Connect with us

Green

Net-Zero Emissions: The Steps Companies and Investors Can Consider

Published

on

Net-Zero emissions

The Steps to Net-Zero Emissions

To help prevent the worst effects of climate change, a growing number of companies are pledging to achieve net-zero emissions by 2050. In fact, the percentage of companies declaring a net-zero target nearly doubled from 2019 to 2020.

With urgency building, how can companies and investors approach net-zero emissions? The above infographic from MSCI highlights the steps these two groups can take, from defining a strategy to reporting progress.

Net-Zero Emissions: A Clear Process

Setting a net-zero emissions target means reducing carbon emissions to the greatest extent possible, and compensating for the remaining unavoidable emissions via removal.

Companies and investors can take four broad steps to move toward their targets.

1. Define Strategy

To begin, companies can measure current emissions and identify priority areas where emissions can be reduced. For example, ABC chemical company determines that its greenhouse gas (GHG) emissions far exceed those of its competitors. In response, ABC chemical company prioritizes reducing GHG emissions during material processing.

Similarly, wealth and asset managers can assess climate risks:

  • Risks of transitioning to a net-zero economy
  • Risks of extreme weather events

They can then map out a strategy to curb climate risk. For example, XYZ asset manager determines that 33% of its portfolio may be vulnerable to asset stranding or some level of transition risk. XYZ decides to lower its transition risk by aligning with a 1.5 degrees Celsius (2.7 degrees Fahrenheit) warming scenario.

2. Set Target

With a strategy set, companies can pledge their net-zero emissions commitment and set interim goals. They can also specify how their pledge will be achieved. For example, ABC chemical company could set a net-zero emissions target by 2050. To increase short-term accountability, they set an interim target to halve carbon emissions by 2035.

Wealth and asset managers can also set targets and interim goals, as they apply to their portfolios. For instance, XYZ asset manager could set a goal to decarbonize its portfolio 5% by 2025, and 10% by 2030. This means that the companies within the portfolio are reducing their carbon emissions at this rate.

ScenarioWarming Potential
Business as usual3.6℃ (6.5℉)
10% decarbonization1.5℃ (2.7℉)

As shown above, a 10% year-on-year decarbonization will align XYZ asset manager’s model portfolio with a 1.5 degrees Celsius warming scenario.

3. Implement

ABC chemical company takes immediate action consistent with its interim targets. For instance, the company can start by reducing the carbon footprint of its processes. This approach carries the lowest risks and costs. But to take larger strides toward its net-zero emissions goal, ABC could draw on renewable energy together with carbon-removal technologies as they are developed.

In the same vein, XYZ asset manager can move toward its decarbonization targets by adopting a benchmark index and reallocating capital. This could include:

  • Increasing investment in clean technologies
  • Re-weighting securities or selecting those that are “best in class” for ESG metrics
  • Reducing risk exposure and targeting companies for shareholder engagement
  • Selling holdings in companies with the greatest exposure

All of these actions will help XYZ become better aligned with its investment strategy.

4. Track and Publish Progress

Here, the actions for companies and investors converge. Both groups can measure and monitor progress, disclose results, and adjust as necessary.

For example, XYZ asset manager shares the following year-end results of its decarbonization strategy. The results compare the portfolio and its benchmark on their implied temperature rise and exposure to low-carbon transition categories.

PortfolioBenchmarkDifference 
(Portfolio - Benchmark)
Implied temperature rise3.2℃ (5.8℉)3.4℃ (6.1℉)-0.2℃ (-0.4℉)
Exposure to companies classified as:
Asset stranding0.0%0.5%-0.5%
Product transition6.1%8.1%-2.0%
Operational transition5.2%7.0%-1.8%
Neutral77.6%77.8%-0.2%
Solutions11.1%6.6%+4.5%

Asset stranding is the potential for an asset to lose its value well ahead of its anticipated useful life because of the low carbon transition. Companies with product transition risk may suffer from reduced demand for carbon-intensive products and services, while companies with operational transition risk may have increased operational or capital costs due to the low carbon transition.

