Week 11: The net-zero circus

Dear all,

I hope everyone is well and ready for yet another edition of ‘ESG on a Sunday’! 

This week we continue our journey across different dimensions of ESG, in the search for new insights that can help enable the transition to at least a more sustainable future.

A world of net-zero pledges

At the moment, we all live in a net-zero narrative. All around the world, governments, corporates, financial institutions, even small communities are striving, pledging, explaining almost shouting out net-zero spells over a distant future.

And yes, I do mean distant. 2050 is rather distant right now.

“Emissions shall not pass!” is essentially what they’re saying. It echoes loud and clear. We will, shall, and must make this happen, people want it.

But let’s have a look at what it really means and what is on the show right now in this net-zero circus world.

As of October 2020, actors with net-zero targets (either economy- or companywide, or for a specific sector) cover at least 826 cities, 103 regions, and 1,565 companies across all continents. In total, they represent over 880 million residents, 24.9 million employees, and 10 gigatons of greenhouse gas emissions.

Approaches for implementing net-zero targets can be categorised according to whether they target direct reduction of emissions, claim neutralisation of emissions through offsetting, or support carbon dioxide removal.

Among measures for the direct reduction of emissions, there’s a range of approaches for claiming the neutralisation of electricity-related emissions and for supporting the reduction of supply chain and out of boundary emissions. Nuances in the specific details of those implementation approaches determine whether net-zero targets really contribute to deep decarbonisation, or produce any impact at all.

Even companies in emissions-intensive and hard-to-abate industries – such as fossil fuels, materials and transportation services – are setting ambitious targets. Some actors plan to reach net zero in the near future, and others are going beyond their direct emission scopes, targeting supply-chain and downstream emissions.

Defining and navigating “net-zero“

What is then the definition of net-zero? It is the achievement of a state in which an entity “removes from the atmosphere as much greenhouse gas emissions as it causes” (IPCC 2018). And in order for that to happen many radical systemic changes will need to happen.

There are of course many other names for this dear child, for example: 

• Climate neutrality
• Net-zero CO2 emissions
• Carbon neutrality
• Zero-carbon
• Carbon-free
• Net-negative emissions
• Carbon negative
• Climate positive
• Deep decarbonisation
• Emissions-free
• Zero-emissions
• 1.5°C pathway

In other words: A lot of different names, that mean pretty much the same for people. But what are the consequences of this vagueness in defining the core concept and having all these names floating around?

Well, imagine a person with the very best intentions – a citizen, consumer, parent, friend, relative – who’s trying to navigate this landscape of definitions, trying to make the “right” decision and take responsibility for his or her personal actions. A person who’s well aware that we need a systemic change, but who also knows that personal choices make a difference.

For that person, it’s like closing your eyes for a moment throwing a dart and hitting one or maybe two of these splendid claims. Deep down in the gut you can feel that this is a lottery, just hoping for some kind of positive outcome.

Some time ago I wrote this piece on narratives. I made the argument that those who tell the stories rule the world. I addressed some challenges of “false” narratives and their implications. 

In this revealing report by NewClimate Institute and Data-Driven EnviroLab, entitled Navigating the nuances of net-zero targets, the emperor is stripped nude.

The report provides guidelines for what is and what is not. Please use it, share it and make it be one of the documents you visit very often and use to “translate” the lingo of net-zero. But mostly, use it to understand what net-zero is not.

Read the report

What we really need to stay below 1.5°C

As we’re standing here at the gates of the net-zero future, standing strong and committed to the fight of our lifetime, in comes also a series of punches in the form of insights from a recent study.

The study I’m referring to is entitled A Societal Transformation Scenario for Staying Below 1.5°C, and even if you just glance over the summary, you sort of need to take a walk to get in touch with reality.

It’s a comprehensive BS detecting study. It takes a completely different route to explain what they see as the core challenge.

Figuratively speaking, the world is currently driving in a straight line of ever-increasing demand and production, simply hoping that, by the time the road ends, a bridge will have been built.

What is being ignored is the exits from this road. And even if the technologies work – and there is a bridge – they will not come without consequences: Even the most accepted geoengineering options, such as using Bioenergy with Carbon Capture and Storage (BECCS) and large-scale monoculture afforestation, would lead to soil degradation, biodiversity loss and ecosystem destruction and would fuel conflicts over land, including human rights violation.

In short, the current debate is almost entirely around technological change and does not take into account the huge potential of societal and economic change.

The authors of the study present a Societal Transition Scenario (STS), which is based on a change in the way society organises production and consumption. This change includes not only technological progress but also changes in governance, culture and individual behaviour.

The STS is a first draft of a climate mitigation scenario depicting an alternative future, an outline that must be underpinned by further scientific research, practical knowledge and a spirit of confidence that reshaping society to the benefit of all people and the environment is possible. It is a good and insightful read. 

ESG is really happening. Or is it?

Let’s get back to the ESG narrative, and take a look at the numbers. By doing so, we can conclude that we are almost there.

Morningstar has identified 253 funds that switched to an ESG focus in 2020, with 87% of them rebranding in the process (typically adding terms such as ‘sustainable’, ‘ESG’, ‘green’, or ‘SRI’ to their names to highlight the change and ensure they could be easily identified by investor searches).

We are in the age of ESG investing for real. Or are we?

Provided this represents a genuine change to the underlying investment approach (as opposed to greenwashing) it should mean that now – with these numbers and the amount of capital that is baptised in ESG – real and systemic changes are to be expected on the primary markets.

Emissions will go down. Social and human rights will improve significantly. Governance of companies will include societal contracts. Things will change for the better.

I really hope that is the case. But some voices from the finance industry are trying to raise questions about the credibility of these 87%.

In an opinion piece written by Tariq Fancy, former chief investment officer for Sustainable Investing at BlackRock, he is essentially saying that Wall Street is greenwashing the financial world, making sustainable investing merely a PR exercise, which is a distraction from the problem of climate change.

“In truth, sustainable investing boils down to little more than marketing hype, PR spin and disingenuous promises from the investment community.” – Tariq Fancy

Well, Tariq might be just right. Not on everything, but on most of it. I really recommend you read his piece, here’s the link.

Using AI to detect BS

One thing is clear though: if anything is ever going to make ESG more than a passing fad, it is that scrutiny will force higher standards. Maybe use of AI to detect ESG BS is part of the scrutiny to come? That’s the argument made here.

No matter what, the market for ESG is growing and with that growth many things will change and have to change.

Approximately 63% of consumers who have savings, investments, a pension or an annuity, want pension companies to be more environmentally transparent in where they invest their pensions, according to new research by Aviva. 

But, at the same time, 55% said they still do not know where their pension is invested.

Thank you for the kind comments ??

That would be all for this week, and I would like to end this by saying thanks for all the kind comments I’ve received regarding my 10 ESG commandments!

So far, the 10 ESG commandments have been translated into Swedish, Portuguese and Icelandic, and it has been covered in many news outlets around the world. Please feel free to translate them to other languages and share them as you wish.

Kind regards,

Sasja