Selecting ESG criteria material to your business is one thing, but selecting the right target to report to is even harder. That’s a challenge only exacerbated by the complexity of available targets.
With emissions reduction on everyone’s lips, it is important to understand the difference between emissions targets and understand what matters in the difference between net zero, carbon neutral and carbon negative.
This selection is a challenge because general definitions suggest they are the same or similar – carbon neutral is the same as net zero, etc. Unfortunately it’s not quite that simple.
Defining net zero, carbon neutral and carbon negative
Vaughan Lindsay, CEO of Natural Capital Partners, which provides positive impact solutions, says that the real difference between the type of target selected is about whether you’re discussing historical or proposed emissions reduction.
He says: “Net zero is saying by a certain date the company will be net zero – that it will have no impact on environment – it’s an ambition. Whereas carbon neutral is a statement about action taken to date, where emissions around a product have been reduced or offset to cover historical emissions.”
Arguments remain about what this means. Companies have typically said they’re “carbon neutral” if they offset their emissions with payments either to avoid a reduction in emissions or remove carbon from the atmosphere, but these are different approaches and should not be considered the same. Paying someone not to do something is not the same as having a positive impact.
Net zero should mean that a company removes the same amount of carbon as it emits. Carbon negative, however, is somewhat more complex, as it suggests that the company will have a net positive impact on emissions and remove more carbon than it emits.
Emission targets need transition plans
While net zero is becoming a widely accepted goal, the fact that it is a goal and not concrete action is a problem. Indeed, it is becoming clearer that without an associated transition plan, net-zero targets should be taken with more than a pinch of salt.
Recent challenges to the performance of members of the Net-Zero Banking Alliance and the Net-Zero Asset Owners Alliance have underscored how difficult it can be to set boundaries. For financiers, do those boundaries lie in their operations or should they be implemented across portfolios? If so, how and in what timeframe?
One of the most important elements of the SEC’s current proposals for climate reporting is that they demand reporting on performance against targets, which (if accepted) could transform not only reporting transparency but drive real focus on what is actually happening on the ground.
Carbon negative is much harder to do, but it’s about ensuring that emissions are below overall operational emissions. Lindsay says this is far harder, but the important thing is not to assume that something is greenwash but to attempt to understand what is actually being discussed.
Carbon negative: Microsoft’s ambitions
In 2020 Microsoft, for example, announced plans to be carbon negative, to reduce and ultimately remove its carbon footprint. The company said: “By 2030 Microsoft will be carbon negative, and by 2050 Microsoft will remove from the environment all the carbon the company has emitted either directly or by electrical consumption since it was founded in 1975.”
The plan included a complex mixture of internal emissions reduction, increased CO2 shadow pricing, a $1 billion climate innovation fund for the development of carbon reduction, capture and removal technologies and making emissions reduction a requirement for suppliers.
The company said it planned to achieve this through a portfolio of negative emission technologies (NET), potentially including afforestation and reforestation, soil carbon sequestration, bioenergy with carbon capture and storage (BECCs) and direct air capture (DAC).
While the plan was seen as significantly more aggressive than those of rival tech companies, there are certainly challenges with implementation and the company published a report on the challenges in Nature in 2021.
These included the need for a concrete and globally aligned definition of net zero (as well as carbon negative); that improvements are required in how we measure emissions (both through the GHG Protocol’s scope 1, 2 and 3) but also the extent to which responsibility should be deployed through the value chain; and the need for growth in the carbon removal market.
Most would agree that these are sensible requirements, although fewer would agree on how to address them. Certainly the issue of emissions responsibility persists.
The recent release of the Carbon Bankroll report said that in 2021 the emissions generated by the $130 billion in Microsoft’s investments came close to the cumulative emissions “generated by the manufacturing, transportation and use of every Microsoft product in the world.”
Choosing emissions targets
Choosing a target means being aware that as these definitions evolve, there needs to be clarity based on the science, an understanding of boundaries and an acceptance of the power of influence.
Part of the challenge for non-specialists is understanding what methodologies are appropriate, what instruments are credible and valid and how to compare like with like, which remains difficult to do in the current marketplace.
A growing number of independent verifiers are converging on a set of criteria which are seen to be robust and credible.
The Science-Based Targets Initiative (SBTI) which, for example, says offsets should only be used for the achievement of net zero when all reduction options have been exhausted, has tightened its criteria following criticism of its approach and close relationship with those companies it verifies. There is, however, a long way to go.
There is no doubt that consumers and industry alike can be confused by the claims but, Lindsay argues, the important thing is certification.
As long as claims are made with integrity and independent verification, they should make sense. What matters is to ensure that the footprint is measured, that a separate organisation can verify that claims are true and verified that they have been addressed with reasonable instruments.
Every company that sets a target must understand what that target means, how it’s going to be achieved and how such claims are going to stand up against performance scrutiny.