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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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Environment

How Carbon Dioxide Removal is Critical to a Net-Zero Future

Here’s how carbon dioxide removal methods could help us meet net-zero targets and and stabilize the climate.

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Teaser image for a post on the importance of carbon dioxide removal in the push for a net-zero future.

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The following content is sponsored by Carbon Streaming

How Carbon Dioxide Removal is Critical to a Net-Zero Future

Meeting the Paris Agreement temperature goals and avoiding the worst consequences of a warming world requires first and foremost emission reductions, but also the ongoing direct removal of CO2 from the atmosphere.

We’ve partnered with Carbon Streaming to take a deep look at carbon dioxide removal methods, and the role that they could play in a net-zero future. 

What is Carbon Dioxide Removal?

Carbon Dioxide Removal, or CDR, is the direct removal of CO2 from the atmosphere and its durable storage in geological, terrestrial, or ocean reservoirs, or in products. 

And according to the UN Environment Programme, all least-cost pathways to net zero that are consistent with the Paris Agreement have some role for CDR. In a 1.5°C scenario, in addition to emissions reductions, CDR will need to pull an estimated 3.8 GtCO2e p.a. out of the atmosphere by 2035 and 9.2 GtCO2e p.a. by 2050.

The ‘net’ in net zero is an important quantifier here, because there will be some sectors that can’t decarbonize, especially in the near term. This includes things like shipping and concrete production, where there are limited commercially viable alternatives to fossil fuels.

Not All CDR is Created Equal

There are a whole host of proposed ways for removing CO2 from the atmosphere at scale, which can be divided into land-based and novel methods, and each with their own pros and cons. 

Land-based methods, like afforestation and reforestation and soil carbon sequestration, tend to be the cheapest options, but don’t tend to store the carbon for very long—just decades to centuries. 

In fact, afforestation and reforestation—basically planting lots of trees—is already being done around the world and in 2020, was responsible for removing around 2 GtCO2e. And while it is tempting to think that we can plant our way out of climate change, think that the U.S. would need to plant a forest the size of New Mexico every year to cancel out their emissions.

On the other hand, novel methods like enhanced weathering and direct air carbon capture and storage, because they store carbon in minerals and geological reservoirs, can keep carbon sequestered for tens of thousand years or longer. The trade off is that these methods can be very expensive—between $100-500 and north of $800 per metric ton

CDR Has a Critical Role to Play

In the end, there is no silver bullet, and given that 2023 was the hottest year on record—1.45°C above pre-industrial levels—it’s likely that many different CDR methods will end up playing a part, depending on local circumstances. 

And not just in the drive to net zero, but also in the years after 2050, as we begin to stabilize global average temperatures and gradually return them to pre-industrial norms. 

Carbon Streaming uses carbon credit streams to finance CDR projects, such as reforestation and biochar, to accelerate a net-zero future.

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Learn more about Carbon Streaming’s CDR projects.

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