrap steel and purify it into liquid steel. This has low emissions if the electricity comes from zero-carbon sources.
But the industry cannot simply move to relying on electric arc furnaces because it needs a method that is capable of making primary steel.
ArcelorMittal named two processes that it is exploring:
The first is called “hydrogen-DRI,” with the DRI standing for “direct reduced iron.” In this method, the company uses hydrogen to set off a chemical reaction that removes oxygen from the iron ore. ArcelorMittal is currently using natural gas as the feedstock for synthesizing hydrogen, which produces carbon dioxide, but the company’s long-term plan is to use hydrogen produced from water. ArcelorMittal has a demonstration project for this technology in Hamburg, Germany, that is scheduled to open in 2023.
The second is something ArcelorMittal calls “smart carbon,” which uses a blast furnace but captures the carbon given off in the process. The goal is to stop carbon dioxide from being released into the atmosphere and store it for resale to the chemical and plastics industries. The company has several demonstration projects for this technology scheduled to go online in 2022.
Of the two methods, the company says carbon capture is the closest to being commercially viable, and probably would be relied upon to reach a goal the company set previously, of cutting its European emissions by 30 percent from 2018 levels by 2030.
To better understand all of this, I got in touch with Jeffrey Rissman, industry program director at the think tank Energy Innovation. He was the lead author of a paper I wrote about in April that looked at how heavy industry could get to net-zero emissions by 2070.
“I am glad they are announcing a 2050 net-zero goal,” Rissman said.
But he said he is skeptical of the idea that there will be a large market for selling carbon captured from making steel. This is because buyers would need to expend large amounts of energy to convert the carbon into useful chemicals, and the buyers have less expensive options. Another market for carbon is the oil industry, which injects carbon dioxide into the old oil fields to help produce more oil, although ArcelorMittal doesn’t mention this as a potential market.
Rissman also said he wondered how much of ArcelorMittal’s plan hinges on selling carbon, and how it would affect the 2050 goal if there was little demand for the carbon.
In announcing the 2050 net-zero goal, ArcelorMittal also called on governments to set up “a global level playing field” that would make it financially viable for companies to make the investment needed to pursue low-emissions strategies. One potential policy is border adjustment tariffs, which would add to the costs of imports from countries that do not have rigorous rules on emissions.
While the announcement doesn’t mention China, the call for a level playing field hints at one of the big tensions in the industry: Companies operating in Europe face escalating pressure from their governments to reduce emissions, while China, which produces about half of the world’s steel, has not exerted the same kind of pressure. However, China’s government did say last month that it intends to become carbon neutral by 2060.
ArcelorMittal is not well known in the United States, despite having substantial assets here (more on that in a minute). The company was formed in 2006 when an upstart steel magnate from India, Lakshmi Mittal, engineered a merger between his family-owned Mittal Steel with the European steel giant Arcelor.
In 2019, ArcelorMittal produced 97.3 million tons of steel, continuing its status as the world leader. The company also has been a leader in research into how to reduce the carbon footprint of steelmaking, with demonstration projects for several leading technologies and membership in the Energy Transitions Commission, a think tank that has been a leader in research on and advocacy for reducing emissions from heavy industry.
“As the world’s leading steel company, we believe we have a responsibility to lead the efforts to decarbonize the steel-making process, which today has a significant carbon footprint,” said Aditya Mittal last week.
What Does ArcelorMittal’s Goal Mean for the United States?
Days before announcing the net-zero goal, ArcelorMittal made another big announcement about the sale of most of its U.S. steel plants.
The company is a big player in the U.S. steel market, and owns parts of the former Bethlehem Steel empire, among other steel companies.
ArcelorMittal said it will continue to be a player in the North American market through plants in Mexico and Canada, plus a few assets it is keeping in the United States, and through a minority ownership stake in Cleveland-Cliffs.
So why did the company do this, and was it connected to the net-zero announcement that came a few days later?
Jeffrey Rissman of Energy Innovation told me he doubted that the sale and the net-zero plan were “causally related,” but he did note that this means most of the U.S.-based assets are not part of the net-zero plan since they’re no longer under the control of ArcelorMittal.
He thinks the sale had more to do with financial considerations like reducing debt.
