Closing the Net Zero Reality Gap

Will Jenkins, Director at Carbon Intelligence, says the world is “way off pace” to achieve a 1.5°C goal. 

If you thought the first two Intergovernmental Panel on Climate Change (IPCC) reviews on climate science made for bleak reading, then the third instalment will be the hardest yet to digest. 

According to scientists who compiled the report, the world will this century hurtle past the 1.5°C warming target set in the 2015 Paris Agreement on climate change, and there must be a “rapid acceleration of mitigation efforts after 2030” if there is any hope of limiting global temperature increases to 2°C. 

The report states: “Greenhouse gas (GHG) emissions have continued to rise during the period 2010–2019, as have cumulative net CO2 emissions since 1850. Average annual GHG emissions during 2010-2019 were higher than in any previous decade.” 

Will Jenkins, Director at Carbon Intelligence, which helps corporates identify, manage and mitigate carbon emissions across their operations, says the IPCC has once again laid bare the importance of achieving net zero. He is disappointed more has not been achieved since the Paris Agreement.  

“In just a few months we will be halfway through the 15-year period from the signing of the Paris Agreement in 2015 and 2030, during which time global emissions needed to be cut by 45% to meet the 2°C-1.5°C goal. We are way off the pace to achieve this. Shockingly, 2021 saw emissions increase to record levels, and that makes the next eight years even more challenging to meet the 2030 goal.” 

However, the IPCC offers some hope for future carbon reductions, recognising that “in all countries, mitigation efforts embedded within the wider development context can increase the pace, depth and breadth of emissions reductions”. 

The IPCC states: “Actions can be taken now to shift development pathways and accelerate mitigation and transformations across systems.” 

Greater collaboration 

Jenkins says companies are central to achieving net zero ambitions, and he would like to see greater collaboration between businesses and across supply chains.  

“To help meet this global challenge, businesses need to quickly scale up their emissions reduction impact through collaborative action that not only decarbonises their own operations but also those of their supply chains. We are seeing this collaboration happening at scale because companies are setting science-based targets and demanding that their supply chains do the same.” 

Jenkins also welcomes the mandatory requirement for UK companies with 500 employees and £500 million in turnover to report under the Task Force on Climate-related Financial Disclosure (TCFD). 

“We have seen a lot more sharing of sustainability data and information, which historically has been quite difficult to do. TCFD requirements have made a massive difference because people are able to compare apples with apples, making life a lot easier for investors.” 

Jenkins says companies expect to be asked for carbon emission data and anticipate that providing detailed, science-based reports now forms a critical part of procurement exercises. 

Contractual obligation 

However, “existing legal and regulatory frameworks remain in the way” of achieving some net zero ambitions, he adds. For example, there is no incentive for tenants on short leases to retrofit or green their homes, since they will receive no long-term benefits. He suggests there should be more collaboration between landlords and tenants to encourage both parties to finance energy efficiency projects. 

“There needs to be more effort to incentivise and, in some cases, enforce parties on either side of a contract to take on responsibility for managing carbon emissions.” 

Jenkins points to The Chancery Lane Project (TCLP) as an initiative working to ensure net zero is incorporated into contracts that encourage both sides of a business arrangement to deliver carbon reduction measures.  

A collaboration of lawyers and legal professionals, TCLP has drafted numerous climate-related clauses that ensure all parties adhere to carbon-related stipulations. For example, one clause requires suppliers and contractors to procure energy from renewable sources. Another, which can be included in the Loan Markets Association information, ensures borrowers “consider their climate-related risks, mitigation opportunities and impacts” and “encourages lenders to consider their own climate-related risks and impacts and comply with their reporting obligations”. 

“We need to see organisations and investors using these sorts of structures to incentivise positive climate change outcomes,” says Jenkins. 

Supply chain challenge 

Jenkins believes a more formalised and collaborative approach will also help meet Scope 3 emission disclosure targets, which currently lag Scopes 1 and 2 in terms of levels of disclosure. 

The Carbon Disclosure Project’s (CDP) 2021 Global Supply Chain program, which represents 200 member organisations with US$5.5 trillion in annual procurement spend, requested their suppliers report current and future risks and opportunities related to these environmental issues.  

The subsequent report reveals just 20% of the 11,000 companies supplied Scope 3 emission data in 2021. This compares to 75% that reported their Scope 1 and 2 emissions. 

“If we had this conversation six or seven years ago, we would have been talking about the challenges with Scope 1 emissions. Today most companies have got their heads around that, and the focus is on Scope 3 emissions which companies really struggle to provide,” says Jenkins. 

Companies often grapple with large, complex supply chains involving what Jenkins calls “immature” suppliers unable to work with science-based targets. 

“That is really where the effort needs to go to help these suppliers improve. We need to ensure that science-based targets are set throughout supply chains.” 

The CDP report shows that just 2.5% of suppliers reported targets in 2021 that met approved science-based targets, suggesting that meeting Scope 3 reporting requirements will remain problematic. 

Jenkins would like larger, cash-rich companies to help their suppliers to meet their carbon reduction obligations. 

“We tell our clients to focus on the relationships that are critical to their business; which are the key partnerships where you cannot operate without these companies supporting you? There is value for both you and them by working together, and in investing in helping them meet your science-based targets.” 

Authentic net zero plans 

Carbon Intelligence is on the frontline helping companies formulate net zero transition plans and Jenkins says companies are keen to put in place authentic strategies rather than risk being accused of greenwashing. 

“There are companies that just want to put something out there, but the organisations that we work with are spending a year doing strategy work. Their transition plans are detailed, and they are committed to delivering change.” 

Jenkins concedes there may be “reality gaps” between what companies think they have to do and what will actually be required, but he says that is inevitable given the time between now and the 2050 delivery date. 

“There is usually about 80% certainty of how net zero targets will be achieved. Once you get beyond the ten or 20-year timeline in the plan, that is where the uncertainty comes in. The important point is that companies are taking this seriously and appreciate that accusations of greenwashing can quickly destroy a hard-earned reputation.” 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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