Zero net-zero initiatives initiative

Moral inflation drags down pledge power at COP26

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🌍 COP26 has heralded landmark international deals on coal, deforestation, methane and fossil fuel financing. Over $130T of private market capital has been earmarked for net zero. As pledges pour forth, however, questions linger about their substance.

🌡️ The world is careering towards a 2.4°C rise by 2100 if government policies—rather than pledges—are anything to go by, finds Carbon Action Tracker. Blame mid-century net-zero pledges, which inspire "false hope" in the absence of serious 2030 targets.

📈 Bad news about climate is good news for green stocks, reports the NYT. Public attention boosts their prices and hurts those of big emitters, while making it easier to raise money for environmentally useful projects. But beware the ‘greenium’.

⚖️ When it comes to brown stocks, do investors stay or sell? While large asset managers have traditionally favoured engagement over disinvestment, a growing number are taking a tougher approach: a change in attitude with “huge ramifications.”

⚒️ Ramifications are on display in the mining industry, which may yield more coal for longer as an unintended consequence of divestment. Investors are becoming more “sophisticated and nuanced” in response, LGIM’s Nick Stansbury tells Bloomberg.

🤔 Case in point: BlackRock, which could be about to acquire a stake in Saudi Aramco’s pipeline network. As per Tensie Whelan: “It highlights the challenge [of getting] through the next 10, 20 years while we still need conventional energy.”

🧐 MSCI chief Henry Fernandez says there’s a “fundamental misunderstanding” of passive ESG investing, after ETFs were criticised for fossil fuel exposure. He’s not wrong. But the solution lies with better coverage from index and data providers.

🏦 US banks must disclose climate threats by next year, says the OCC, which encourages boards to grill executives about companies’ vulnerability to volatile weather. Banks have a crucial role to play, but theirs might be the very hardest.

🚩 Carbon credits are among the top issues in the spotlight at COP26. As a financial solution to a non-financial problem, they represent an exciting opportunity—but our CEO Patrick Wood Uribe sounds a note of caution about "unintended consequences.”


Chart of the week: Not all pledges are created equal

The impact of any one company’s net-zero target depends on its industry, the climate footprint of that industry, and the timeframe in which the industry will hit its target.

As is highlighted by recent research from Accenture, carbon-intensive companies are more likely to have far-flung 2050 targets, whereas service sectors aim for 2035-40.

Only 29% of communications companies have a pledge in place. They do, however, have a tiny 5% negative impact on SDG 13: Climate Action and an average net-zero target of 2037. Almost half of utilities companies, meanwhile, have jumped on the net-zero bandwagon—yet their negative impact stands at 50%, and their target, 2044.

What’s the message here? Companies: speak up only if you have something meaningful to add. Investors: look beyond the headline. Context—and detail—matters.


Story of the week: When is net zero not zero?

COP26 has opened the floodgates to emissions pledges. At the same time, doubt is emerging about the efficacy of words versus action.

Take Carbon Action Tracker’s latest report, which finds that the world is not, in fact, on a smooth journey to the Paris Agreement target temperature rise of 1.5°C, but instead a more likely 2.4°C or even 2.7°C trajectory by the end of the century.

All it took was scrutiny of policies rather than pledges.

A similar approach yields similar findings in the private sector.

Consider, for instance, the latest COP26 asset owner initiative, which calls on “other asset owners, journalists, civil society, and politicians [to use the same] standards to help them judge what is good practice and what is greenwash.”

But do those standards make for good practice?

The initiative follows the IPCC roadmap, which allows for continued fossil-fuel exploration, offset by a staggering negative-emissions target of 10 gigatons (GT)/year of carbon—or 20% of current global emissions—by 2050.

Given today’s pipeline for carbon removal projects only accounts for around 0.15 GT/year, that calls for a technology scale-up of over 60 times. And yet: The declaration calls on asset managers to be "not overly reliant on negative emissions technologies," even though the IPCC implies a huge increase in reliance.

Equally, it doesn’t sufficiently address the sources of emissions themselves. While coal is singled out, there’s no mention of oil & gas.

So which is it? Cap or counterbalance emissions? Unclear.

You can’t have all your financial returns and enjoy the ethical ones, too. As scrutiny mounts, the sophistication, nuance and—above all—transparency of net-zero pledges must rise to the occasion.