While Cleveland-Cliffs hasn’t made a net-zero pledge, its CEO, Lourenco Goncalves, has been enthusiastic in talking about the importance of the company and industry reducing their emissions.
“The era of clean steel in the United States is starting right now,” said Goncalves, in an interview last week with Bloomberg. “And another thing—it’s not going to happen in 10 years: it’s going to start next year.”
Goncalves didn’t go deeply into specifics, but his comments help to address concerns that Cleveland-Cliffs might take a very different approach to emissions than ArcelorMittal.
The Trump administration has worked against policies to reduce emissions at the same time that most of the world’s other leading economic powers are heading in the opposite direction.
NextEra’s Market Value Is Now About the Same as ExxonMobil’s
NextEra Energy is growing, with a portfolio of renewable energy projects, while ExxonMobil is shrinking under the weight of debt and low oil and gas prices.
The result is a convergence that would have seemed unimaginable a few years ago: NextEra Energy’s market capitalization—the dollar value of its shares multiplied by the number of shares—has now risen enough to surpass ExxonMobil’s.
As I’m writing this, NextEra is worth $145.4 billion and ExxonMobil is worth $141.7 billion. NextEra pulled ahead for the first time last week, fell behind for a few days, and now is ahead again.
To help understand what’s happening, I reached out to Kathy Hipple, a financial analyst for the Institute for Energy Economics and Financial Analysis, a think tank that does research to support the energy transition.
“Fundamentally, we are in the midst of an energy transition that is accelerating and Covid has accelerated it, but this energy transition has been underway for at least a decade,” she said. “Simply from a financial standpoint, Exxon really does represent the past.”
Underscoring her point, Bloomberg reported this week on internal documents from ExxonMobil that showed the company planned a major increase in annual carbon emissions between now and 2025. ExxonMobil responded to the story by saying the documents did not show measures the company was taking to reduce emissions or include company plans that have since changed.
Hipple noted that market value is a forward-looking indicator, showing investors’ expectations for future growth and confidence in a company’s management.
Florida-based NextEra’s foundation is its utility business, which includes Florida Power & Light, among other local utilities. But most of its growth is coming from its NextEra Energy Resources subsidiary, which describes itself as the world’s largest operator of wind and solar projects.
“The market is telling us that they do not see the growth coming from oil and gas companies,” Hipple said. “This is not to say that oil gas companies will go away tomorrow, but the future growth will not come from that sector.”
To underscore how much the market has shifted, look back to 2007, when ExxonMobil was hitting its record market value of more than $500 billion. NextEra, which was then called FPL Group, was worth less than $30 billion.
Add One More to the Net-Zero Utilities List
I wrote last week about how Ameren and Entergy were joining other large U.S. utilities that have pledged to get to net-zero emissions by 2050 or sooner, and how this kind of goal is the new normal for the sector.
Just a few days later, another company joined the club: National Grid.
National Grid US provides electricity to 3.4 million electricity customers and 3.7 natural gas customers in Massachusetts, New York and Rhode Island.
This announcement was different from many of the others because National Grid is including its natural gas side in the net-zero pledge, and says that it is aiming to eliminate emissions from the use of its products, including natural gas. Also, National Grid owns only a few power plants, so it doesn’t have much work to do to eliminate emissions from generating electricity, which is the main challenge for many other utilities.
National Grid is one of the companies involved with a proposed transmission line that would deliver hydroelectric power from Quebec to Massachusetts.
“We don’t have all the answers yet, and the path to both increase renewable energy and decarbonize heat will be challenging,” said Badar Khan, president of National Grid US. “We believe our electric and gas networks have a vital role in helping achieve net zero emissions and our announcement today is the beginning of a transformative journey of our business.”
he company, which is a subsidiary of National Grid in the United Kingdom, talks about using so-called “renewable natural gas” and hydrogen to replace natural gas. As InsideClimate News has written, there is reason to be skeptical about the promise of renewable natural gas.
That said, National Grid’s announcement marks a step forward for natural gas utilities and is in line with a clear trend for electricity utilities.
The number of commitments to reach net zero emissions from local governments and businesses has roughly doubled in less than a year, as many prioritize climate action in their recovery from Covid-19. Cities and regions with a carbon footprint greater than the emissions of the US, and companies with a combined revenue of over $11.4 trillion (equivalent to more than half of the US GDP), are now pursuing net zero emissions by the end of the century, according to a major report published by the Data-Driven EnviroLab and the NewClimate Institute today.
