how zero-washing undermines the impact of net zero investment portfolios
by Tamara Close different paths to net zero A key transition risk from climate change is a material global rise in the price of carbon. A carbon price shock at just $75 / ton of CO2e will impact over $20 trillion of Enterprise Value through a greater than 5% decline in their return on capital.1 Implementing carbon budgets or creating net zero portfolios can help reduce this risk. However, managers need to ensure that they are not “zero-washing”.
Technically, a Net Zero business model means that the carbon emissions produced by any activity must be reduced to zero or offset by carbon absorbing activities. However, simply getting to net zero emissions for a company is not enough to ultimately achieve the emissions mitigation required to limit the global temperature rise to 1.5 degrees Celsius. In order to get there, the pathway and business model design have to reduce actual emissions. For instance, purchasing offsets to cancel out the emissions that a company has produced will get you to net zero, but that doesn’t necessarily reduce absolute emissions in the real economy. Companies must first reduce emissions. Offsets can then be used for hard-to-decarbonize sectors or activities. 1 / See the recent SEC Response letter which summarizes the research performed by Mark Van Clieaf from FutureZero and Tamara Close from Close Group Consulting (CGC): https://www.sec.gov/comments/climate-disclosure/cll12-9124058-247166.pdf
034
Intelligent Risk - October 2021
