Has business had it with net zero?
This question would have sounded daft a year ago at the UN-sponsored Cop26 climate summit in Glasgow, where some of the world’s best-known banks, airlines and carmakers flaunted their pledges to be part of a net zero emissions future.
UN envoys cheered the fact that at least a fifth of the world’s 2,000 largest public companies had made a net zero commitment. Larry Fink, the boss of BlackRock, the world’s largest asset management firm, came to Glasgow and later predicted that every company and industry would be “transformed by the transition to a net zero world”.
One year on at Cop27, in the Egyptian resort of Sharm el-Sheikh, things looked very different. Corporate net zero vows had ballooned so much that more than a third of the largest companies now had one. But a lack of robust rules had left “loopholes wide enough to drive a diesel truck through”, said UN secretary general António Guterres.
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Catherine McKenna, Canada’s former environment minister, told Cop27 that too many pledges were “little more than empty slogans and hype”. She chairs a group of experts the UN appointed to assess the mushrooming net zero promises from companies, cities and regions.
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And a bracing report the group released at Cop27 concluded “dishonest climate accounting” had to stop. That meant companies could not claim to be net zero while continuing to build or finance new supplies of fossil fuels. Instead of relying on cheap and often dodgy carbon credits to offset their carbon pollution, firms should focus on cutting their own emissions, including those generated by users of their products or services.
They should base their net zero plans on absolute emissions reductions, not lower carbon intensity, or emissions per unit of output. They shouldn’t lobby against government climate policies and they should report annually on their decarbonising progress in disclosures that governments should make mandatory.
This advice is in line with the need to nearly halve global emissions by 2030 to meet the Paris agreement’s goal to keep temperatures at safer levels. So it was widely applauded at Cop27, with one vivid exception. A lot of business executives were incensed. Some, especially those from the US, were used to hearing their net zero plans branded too weak (by climate campaigners) or too harsh and “woke” (by some politicians) or too legally fraught (by lawyers). But the UN message was painful, especially for sustainability executives who had spent years persuading sceptical bosses to make a net zero pledge in the first place.
Here’s a flavour of what I heard: some executives felt “exhausted and demoralised” at the idea of needing to win yet more internal support for onerous UN-backed rules. Others said it was “ludicrous” for the UN to back, say, mandatory disclosure of net zero plans that did not exist in many member countries. And did the UN even have the right to campaign for such rules “like an NGO”?
It is important to say green energy businesses had very different views. The UN report delivered an “important cat among the pigeons”, says Ben Backwell, chief executive of the Global Wind Energy Council. But others are asking if the report could unintentionally stall the growth of corporate net zero vows, says Huw van Steenis, a partner at the Oliver Wyman management consultancy who is steeped in corporate climate policymaking.
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This is possible. A South Pole climate consultancy survey of more than 1,200 large companies found a quarter did not plan to publicise their net zero achievements “beyond the bare minimum”. The exact cause of this so-called green-hushing is unclear and worried South Pole. But it is also entirely predictable. Trying to cut emissions to nearly zero was always going to cause problems for businesses as the world enters the uncharted territory of trying to transform an energy system dominated by fossil fuels in a matter of years, not decades.
The shift was bound to be messy and difficult, and it has only just begun. Stand by for much deeper disarray – especially if the net zero effort fails and emissions stay at the dangerous levels they are at today.
– Copyright The Financial Times Limited 2022
