Planning the Route to Net Zero
In the run-up to COP26, companies trumpeted their commitment to addressing climate change, often citing pledges to achieve goals decades in the future. But meeting these distant objectives requires near-term action, about which the corporate world has been far less forthcoming.
LONDON – The travel details of the huge number of world leaders, company CEOs, and investors who made their way to Glasgow for the latest United Nations Climate Change Conference (COP26) may seem trivial. The carbon footprint of their transport of choice – plane, car, or train – or the size of their entourage pales in importance when compared to that of the agreements they hope to achieve. But the reality is that without careful planning of the journey, it would have been impossible to bring these people together for this essential event.
The same can be said of the explosion of interest by investors and companies in committing to reach net-zero carbon dioxide emissions by 2050. The Glasgow Financial Alliance for Net Zero initiative, launched in April, now represents over 450 financial firms responsible for assets of roughly $130 trillion that are committed to achieving net zero by 2050 or sooner.
These promises are significant, but they leave financial markets in an interesting position. There is considerable information about companies’ long-term climate goals, but very little about the near-term steps they will take to achieve them. To put this in context, imagine that a company publishes a 2050 revenue forecast but provides few details about its 2025 revenue projections, how the business will scale over time, or its short-term strategy. In order to appraise the credibility of companies’ pledges, investors need more details on near-term planning up to 2025 and how these actions will advance the 2050 net-zero goal.