XYZ asset manager’s portfolio has less risk than the benchmark. XYZ has also significantly reduced its exposure to transition risk to 11.3%, down from 33% in step 1. However, with an implied temperature rise of 3.2 degrees Celsius, the portfolio is far from meeting its 1.5 degrees Celsius warming goal. In response, XYZ begins to intensify pressure on portfolio companies to cut their GHG emissions by at least 10% every year.

A Climate Revolution for Net-Zero Emissions

The time to drive the transition to net-zero emissions is now. By the end of this century, the world is on track to be up to 3.5 degrees Celsius warmer. This could lead to catastrophic flooding, harm to human health, and increased rates of mortality.

As of July 2021, just 10% of the world’s publicly listed companies have aligned with global temperature goals. Preventing the worst effects of climate change will demand the largest economic transformation since the Industrial Revolution. Companies, investors and other capital-market participants can drive this change.

Subscribe to Visual Capitalist
Click for Comments

Green

The Carbon Emissions of Gold Mining

Gold has a long history as a precious metal, but just how many carbon emissions does mining it contribute to?

Published

on

The following content is sponsored by Nature's Vault

The Carbon Emissions of Gold Mining

As companies progress towards net-zero goals, decarbonizing all sectors, including mining, has become a vital need.

Gold has a long history as a valuable metal due to its rarity, durability, and universal acceptance as a store of value. However, traditional gold mining is a process that is taxing on the environment and a major contributor to the increasing carbon emissions in our atmosphere. 

The above infographic from our sponsor Nature’s Vault provides an overview of the global carbon footprint of gold mining.

The Price of Gold

To understand more about the carbon emissions that gold mining contributes to, we need to understand the different scopes that all emissions fall under.

In the mining industry, these are divided into three scopes.

  • Scope 1: These include direct emissions from operations.
  • Scope 2: These are indirect emissions from power generation.
  • Scope 3: These cover all other indirect emissions.

With this in mind, let’s break down annual emissions in CO2e tonnes using data from the World Gold Council as of 2019. Note that total emissions are rounded to the nearest 1,000.

ScopeTypeCO2e tonnes
1Mining, milling, concentrating and smelting45,490,000
2Electricity54,914,000
3Suppliers, goods, and services25,118,000
1,2,3Recycled Gold4,200
3Jewelry828,000
3Investment4,500
3Electronics168
TOTAL 126,359,000

Total annual emissions reach around 126,359,000 CO2e tonnes. To put this in perspective, that means that one year’s worth of gold mining is equivalent to burning nearly 300 million barrels of oil.

Gold in Nature’s Vault

A significant portion of gold’s downstream use is either for private investment or placed in banks. In other words, a large amount of gold is mined, milled, smelted, and transported only to be locked away again in a vault.

Nature’s Vault is decarbonizing the gold mining sector for both gold and impact investors by eliminating the most emission-intensive part of the mining process—mining itself.

By creating digital assets like the NaturesGold Token and the Pistol Lake NFT that monetize the preservation of gold in the ground, emissions and the environmental damage associated with gold mining are avoided.

How Does it Work?

Through the same forms of validation used in traditional mining by Canada’s National Instrument NI 43-101 and Australia’s Joint Ore Reserve Committee (JORC), Nature’s Vault first determines that there is gold in an ore body.

Then, using blockchain and asset fractionalization, the mineral rights and quantified in-ground gold associated with these mineral rights are tokenized.

This way, gold for investment can still be used without the emission-intensive process that goes into mining it. Therefore, these digital assets are an environmentally-friendly alternative to traditional gold investments.

Visual Capitalist Logo

Click here to learn more about gold in Nature’s Vault.

Subscribe to Visual Capitalist
Click for Comments

You may also like

Subscribe

Continue Reading

Subscribe

Popular