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.

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.

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.

Mapped: Human Impact on the Earth’s Surface

With human population on Earth approaching 8 billion (we’ll likely hit that milestone in 2023), our impact on the planet is becoming harder to ignore with each passing year.

Our cities, infrastructure, agriculture, and pollution are all forms of stress we place on the natural world. This map, by David M. Theobald et al., shows just how much of the planet we’ve now modified. The researchers estimate that 14.6% or 18.5 million km² of land area has been modified – an area greater than Russia.

Defining Human Impact

Human impact on the Earth’s surface can take a number of different forms, and researchers took a nuanced approach to classifying the “modifications” we’ve made. In the end, 10 main stressors were used to create this map:

1. Built-Up Areas: All of our cities and towns
2. Agriculture: Areas devoted to crops and pastures
3. Energy and extractive resources: Primarily locations where oil and gas are extracted
4. Mines and quarries: Other ground-based natural resource extraction, excluding oil and gas
5. Power plants: Areas where energy is produced – both renewable and non-renewable
6. Transportation and service corridors: Primarily roads and railways
7. Logging: This measures commodity-based forest loss (excludes factors like wildfire and urbanization)
8. Human intrusion: Typically areas adjacent to population centers and roads that humans access
9. Natural systems modification: Primarily modifications to water flow, including reservoir creation
10. Pollution: Phenomenon such as acid rain and fog caused by air pollution

The classification descriptions above are simplified. See the methodology for full descriptions and calculations.

A Closer Look at Human Impact on the Earth’s Surface

To help better understand the level of impact humans can have on the planet, we’ll take a closer look three regions, and see how the situation on the ground relates to these maps.

Land Use Contrasts: Egypt

Almost all of Egypt’s population lives along the Nile and its delta, making it an interesting place to examine land use and human impact.

The towns and high intensity agricultural land following the river stand out clearly on the human modification map, while the nearby desert shows much less impact.

Intensive Modification: Netherlands

The Netherlands has some of the heavily modified landscapes on Earth, so the way it looks on this map will come as no surprise.

The area shown above, Rotterdam’s distinctive port and surround area, renders almost entirely in colors at the top of the human modification scale.

Resource Extraction: West Virginia

It isn’t just cities and towns that show up clearly on this map, it’s also the areas we extract our raw materials from as well. This mountainous region of West Virginia, in the United States, offers a very clear visual example.

The mountaintop removal method of mining—which involves blasting mountains in order to retrieve seams of bituminous coal—is common in this region, and mine sites show up clearly in the map.

You can explore the interactive version of this map yourself to view any area on the globe. What surprises you about these patterns of human impact?