The majority of these actors are aiming for a zero-carbon economy by 2050, as part of the UN Race to Zero campaign, the largest alliance of local governments, businesses, investors and others aiming for zero emissions in the 2040s. This now encompasses 22 regions, 452 cities, 1,101 businesses, 549 universities and 45 of the biggest investors. New joiners include:
New South Wales: Australia’s most populous state
Brambles: the global logistics company that moves more goods to more people than any other organization, supporting thousands of supply chains
C.P. Group: an Asian conglomerate and one of the world’s largest agri-food producers
Facebook: the world’s largest social media company
Ford: the first US full-line automaker committed to reducing CO2 emissions in line with the Paris Agreement
LafargeHolcim: the first global building materials company to join Business Ambition for 1.5°C with intermediate targets, approved by the Science Based Targets initiative in alignment with net zero pathway
These companies have joined the Race to Zero via the Business Ambition for 1.5°C campaign, by setting science-based targets in line with limiting global warming to 1.5°C.
Recognizing the critical yet often overlooked role that small and medium businesses will play in the transition to a zero-carbon economy, today also sees the launch of a new platform, SME Climate Hub, to support small and medium-sized enterprises in joining the Race to Zero. SMEs make up 90 percent of businesses worldwide, employ 2 billion people and have been among the hardest hit by Covid-19.
Corporations such as Ericsson, IKEA, Telia, BT Group and Unilever have committed to support the SME Climate Hub by working closely with the small and medium businesses in their supply chains to reach net zero or negative emissions before 2050.
These announcements will be made on the opening day of Climate Week NYC, Monday, September 21, during the COP26 & the Zero Carbon Growth Agenda event. The discussion features business and government leaders including Alok Sharma, UK Secretary of State for Business, Energy and Industrial Strategy and COP26 President-Designate; Carolina Schmidt, COP25 President; Michael R. Bloomberg, Founder, Bloomberg LP & Bloomberg Philanthropies, 108th Mayor of New York City; and Patricia Espinosa, Executive Secretary, UN Climate Change.
The event will be convened by Nigel Topping and Gonzalo Muñoz, UN High Level Climate Champions and leaders of the Race to Zero campaign, in collaboration with the Climate Group, to showcase how the shift to a zero-carbon economy is accelerating, and the scale of the opportunity to create good jobs, protect public health and address wider social inequities. The event also marks the one year anniversary of the Climate Ambition Alliance, launched at the UNSG’s Climate Action Summit, which Race To Zero is now mobilizing actors outside of national governments to join.
Alok Sharma said: ““Climate change affects every single one of us and we all have a part to play to champion climate action ahead of COP26. Through the Energy Transition Council and the UK’s ambitious climate finance commitments, I hope to drive the transition to cleaner energies, and I urge all businesses, cities and regions to join the Race to Zero coalition.”
Patricia Espinosa said: “Those involved in the Race to Zero have made a commitment to achieve specific goals and will be held to those promises. The world cannot afford to be let down. Nor can this campaign become something that allows nations to defer action until a later date. It’s about needing more climate ambition and climate action now — in 2020.”
Michael Bloomberg said: “It’s possible to reduce air pollution, improve health, extend people’s lives, fight the climate crisis, and grow local economies. We don’t have to choose just one of those outcomes. They all really do go hand in hand.”
Net Zero Commitments Keep Growing
The number of local governments and businesses pursuing a net zero emissions target by the end of the century has grown significantly since late 2019, according to the Data-Driven EnviroLab and the NewClimate Institute, as many prioritize climate action as part of their recovery from the impacts of Covid-19. This includes:
A nine-fold increase for regions, with an additional 101 in 2020 from 11 recorded in 2019.
An eight-fold increase for cities, with 823 more in 2020 from 100 recorded in 2019.
A three-fold increase for companies, with 1,541 in 2020 from around 500 recorded in 2019.
Momentum among cities and regions spans most geographic areas, the report found. It is especially strong in East Asia and the Pacific, where participating cities and regions — including Tokyo, Wuhan, Hong Kong and eight Australian states — represent over 223 million people, or over 10 percent of the region’s total population. Nearly half of US states, from California and New York to Pennsylvania, Nevada and Louisiana, are also aiming for net zero in their overall emissions or in key sectors such as energy.
