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

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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.

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Top Countries By Forest Growth Since 2001

One country is taking reforestation very seriously, registering more than 400,000 square km of forest growth in two decades.

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A cropped treemap showing the countries by their total forest growth measured in square kilometers.

Ranked: Top Countries By Forest Growth Since 2001

This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.

Reforestation is tricky business: it’s expensive, difficult to plan, and even harder to execute. And this is without all the associated environmental obstacles: weather, pests, and natural calamities.

However, some countries have prioritized replanting their lost forests, especially in the last two decades as the climate movement has gathered steam.

We visualized forest growth around the world, ranking countries by their forest area increases between 2001–2021, measured in square kilometers (km²).

All of this data was sourced from the World Bank. Note that countries are ranked by forest growth in square kilometers, rather than percentage change.

Which Country Leads Forest Growth Since 2001?

China tops the list, expanding its forest area by nearly 425,000 km2 (roughly the size of Sweden) between 2001–21. This is more than the next 19 countries combined. Relatively speaking, China’s forests increased by almost one-fourth.

RankCountryRegion2001–21 Change
(Km2)
% of Forest Growth
1🇨🇳 ChinaAsia424,96224%
2🇺🇸 U.S.North America57,4062%
3🇷🇺 RussiaEurope54,5641%
4🇮🇳 IndiaAsia46,4497%
5🇻🇳 VietnamAsia27,74523%
6🇨🇱 ChileSouth America24,25715%
7🇦🇺 AustraliaOceania24,1782%
8🇹🇷 TurkiyeMiddle East21,34511%
9🇫🇷 FranceEurope19,35313%
10🇪🇸 SpainEurope13,3748%
11🇮🇷 IranMiddle East13,03314%
12🇮🇹 ItalyEurope11,84814%
13🇨🇺 CubaCentral America7,57330%
14🇹🇭 ThailandAsia7,3154%
15🇺🇿 UzbekistanAsia7,15224%
16🇺🇾 UruguaySouth America6,46846%
17🇷🇴 RomaniaEurope5,4829%
18🇧🇬 BulgariaEurope4,94815%
19🇧🇾 BelarusEurope4,7346%
20🇵🇱 PolandEurope4,0905%
N/A🌍 World-957,658-2%

There are some other countries who have achieved similar relative levels of reforestation. Within Asia, Vietnam’s forests as a percentage of total land area have doubled since 1990. Since 2001, its forests have grown nearly 28,000 km², a 23% increase.

Uzbekistan similarly expanded its forested area by 24%, which amounts to about 7,000 km².

Meanwhile, Chile and Uruguay, are the only two South American countries that have managed to expand their forest cover in the last two decades—the latter by a staggering 46%. In contrast, the rest of South America is instead seeing significant deforestation.

It’s interesting to note that reforestation also comes with its own risks. Introducing non-native or monoculture tree species can reduce biodiversity and lead to soil erosion.

And despite global reforestation efforts, the world still lost close to a million square kilometers of forests since 2001.

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