After a decade of climate deliberations, governments, leading multinationals and large institutional investors are making solid commitments for achieving net zero emissions with accelerating timelines. There is much anticipation ahead of the United Nations Climate Change Conference of the Parties (COP26) that will be held in Glasgow in November. COP26 will mark the start of concerted global action across governments, civil society, investors and businesses to achieve net zero and thus keep the 1.5°C target within reach.
Corporate leaders are facing increasing pressure from investors, consumers, industry peers and value chain partners to take decisive action and develop viable road maps to achieve net zero emissions within target time frames. Institutional investors are already playing a critical role in nudging companies in their investment portfolios toward committing to a net zero road map. The United Nations-convened Net Zero Asset Owner Alliance, representing over $5.5 trillion in assets under management, has committed to reduce the carbon emissions of their investment portfolios to net zero by 2050. By this, the alliance is ensuring that companies represented in their portfolios are doing their share in limiting global warming to 1.5°C compared with preindustrial times.
For clarity purposes, a company is on track to achieving net zero when it has a viable plan that is aligned with a 1.5°C science-based target for achieving net zero emissions across its full value chain. The plan would entail minimizing the company’s emissions and using certified greenhouse gas removal (GGR) only for any residual hard-to-eliminate emissions. This further highlights the importance of hard-to-eliminate emissions and sources of such emissions; we will address this further in the sections below.
Over the past few months, Equinor and Shell took the ambitious steps among integrated energy companies and announced their plans to achieve net zero emissions by 2050. Both Equinor’s and Shell’s targets cover the emissions from their own operations (Scope 1 and Scope 2 emissions) and the emissions from the use of all the energy products they sell (Scope 3 emissions). This will provide the impetus for other companies in the sector, and service providers and companies in other sectors to commit to similar targets.
The pressure from governments and regulators is projected to increase in view of COP26, with increasing requirements and regulations for tracking, reporting and reducing emissions. For instance, the Bank of England in a communication in January 2021 stated that banks and businesses should start assessing their risk exposures to future climate change and prepare for “carbon prices to more than triple to $100 per ton by 2030.” Carbon prices have edged higher in the months following that announcement. More recently, and within about four months of the previous communication, the Bank of England increased its carbon price forecast to $150 per ton by the end of the decade and further warned banks that they would face “a tipping point similar to a ‘Minsky moment’ if they fail to prepare.”