Industry

ICYMI, the Path to Net Zero is Getting Steeper

Race to Zero’s new criteria was just one reminder of the need for scrutiny and ambition.

It wasn’t just investors who were given some sharp reminders this week about why they should “worry about climate risk”. Climate negotiators, Wall Street executives and pretty much anyone involved in efforts to decarbonise the planet were left in little doubt that the path to net zero means constant improvement and rigorous scrutiny.

The UNFCCC’s “much-work-remains” press release diplomatically reflected the wide gaps between the global north and south on adaptation, loss and damage, and on climate finance for developing countries more broadly. But it was left to others to express the desperation and urgency felt in island states and elsewhere.

No doubt mindful of the Glasgow pledge by all parties to revisit nationally determined contributions before COP27, outgoing UNFCCC Executive Secretary Patricia Espinosa said the promises of Paris had to be “turned into reality” in Sharm el-Sheikh. This was already shaping up to be a steep challenge, but it is now harder still, as post-pandemic dislocations and Russian military aggression combine to stoke concerns over inflation, rate hikes and recession.

The release of Net Zero Tracker’s latest stocktake report reminded countries, companies and cities of the gap between announcing a net zero commitment and having a credible plan to reduce emissions. “The transparency and integrity of existing net zero pledges are far from sufficient to ensure a timely transition to net zero,” it said, noting that only around half of firms with net zero targets currently have interim emission reduction targets.

The report also noted that a fifth of governments’ net zero targets “meet minimum procedural standards” set by Race to Zero, the UN-backed campaign which this week toughened its criteria. Organisations that wish to remain endorsed must demonstrate within 12 months of joining that they are restricting fossil fuel development, prohibiting new coal projects and disclosing transition plans covering Scope 3 emissions.

Given the lack of progress on these fronts by many of its banking members, it was no surprise that GFANZ, the umbrella body for finance sector efforts to adopt net zero-aligned business models, simultaneously issued a proposed framework to help financial institutions to develop credible transition plans.

Sceptics remain unconvinced, their reservations over financial institutions’ commitments reinforced by news of further regulatory crackdowns on greenwashing, this time at Goldman Sachs, accused of overstating the credentials of its green funds. With recent studies showing that both active and passive ESG offerings are failing to align with the Paris goals, US SEC plans to ensure fund names reflect their contents seem overdue.

It is perhaps both ironic and facile to note that an age of rapid advances in information technology is characterised by mistrust. But scrutiny and transparency have to be welcomed, especially by those providing the tools to help others on the path to net zero; through the ongoing digital transformation, these can now be more easily supported than ever before.

The desire for authenticity is at least part of the story behind the growing appeal of impact investing, but credible measurement frameworks remain a major challenge. With the 2030 deadline for the UN Sustainable Development Goals looming, the race is on to accurately measure investors’ impact on social as well as environmental objectives. As suggested this week by S&P CEO Douglas Peterson, we could do worse than look back 60 years to take inspiration for the next eight.

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