The report looks at all net zero commitments by cities, regions, businesses and investors around the world. Many of those are already part of the Race to Zero, which requires members to meet a minimum set of leadership criteria to maintain quality control.
Small Businesses Can Join the Race to Zero
Co-hosted by the International Chamber of Commerce (ICC), the Exponential Roadmap Initiative, the We Mean Business coalition and the United Nations Race to Zero campaign, the SME Climate Hub will serve as a one-stop shop that makes it easier for small and medium enterprises to join the Race to Zero. SMEs provide around two-thirds of jobs worldwide, making them integral to reaching net zero emissions by 2050. Many are being required by large corporations to make businesses more sustainable, but have lacked the support needed to transform.
The SME Climate Hub will therefore be crucial in helping to decarbonize the value chains of major corporations, services and consumer products too, by providing the tools, knowledge and best practices that smaller enterprises need to do their part.
Along with Covid-19, climate change is one of the most pressing threats to small business. Left unchecked, climate change could damage business infrastructure, cause business interruptions and closures and stunt economic growth. With 40 percent to 60 percent of small businesses never reopening after a disaster, SMEs must take climate action today in order to survive and thrive tomorrow.
Cities and corporations back healthy recovery
Of the businesses that have joined the Race to Zero, 294 companies have reached the highest standard of corporate climate ambition as part of the Business Ambition for 1.5°C campaign. This includes companies in some of the most energy intensive sectors and those most impacted by Covid-19. Meanwhile, the number of certified B Corporations that have pledged to reach net zero emissions by 2030 — 20 years before the Paris Agreement’s goal — has climbed to 762. Another five new companies now aim to meet the Paris Agreement by 2040, by signing The Climate Pledge, led by Amazon.
Suphachai Chearavanont, Chief Executive of C.P. Group, said: “As a leading Asian conglomerate with our core business in agri-food, C.P. Group has a role to play to reduce the agriculture sector’s carbon footprint and encourage consumers to adopt more sustainable food choices. With our commitment for net zero emissions within our operations by 2030, we aim to meet this opportunity by leveraging innovation and working closely with all our partners and stakeholders across our diverse set of businesses in the group around the world.”
Jan Jenisch, Chief Executive of LafargeHolcim, said:“As the global leader in our industry, LafargeHolcim has a key role to play to address today’s climate crisis. That’s why we are proud to announce our net zero pledge with science-based targets to accelerate green construction and the transition to a net zero world.”
Notable new business arrivals to the Race to Zero include:
Boston Consulting Group
Companies Endorse EU Climate Ambition
The European Union is helping forge the race to zero emissions, with strong private sector leadership backing stronger climate goals. European Commission President Ursula von der Leyen’s announcement last week, proposing that the EU raise its emissions reduction goal for 2030 to at least 55 percent, came on the heels of a call by more than 160 businesses and investors. In the open letter, CEOs said they were determined to work with the EUfor an ambitious implementation of the recovery package focused on achieving a green and digital transition.
Brad Smith, President of Microsoft Corporation, said: “Carbon doesn’t respect borders. The only way for us to meet these carbon reduction targets is for governments to boldly step forward and work together towards a zero carbon future.”
About the UNFCCC/ UN Climate Change
With 197 Parties, the United Nations Framework Convention on Climate Change (UNFCCC) has near universal membership and is the parent treaty of the 2015 Paris Climate Change Agreement. The main aim of the Paris Agreement is to keep a global average temperature rise this century well below 2 degrees Celsius and to drive efforts to limit the temperature increase even further to 1.5 degrees Celsius above pre-industrial levels. The UNFCCC is also the parent treaty of the 1997 Kyoto Protocol. The ultimate objective of all agreements under the UNFCCC is to stabilize greenhouse gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system, in a time frame which allows ecosystems to adapt naturally and enables sustainable development.
More than 70 leading global investors have developed a framework for net zero investing.
The ‘Net Zero Investment Framework’ provides a blueprint for investors to maximise the contribution they make to achieving net zero emissions globally by 2050.
APG, Brunel, and Church of England Pensions Board are among the investors who helped draw up the framework. Between them, the investors represent more than $16 trillion in assets.
The framework provides a comprehensive set of recommended actions, metrics, and methodologies, which will enable asset owners and asset managers to become net zero investors.
Under the auspices of the Institutional Investors Group on Climate Change (IIGCC), the framework’s primary objective is to enable investors to decarbonise their portfolios in a way that is consistent with net zero emissions.
Five core components help define a ‘net zero investment strategy’ as set out in the framework, covering are: objectives and targets, strategic asset allocation and asset class alignment, alongside policy advocacy, investor engagement activity, and governance. The components enable investors to be aligned with delivery of the Paris Agreement.
The framework covers four different asset classes: sovereign bonds, listed equities, and corporate fixed income and real estate.
The framework has been published for consultation. Five investors will put the framework to the test, analysing its impact across their portfolios, collectively valued at $1.3 trillion. The results of this analysis will be launched with the final framework before the end of 2020.
“Setting a long-term net zero target is the easy part; the challenge is to have a credible and transparent framework that enables your fund to convert intent into practical decisions and action,” said Adam Matthews, Director of Ethics & Engagement, Investment Team, Church of England Pensions Board and Co-Chair, IIGCC, Paris Aligned Investor Initiative (PAII). “The Church of England Pension fund, which serves the interests of 40,000 future beneficiaries, is globally invested across multiple asset classes and this framework provides us with a basis to deliver our commitment to be net zero aligned.”
The framework is intended to be adopted and implemented by investors following its finalisation. More detail on this process will be shared in the run-up to the UN COP 26 climate talks in Glasgow next year.
The focus on real-world decarbonisation throughout the framework overcomes limitations of other approaches – based only on portfolio emissions reduction or portfolio temperature targets – which leave room for investors to technically meet targets while selling the problem to someone else.
Nonetheless, the consultation highlights a range of outstanding sectoral challenges and complexities in managing a portfolio towards net zero and assessing alignment of assets. Given these limitations, the framework makes clear it does not resolve every issue, nor cover all asset classes. Additional work is planned to make further progress on these topics.
True impact investments differ from typical socially responsible funds.
Impact investing—in which social and environmental performance is considered on par with financial performance–has become an increasingly popular investment approach in the last few years.
According to a Global Impact Investing Network report, the impact-investing sector has doubled in size over the past couple years. Moreover, impact investors say their impact investing allocations will continue to grow.
Younger generations especially are drawn to impact investing because they see no reason to separate philanthropy from investing. That said, it’s not just young investors who have spiked impact investing’s growth. The number of impact investors is rising across all demographic categories. Of note, 72 percent of the U.S. population expressed interest in sustainable investing.
However, due to the large number of socially responsible investment offerings in the marketplace, people looking to positively impact society with their investments may not know where to start when vetting potential impact investments.
Shifting the Focus
While it’s easy to choose the bigger, well-known companies pursuing sustainable initiatives, it’s worth the time (and investment) to find small, growing, for-profit impact companies that are effectively addressing social and environmental problems in the world (i.e., the climate crisis, hazardous waste, poverty, etc.).
When reviewing these companies, some criteria to keep in mind include:
Social and Environmental Focus—Companies striving for measurable, positive impact toward a social or environmental problem
Managerial Health—Companies with a strong management team and sound board leadership
Profitability—Positive profit margins or viable potential for profit within a reasonable period of time
Transparency & Accountability—Measurable impact shown through finance, policy and information sharing
When it comes to effective impact investing, you’ll want to look beyond traditional investment analysis and extend into data-driven evaluation and measurement of positive indicators of social or environmental impact. As such, I’ve developed a formula to help us at CoPeace develop quantifiable social and environmental targets, elements of which can be used by individual investors to identify impact investments that will make a difference and guarantee competitive financial returns.
Head + Heart + Math Model
Called the “Head + Heart + Math” model, this three-prong process helps effectively identify companies with sustainable business models that are making a measurable impact. In short, this model consists of the following:
Head (Research): This includes exploring the company’s website and other media platforms, related articles, product or service concept, general business model, customer relations and other operational concepts.
Heart (Impact): Look into the company’s executives to get a better understanding of their interests and values. This in turn will give you insight into their relatability and how they run the company. This step also involves looking deeper into the company’s demonstratable social or environmental impact, and if their goal/mission speaks to you.
