Plenty of large corporations have pledged to reach net-zero emissions in their business models by certain timelines in the not-so-distant but distant enough future, like 2050. But the meaningfulness of those commitments is unclear to many in the investment community.
Net-zero is but one letter away from being "not-zero," pointed out Mark Campanale, founder and executive chair of think tank Carbon Tracker, during a panel discussion at the recent GreenFin event "The Transition to Zero." A joke, but a good point.
"What you’ve got is a whole series of plans which don’t add up to anything credible in particular," he said.
During the panel, Emilie Mazzacurati, global head of climate solutions at ratings firm Moody’s, said many banks and investors she works with want to understand with more clarity how the ambitious climate commitments companies are making translate into potential financial impacts and credit risk. "It does take people outside of their comfort zone a little bit because it requires climate scientists to work with economists and credit risk modelers to become really well versed in oil and gas technology," she said.
The reality is that these companies making the big claims have little to no track record of pulling through on plans this big and consequential — or long-term. That’s understandable, given that a climate crisis never has threatened humanity like the one the business world is trying to combat right now. Even using past large-scale business successes to extrapolate into this environmental arena is speculative. Nevertheless, there are ways to set accountability mechanisms — we just haven’t seen many yet, according to the GreenFin panelists.
Mamadou-Abou Sarr, president and chief executive of V-Square Quantitative Management, noted that few metrics, financial or environmental, are in place for a C-suite leader to be able to look back to evaluate their progress.
When corporations push a goal to 2030, 2050 or onwards, nearly none of the people currently in leadership positions will still be around to be benchmarked against what they committed to achieve. Take Unilever, which pledged in 2015 to source "all of its energy from renewable generating resources by 2030" but took on a new CEO in 2019. "Accountability will actually be in the eyes of the beholder," Sarr said, but that will require specific reporting tools and regulations that will allow companies to benchmark their progress.
Accountability also will require standardization in terminology, the panelists noted. Douglas Grim, senior investment strategist at investment firm Vanguard, said the challenge is putting an expectation on companies to be very explicit and descriptive in what their labels mean. This could mean transparency about nuances such as which companies are measuring emissions intensity versus which companies are measuring regular carbon emissions, for example.
Climate change is a material risk, Grim said, and it can affect a firm’s future revenues and liabilities — such as physical, reputational or regulatory risks, consumer preference changes or technology disruption. These are all risks that Wall Street needs to consider in planning not only how to survive, but how to thrive, he said.
Grim has seen a progressive shift in his clients, who increasingly ask him if exchange traded funds (ETFs) or other mechanisms are available to participate in and get exposure to renewables, he said.
There’s an increasingly common process in which ETFs are able to rebrand themselves as ESG funds without actually changing anything besides how they are presented, the panelists noted. Campanale referenced BlackRock’s new ETF, which includes Exxon.
"I think when [investors] saw the word transition against the BlackRock fund’s name, I think they probably, probably, thought they were going to be finding companies which are going to be leading the charge or beneficiaries of the transition or helping the transition. And so in that sense, maybe they’ve misunderstood," Campanale said.
This marketing tactic is not exclusive to securities. It’s used in just about every industry, from retail to water.
"When you look at the holdings," Campanale said, "the holdings are almost exactly the same as the non-ESG funds. I think that really is the challenge our industry is facing is, ‘Are we leading the public down the path of thinking we’ve got the right answers here?’ And I’m just not sure we have."
Companies that report using the recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) are required to produce scenario analyses — essentially, a tool used to explore and prepare for the ever-changing possibilities of what the future could hold. Campanele has seen that almost all companies are publishing scenarios showing business as usual, meaning that oil and gas companies are forecasting 20-30 percent growth in demand for oil and gas. He thinks that companies should be required to report against Paris Agreement-aligned stress tests.
Campanale and Grim both agree on a need for more standardization for accounting standards surrounding the treatment of high carbon assets for what data companies collectively should be using in order to set targets appropriately. Grim thinks that constructive debates and conversations, presumably like the one he was participating in, can help.
The Link LonkApril 29, 2021 at 03:37PM
https://www.greenbiz.com/article/measuring-transition-net-zero-wont-be-easy
Measuring the transition to net-zero won't be easy | Greenbiz - GreenBiz
https://news.google.com/search?q=easy&hl=en-US&gl=US&ceid=US:en
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