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Net zero and carbon neutral commitments are on the rise in 2021, as companies, financial institutions and countries assert their alignment to global climate goals. The journey presents mission critical considerations for all market participants. In celebration of Earth Day 2021, S&P Global has launched a new intelligence hub of research and insight informing the path to decarbonization — the challenges, the costs and the opportunities to help you make decisions with conviction.


Introduction

Path to Net Zero Riddled with Potential Pitfalls

In the growing climate change movement, “net zero” has become the buzzword. Over the past six months we’ve seen an absolute proliferation in companies and countries setting goals to reach net zero emissions by 2050.

While the concept of net zero seems straightforward at first blush, the path to achieving it is riddled with potential pitfalls.

Big Oil's 'bumpy ride' to net-zero

Major oil and gas companies are beginning to set aggressive decarbonization targets, but the path ahead for them is riddled with challenges. In this podcast, we hear from Ed Daniels, an executive vice president and the head of strategy at Royal Dutch Shell plc, Natasha Landell-Mills, the head of stewardship at Sarasin & Partners, and Simon Redmond, a senior director at S&P Global Ratings.


Clean Energy Credits

Problematic Corporate Purchases of Clean Energy Credits Threaten Net Zero Goals

For most companies, the main source of greenhouse gas emissions is the fossil-fuel-based electricity they use. That's why, in pursuit of a net zero carbon footprint, many have promised to rapidly switch to "100% renewable energy." But a huge chunk of the wind, solar or hydro power that companies purchase isn't actual physical electricity, but tradable instruments called "unbundled" certificates. Under this system, a solar farm is allowed to sell its power to the grid and separately sell credits against that power to corporations and other buyers. A corporate buyer of these standalone credits may claim to have hit its clean energy goal.

But the transaction has little real-world impact: it doesn't necessarily help to displace fossil-based electricity, and it doesn't help much to decarbonize the grid.

Key Takeaways

Many companies that say they’re switching to renewable energy aren’t actually buying physical wind or solar power but instead cheap clean energy certificates.

The downside of buying these certificates is that they don’t always encourage the production of new wind or solar farms.

That could undercut efforts to fight climate change, which require a huge expansion of clean energy to replace fossil fuel power.



Banks

Seeking net zero? Just follow the money.

If the world is going to achieve the lofty target of reaching net-zero emissions by 2050, one thing is clear: Banks need to take a leading role in financing the transition.

Limiting warming to 2°C by 2050 will require $3 trillion annually in investment, according to an estimate by the Intergovernmental Panel on Climate Change. And that means annual investment in low-carbon energy technologies and energy efficiency needs to be increased by roughly a factor of five by 2050 compared to 2015 levels.

Source: S&P Global Trucost. Data as at November 2020. For illustrative purposes. Data showcase is based on companies listed on the S&P Global 1200 index, selected to represent a global supply chain, equity portfolio or loan book. The index covers 31 countries and approximately 70 percent of global stock market capitalization.

The importance of the banking industry’s role in achieving net-zero goals was underscored on April 21 when 43 banks from 23 countries with $28.5 trillion in assets joined the newly-created United Nations-backed Net-Zero Banking Alliance, part of the Glasgow Financial Alliance for Net Zero chaired by U.N. Special Envoy on Climate Action and Finance Mark Carney.



Smoke at sunset

Investment Industry

Constructing Carbon-Sensitive Portfolios

As we mentioned in our last blog, market participants constrained by the characteristics of their investable universe/benchmark can still manage their exposure to carbon.

Environmental attribution analysis of portfolios or benchmarks shows that positive or negative carbon choices are possible within sectors/industries/regions/countries through low/high-carbon stock selections. With quantitative procedures and consistent data at hand, portfolios can be optimized to favor more carbon-efficient companies, while still maintaining the underlying characteristics of their investable universe/benchmark.

Further Reading

This is the third blog in a series examining the steps portfolio managers need to take to reach the goal of net-zero carbon dioxide emissions in their investment strategies by 2050.

Webinar

Plotting the Path to Meet Net Zero Targets: Energizing Efforts for Action

The global pandemic put a spotlight on the value of environmental, social and corporate governance considerations across all sectors. We saw an absolute explosion of net zero commitments from companies and countries surrounding the 5th anniversary of the Paris Agreement. With these new pledges, the United Nations estimated that by early 2021 countries representing around 65% of global CO2 emissions and around 70% of the world's economy will have committed to reaching net zero emissions or carbon neutrality.

Join S&P Global Market Intelligence for this webinar discussion, bringing together diverse perspectives from three of the world’s largest corporation within retail, energy and technology: Walmart, Duke Energy and AT&T on the challenges of meeting net zero targets.

Moderator

Lindsey Hall
Head of ESG Thought Leadership, S&P Global

Speakers

Kathleen McLaughlin
Executive Vice President and Chief Sustainability Officer, Walmart Inc.

Charlene Lake
Chief Sustainability Officer and SVP-Corporate Social Responsibility, AT&T

Carlo Funk
EMEA Head of ESG Investment Strategy, State Street Global Advisors

Further Reading

Navigating Net Zero

Getting to net zero will require a detailed understanding of underlying sources of carbon emissions – as well as forward looking metrics on physical and transition climate risks. Access the additional insights you need to understand the path forward on our Net Zero Topic Page. Updated daily, it contains all net zero insights published across S&P Global.

The 2016 Paris Agreement committed to achieve net zero emissions globally by the second half of this century, but progress to date has been worryingly slow. Stay up-to-date with the challenges and opportunities as governments and companies globally take on the net zero challenge.


We’re here to help you accelerate your sustainability journey. Get connected with an ESG specialist who can advise you on your next steps.

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