Math (Analysis): This part is a bit harder without the help of a financial professional, but you’ll want to look into any public financial documents, such as financial projections and budgets to assess the company’s financial viability, including determining degree of profitability and identifying risks to measure the company’s current and future success.
By following this method you’ll find yourself making true impact investments, as opposed to investments in “socially responsible” mutual funds and ETFs. “Socially responsible” or “green” mutual funds and exchange-traded funds (ETFs) invest in selected companies doing some good things, but still negatively impacting society in other ways.
Achieving True Impact
The main goal of impact investing is to help grow true impact-driven companies whose sole mission is to positively impact the world by effectively addressing social and environmental problems while simultaneously generating profits.
Ensuring your investments will truly make a difference while building wealth takes a little time and research, but it’s worth it in the end. Whether you find these companies individually or through an impact holding company, now more than ever, it’s critical that our intended impact investments are actually helping to change the world for the better, and following the Head + Heart + Math formula helps us do just that.
Craig Jonas, CEO of CoPeace, is a lifelong entrepreneur with success across business, academic, and athletic industries. He has over 30 years of experience in management with a passion for team-building and drawing individuals with big ideas together.
For scientists and environmentalists, these phrases have been around for a while, but it’s only recently that companies, from small startups to established corporations, have adopted them for mainstream marketing use. Amazon CEO Jeff Bezos pledged to have the company be carbon neutral by 2040; Microsoft has committed to be carbon negative by 2030; Starbucks aims to be “resource positive” within a decade by reducing carbon emissions, water withdrawal, and landfill waste by 50 percent; JetBlue intends to make all of its domestic flights carbon neutral starting in July; and Heathrow Airport in London pledged to be carbon neutral in its operations by 2030, excluding the emissions from flights.
In June, the consumer goods giant Unilever — which manufactures 70,000 types of products, from skin care to ice cream — announced its aim to be carbon neutral by 2039 and how it will disclose on labels the amount of carbon used to produce items. The company also stated it will try to cut emissions as much as possible before purchasing carbon offsets to achieve neutrality.
These terms can admittedly be confusing for the average consumer. But the move toward specific terminology isn’t just semantics. Eco-friendly language can help yield actual change by encouraging businesses to be more proactive and transparent.
First, let’s define what these phrases mean:
Carbon neutral: A product or company that’s carbon neutral (or carbon-free) is removing the same amount of carbon dioxide it’s emitting into the atmosphere to achieve net-zero carbon emissions, usually by purchasing carbon offsets or credits to make up the difference. For example, the Australian shipping service Sendle buys credits through the South Pole Group to “cancel out” the carbon its deliveries emit by supporting sustainability projects.
Zero carbon: Zero carbon is a term commonly applied to buildings and modes of transportation that are carbon-neutral. For a building that’s zero carbon-certified by the International Living Future Institute, it must offset its energy use through renewable sources, in addition to any carbon emissions resulting from its construction.
Carbon negative: A carbon-negative company removes more carbon from the atmosphere than it releases (the phrase “climate positive” has been used interchangeably with carbon negative). This requires going beyond achieving carbon neutrality. Air Co, a vodka company based in Brooklyn, sources waste gases and carbon dioxide from beverage manufacturing plants or ethanol factories. The gas is then liquefied and shipped to the company’s facility, where it’s converted to alcohol.
Consumers, for their part, have long been wary of buzzy marketing terms. Corporate greenwashing, which started in the 1960s, is a marketing practice that leads customers to believe that a company’s products are more eco-friendly than they actually are, when companies display words like “conscious,” “sustainable,” and “ethical” on their ads.
Surveys have found that consumers today are actually buying sustainably marketed products, not just saying they want them. The market is filled with sustainable products, and there’s a higher risk of being called out for not walking the walk. In 2018, the fast-fashion giant H&M was criticized by the Norwegian Consumer Authority for “misleading” marketing of its Conscious Collection. The retailer wasn’t specific about what sustainability entails or what types of “sustainable” materials its clothes were sourced from, which could confuse shoppers.
That’s because many words used to market “green” products, as is the case with most branding lingo, are opaque and can be interpreted differently by consumers. But this new wave of carbon-specific lingo is different, and it’s not just brands setting these kinds of carbon reduction targets — cities, states, and, in some cases, countries are setting them, too. Companies or localities can’t just say they’re carbon-neutral; they should, theoretically, be able to document and show that they’ve, for instance, switched from fossil fuel energy to renewable energy.
