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Net-zero pledges have come under even greater scrutiny amid a
lack of common standards for the widely used and relatively new
term.
A total of 131 countries, 116 regions, 234 cities, and 695
companies have vowed to achieve net-zero emissions later this
century as part of efforts to counter climate change, according to
Net Zero Tracker, a data project developed by
academics and nonprofits.
But those commitments are generally based on different
methodologies for emissions calculation and diverse pathways to
zero emissions on a net basis, so climate experts often question
their actual environmental benefits.
To address those concerns, national governments have started to
explore net-zero standards for countries under the UN Framework
Convention on Climate Change (UNFCCC), and UN Secretary-General
António Guterres separately launched an expert panel to establish
what those mean to non-state entities.
"Governments have the lion's share of responsibility to achieve
net-zero emissions by midcentury," which will be required to avoid
climate disaster, Guterres said 31 March when announcing
the panel. "But we also urgently need every business, investor,
city, state, and region to 'walk the talk' on their net-zero
promises."
"We need bold pledges matched by concrete action. Tougher
net-zero standards and strengthened accountability around the
implementation of these commitments can deliver real and immediate
emissions cuts," he added.
Chaired by Catherine McKenna, who served as Canadian Minister of
Environment and Climate Change between 2015 and 2019, the panel
consists of 16 experts from different countries and professional
backgrounds.
The High-Level Expert Group on the Net-Zero Emissions
Commitments of Non-State Entities' members include Zhou Xiaochuan,
a former governor of the People's Bank of China, the central bank
of the world's largest GHG emitter; Arunabha Ghosh, CEO of
India-based thinktank Council on Energy, Environment and Water;
Günther Thallinger, chairperson of Allianz Group's ESG Board; and
Rod Carr, chairperson of the New Zealand Climate Change
Commission.
According to the UN, the panel will make recommendations on the
below areas by the end of 2022:
Current standards and definitions for setting net-zero
targets;
Credibility criteria used to assess the objectives,
measurement, and reporting of net-zero pledges;
Processes for verification and accounting of progress towards
net-zero commitments and reported decarbonization plans;
A roadmap to translate standards and criteria into
international and national level regulations.
"Each pledge must deliver ambitious, real, immediate reductions
in a transparent, verifiable way," McKenna said.
The initiative is well overdue as it can offer guidance and
direction in the current situation where non-state entities are
freely interpreting the term "net zero" in many ways, said Harry
Fearnehough, a climate policy analyst at nonprofit NewClimate
Institute.
"Many of which are misleading consumers, regulators, and
shareholders. Clear guidance on what is right and what not is
welcome," he added.
Fearnehough also noted that the experts have "an incredibly
large job to do" as they need to develop standards for cities,
subnational regions, companies, and investors. "Each actor group
has very different requirements and starting points," he said.
With COP summits generally focusing on climate standards for
countries, observers said the latest UN initiative could accelerate
separate discussions over corporate net-zero pledges' merits.
Net-Zero Business Daily by S&P Global Commodity
Insights understands the panel has yet to decide on whether their
recommendations will be presented at future UNFCCC meetings.
"The panel can make a significant contribution by pointing to
the frontier of best practice amongst voluntary initiatives,
calling out those actors and initiatives that are falling short,
and highlighting the pathway to international standards and
regulation," said Thomas Hale, an associate professor in public
policy at Oxford University.
More checks on net-zero promises
Guterres' initiative comes as several nonprofits and investors
have started to develop methodologies to assess climate commitments
from the private sector.
In February, NewClimate Institute and Carbon Market
Watch—another nonprofit—launched the Corporate Climate
Responsibility Monitor, which examines how companies track and
disclose emissions, set decarbonization targets, and reduce
emissions from their own operations and across their value
chains.
After scrutinizing 25 major businesses, the joint study found 11
companies to have "very low integrity" in their decarbonization
plans, including some big names like BMW, Unilever, and Nestlé. The
companies defended their
performances.
Climate Action 100+, an investors' initiative that has 700
signatories with $68 trillion in assets under management, including
BlackRock and Vanguard, recently completed its second round of benchmark assessments for
corporate net-zero pledges.
The group selected 166 "focus companies" with $10.3 trillion in
market capitalization across various sectors and evaluated their
net-zero ambition; short-, medium- and long-term GHG reduction
targets; decarbonization strategies; capital allocation alignment;
climate governance and policy engagement; disclosure standards; and
whether their planned energy transition happens in a fair way.
The results were mixed. Some 69% of the companies have now
committed to net-zero emissions by 2050 or sooner across all or
some of their emissions footprint, a 17% year-on-year increase,
according to Climate Action 100+.
But only 17% of the companies have set medium-term
decarbonization targets for 2026-2035 that are aligned with the
International Energy Agency's scenario in limiting global warming
to 1.5 degrees Celsius above pre-industrial levels. Just 5%
explicitly pledged to align their capital expenditures with their
targets for 2036-2050.
"The long-term direction is clear as shown by the increase in
2050 net-zero targets. However, this consensus is not yet tied to
concrete action," said Valentin Jahn, a London School of Economics
researcher involved with Climate Action 100+.
Some members of the group's steering committee expect the
companies to face more scrutiny in the 2022 proxy voting season
based on the benchmark assessments.
"Investors are calling on focus companies to credibly set out
details of their net-zero transition plans and will step up their
engagements to ensure companies move from target setting to
delivery," said Stephanie Pfeifer, vice-chair of the committee and
CEO of the Institutional Investors Group on Climate Change.
In February, US-based shareholder advocate the Interfaith Center
on Corporate Responsibility said it had filed directly or acted as
co-filer for 436 resolutions at 246 companies for the proxy season,
including 103 climate resolutions. This
compared with 54 climate resolutions a year ago.
Some of the companies, like Berkshire Hathaway and ExxonMobil,
are on Climate Action 100+'s list of focus companies.
Long road ahead
Climate experts welcomed the efforts from various groups in
developing net-zero standards while expecting the process to be
long and drawn out due to the issue's complexity.
"Certainly there has been a difficulty in comparability of
net-zero targets across companies, so efforts to standardize this
are needed and welcome. But it's a lot harder to know who should
'own' these standards," said S&P Global Commodity Insights'
Paul McConnell, ENR executive director for climate and
sustainability.
Sara Giordano, a senior research analyst at S&P Global,
suggested that the initial step could be to develop a common
framework of carbon accounting, reporting, and transparency before
applying it to different economies and industries.
"There are significant differences across sectors and countries
that must be considered … [Those] should affect the level of
climate ambition and commitment [from each entity] and how each
pledge should contribute to overall goal of keeping the global
temperature rise below 1.5 degrees," Giordano said.
When established net-zero standards with actual climate
benefits, Hale believes national regulations, corporations'
voluntary commitments, industry standards established by
multinational bodies like International Organization for
Standardization, and global campaigns such as those led by the UN
will all have a role to play.
"We are now in a process of digging deeper into outlining
precise requirements for all actors—companies, cities,
countries, etc.—that will progressively be enshrined in
regulation. This will be a dynamic process that will play out over
decades," he said.
Posted 06 April 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.