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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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Ranked: The Countries With the Most Air Pollution in 2023

South Asian nations are the global hotspot for pollution. In this graphic, we rank the world’s most polluted countries according to IQAir.

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Graphic showing the world’s most polluted countries.

Visualizing the Most Air Polluted Countries in 2023

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

Almost the entire global population breathes air that exceeds the air quality limits set by the World Health Organization (WHO).

In this graphic, we map the world’s most polluted countries according to IQAir, ranked by their annual average PM2.5 concentration (μg/m³) in 2023. The unit μg/m³ refers to micrograms per cubic meter.

What is PM2.5?

PM2.5 refers to fine particulate matter, with a diameter of 2.5 micrometers or less, that can travel deep into your lungs and cause health problems.

In 2021, the World Health Organization (WHO) updated its air quality guidelines for PM2.5. The recommended maximum annual average level for PM2.5 is now 5 μg/m³, down from the previous target of 10 μg/m³.

Common sources of PM2.5 pollution include engine exhaust, power plant combustion, smoke from fires, dust, and dirt.

How Does PM2.5 Pollution Affect Humans?

Research published in 2022 from the Air Quality Life Index (AQLI) found that 97.3% of the world’s population is exposed to levels of PM2.5 that exceed the WHO guidelines.

This takes 2.2 years off the global average life expectancy, relative to a world that met the WHO guideline.

In South Asia specifically, the AQLI believes residents could be losing up to 5 years off their lives. The region has been a global hotspot of air pollution for years, home to 37 of the 40 most polluted cities in the world.

RankCountryAnnual average
PM2.5 concentration
1🇧🇩 Bangladesh79.9
2🇵🇰 Pakistan73.7
3🇮🇳 India54.4
4🇹🇯 Tajikistan49.0
5🇧🇫 Burkina Faso46.6
6🇮🇶 Iraq43.8
7🇦🇪 United Arab Emirates43.0
8🇳🇵 Nepal42.4
9🇪🇬 Egypt42.4
10🇨🇩 Democratic Republic of the Congo40.8
11🇰🇼 Kuwait39.9
12🇧🇭 Bahrain39.2
13🇶🇦 Qatar37.6
14🇮🇩 Indonesia37.1
15🇷🇼 Rwanda36.8
16🇿🇼 Zimbabwe33.3
17🇬🇭 Ghana33.2
18🇰🇬 Kyrgyzstan33.1
19🇨🇳 China32.5
20🇱🇾 Libya30.4

Interestingly, fine particulate matter can travel hundreds of kilometers, often crossing national boundaries.

For instance, approximately 30% of air pollution in the Indian state of Punjab originates from neighboring Pakistan. Similarly, an estimated 30% of pollution in Bangladesh’s largest cities is traced back to India.

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