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Keeping you in-the-know on environmental, social and governance developments

The 2021 update to Buzzword Bingo is filled with ESG and climate-related words, phrases and acronyms. But the one to rule them all is “Net Zero.” I’ve covered it myself recently in articles here and here. Like other buzzwords tossed about, its meaning has faded – if it ever was broadly understood at all.

In Net Zero theory, companies are expected to first physically reduce their actual CO2 emissions, then take other actions, such as purchasing carbon offsets, to at least equal remaining unabated emissions. Mathematically, the “net” CO2 emissions attributable to the company then become zero. Yet not every entity is taking reasonable steps to curb their emissions before turning to offsets. For example, China has pledged to be carbon neutral by 2060 but expects its annual emissions to increase and peak around 2030. According to S&P Global:

More than 2,000 governments and businesses appear to have taken the net-zero pledge. The United Nations Race to Zero Campaign, for example, includes a coalition of about 1,675 businesses, 85 large investors, and more than 470 cities… But progress is uneven among sectors and geographies. 

The article further highlights that in order to achieve the Paris Agreement 1.5 degree scenario, global spending trends must change. Today, companies expend more effort on offsets and other financial “solutions” than on actual emissions reductions, including pollution control technologies, clean energy production and energy efficiency. Financial expenditures on actual reductions must almost quadruple from its 2019 level according to the International Energy Agency (IEA) to achieve alignment with the Paris Agreement.

Claims that Net Zero is merely greenwashing are growing. The Washington Post criticized the financial sector for its focus on solutions that some argue do not contribute to actual emissions reductions, instead emphasizing offsets. There have been many similar criticisms recently. On a related matter, if you missed our article on divestment of high-emissions assets, you can read that here.

What You Can Do

Net-Zero is in dire risk of becoming a scam due to oversubscribed reliance on offsets as the silver bullet. If your company has committed to a Net Zero initiative, or is considering doing so, keep the following in mind:

  • No solution or action is as credible, technically valid or as certain as actually reducing your direct emissions. At the same time, this can be difficult. Management must be fully committed to taking actions needed to make meaningful reductions, which often means spending money or limiting production/growth.
  • Offer suppliers assistance in reducing their actual emissions (your Scope 3 emissions). Share your company’s internal expertise or experiences with suppliers so they have an opportunity to benefit from what you have learned yourself, and from other suppliers. Large companies can also offer innovative options to help suppliers finance emission reduction investments.
  • Finally, think of offsets as a last resort – not the initial play call. As we have written previously, the offset market carries a high level of risk, so it is not the carefree panacea that many feel it is. You should put in some hard work, reflecting tough decisions on actual emissions reductions and those in your supply chain before you lean on offsets. We listed some further considerations in an earlier article.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile