The Complications of Tracking Ambitious GHG Emissions Goals
Many companies are setting ambitious “Net Zero” GHG emissions goals to be reached by the Paris Climate Accord’s goal of 2050 (and some setting their goals even earlier). Are these widely-promoted goals realistic for the corporate sector to achieve in such a short timeframe? With major challenges from continuing dependence on fossil fuels, rising fuel costs as the war in eastern Europe drags on, Russian energy supplies to the west being interrupted, inflation now galloping in the U.S., and numerous supply chain issues, many questions are being raised about whether companies can achieve their stated goals.
These “de-carbonization” goals were spurred on by wide acceptance of the 2015 Paris Agreement climate goal of reducing GHG emissions to limit the global temperature from rising to 3.6F/2C degrees compared to “pre-industrial” times. Almost 200 sovereign governments accepted the Paris Agreement, and the U.S. re-embraced the goals in the first days of the Biden Administration in 2021.
Companies adopting the Net Zero emissions goals create a baseline and key benchmarks to chart their progress (or lack of) in reducing their GHG emissions, including ambitious conservation efforts and purchase of RECs and offsets where necessary. The deadline to achieve Net Zero by 2050 is tight: from August 1 of this year to the end of 2050 is about twenty-seven years or 324 months. And many companies are even more ambitious moving their Net Zero goals to 2040 or even 2030.
For companies in many key sectors – notably building, transport, manufacturing, agriculture – herculean efforts are needed to move to Net Zero.
How are companies doing? The world’s largest asset manager, BlackRock, has analyzed the current status of the transition to achieve net zero by 2050 and is cautiously optimistic. “Although current policy isn’t sufficient to achieve net zero by 2050, we think the transition could accelerate as tech develops, societal preferences shift, and the human and economic cost of climate change becomes clearer.”
“Positioning for Net Zero” is one of BlackRock’s key investment themes going forward (along with “Bracing for Volatility” and “Living with Inflation”). “Investors can get exposure to the transition [to Net Zero] by investing not only in ‘already-green’ companies but also in carbon-intensive companies with credible transition plans or that supply the materials, equipment and services needed for the transition.” The analysis is presented in BlackRock Investment Institute’s 2022 midyear outlook, which is one of our Top Stories below.
One of the issues complicating the ability of companies to achieve their Net Zero goals is the lack of clarity about measuring and reporting of GHG emissions. The nonprofit sustainability advocacy organization Ceres, in a report done in collaboration with Clean Air Task Force, set out to benchmark the relative emissions intensity and total emissions of more than 300 U.S. oil and gas producers, calling it “an industry where historically, voluntarily reported emissions metrics have been inconsistent and non-comparable.” The analysis by Ceres and Clean Air Task Force found “dramatic variations between companies,” with the highest emitting oil and gas companies having a methane emissions intensity nearly 24 times that of the lowest emitting companies.
This is the second annual report produced by the two non-profit organizations, with a stated goal of establish a clear, consistent record to help shareholders differentiate between potential investments and inform regulators, lawmakers, and company executives about the top causes of reported methane emissions, which are at the top of GHG emissions.
The draft SEC rules on disclosure of climate-related information, expected to be approved by year end, would make the GHG emissions of publicly-traded companies mandatory in the financial filings. This would include companies in the oil and gas industry and provide important data inputs to a wide swath of companies not in the energy sector but that use fossil fuels for their energy needs, since they will have to factor in the oil and gas industries’ data into their own Scope 3 “carbon footprint” for SEC filings. (Click here to read G&A’s Highlights Newsletter with details.)
The G&A team presents for you a variety of important perspectives on the Net Zero transition in our Top Stories this issue, and we look forward to keeping you updated on the impact of the transition on corporate sustainability reporting and disclosure.
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