While green jargon has mainly been used to promote products — rarely the companies themselves — newer phrases like “carbon neutral” and “climate positive” refocus the attention on the brands, suggesting a sense of corporate responsibility when it comes to supply chain logistics, labor, energy, and materials. There’s also a shared underlying goal: actively reducing a product or company’s carbon footprint in a measurable way through, in the most rigorous cases, science-based targets.
The environmental consultant agency Natural Capital Partners established one of the first carbon-neutral frameworks in 2002, creating a clear set of guidelines for businesses aiming to reach carbon neutrality. It’s not the only set of standards companies can ascribe to. The British Standards Institution (BSI Group) in the United Kingdom has a carbon-neutral program called PAS 2060, and the nonprofit Climate Neutral works with brands like Allbirds and Reformation to help them offset and reduce emissions.
“A protocol like ours is valuable because it provides this certified framework that businesses can point to, and all of this information is publicly available, so it’s a transparent process,” Rebecca Fay, Natural Capital Partners chief marketing officer, told Vox.
Natural Capital Partners’ protocol offers more than 30 kinds of carbon-neutral certifications a company can choose to comply with. For example, a business has the option to separately certify its office space, a product, or parts of its operation as carbon-neutral. It will then work with the agency to independently assess its total emissions and carbon footprint, and set a target to achieve net-zero carbon emissions. This might require it to implement small changes in its offices, like upgrading a lighting system, or entirely changing its operations, like moving to renewable energy in manufacturing processes, Fay said.
The path to carbon neutrality looks different for every business, she added: “If you’re leasing an office in a big block, you might have less opportunity to change things in your building. If you’re a company with 10 employees, reducing your emissions internally might be easier.”
Environmentally minded companies are generally focused on reducing their carbon footprint overall, and most are aware that offsetting emissions isn’t enough to substantially halt climate change. We still have a big climate debt to make up for, said Peter Miller of the Natural Resources Defense Council. “Buying offsets is better than doing nothing, but it’s not in and of itself enough.”
Compare our climate debt to using a credit card that’s nearly maxed out: We’re able to keep using the card because we’re paying off the recent debt we’ve accumulated (in the form of carbon offsets), but we’re not close to paying off the entire value of the card if we just keep spending. As Vox reporter David Roberts writes, “Truly defeating climate change will mean getting to net-zero carbon emissions and eventually negative emissions. That means decarbonizing everything. Every economic sector. Every use of fossil fuels.”
“In our experience, none of our clients just offset their emissions,” Fay said, citing the agency’s research that companies with a carbon-neutral target are six times more likely to also have a goal to internally reduce their carbon footprint. “For some companies, offsetting makes up for what they can’t reduce internally. It’s a powerful mechanism to ensure that emissions are being reduced now.”
It’s easy to point fingers at major sectors like transportation and electricity when it comes to carbon pollution, but there are both small and large companies looking to overcompensate for their emissions — effectively going beyond carbon neutrality. For a business to actually be “climate positive” or carbon negative, it must take additional steps to ensure it’s removing even more carbon dioxide from the atmosphere.
For larger corporations and even states, pledges to reach either carbon neutrality or negativity are much more common, on the premise that these large-scale changes are gradual and take time to achieve. Microsoft (which works with Natural Capital Partners) said in a January blog that “neutral is not enough to address the world’s needs,” and outlined a clear plan to drive its emissions closer to zero within the next decade.
It’s important for consumers to “dig into the specific claims made by companies” whether they be pledges or plans, Miller said. Are these businesses only offsetting their emissions, or are they setting targets to holistically reduce their carbon use overall? If a company has pledged to reach a specific carbon target by a certain date, what set of certifications is it abiding by and who is helping it accomplish this goal?
Too often, the capitalist burden of choosing what to buy falls on the consumer. It’s irresponsible to completely ignore the role the consumer plays in demanding better, more sustainable products, but the growing popularity of carbon neutrality shows how corporations are becoming more transparent about their footprint and taking active steps to reduce it.
“We all have a responsibility to do whatever we can to address this climate crisis,” Miller said. “That’s true for individuals as well as companies.