Yes there is a Net Zero commitment, but how credible is the plan?

Companies are making huge splashes in the media about their Net Zero commitments and targets, and in return earning brownie points from their customers, investors and society at large. But is it enough that companies have committed to become Net Zero by 2050 or earlier? A future commitment made by people today, who won’t be accountable 10 or 15 years down the line, and won’t have to deal with the consequences of not fulfilling these commitments — how credible is the commitment in the first place?

Having sifted through huge amounts of literature and practitioner insights during my dissertation, I have summarised 3 key questions you can ask a company to gauge the credibility of its transition plans.

1. What are you actually committing? Is the company committing to reduce it’s absolute emissions or only emissions intensity? If the company has committed to reduce absolute emissions to zero (or as close to zero as possible), then they seem to be on a credible path. If the commitment is to reduce intensity by 50% (popular commitment by NZAM, NZOA etc.) then companies could double their revenue and their emissions would still remain at the same levels as today. Another point to look out for it whether the emissions target considers all emissions (Scope 1, 2 and 3) and all parts of the business or only a portion of it?
2. Are they putting money where their mouth is? Has the company set aside any capital expenditure towards it’s Net Zero plans is a huge indicator of how well companies have thought through what their commitment means and how they will achieve it. As per the CA100+ March 2022 assessment, not a single high-emitting company meets all the criteria for capital alignment. This means, companies currently don’t have adequate capital expenditure plans aligned to their Net Zero targets or goals.
3. How is the company planning to become Net Zero? Most companies are unlikely to disclose any details on the Net Zero plans yet, however, those that do will mention one of the three (or a combination) of these ways: (i) through nature-based solutions, (ii) through emissions reduction technologies, and / or (iii) divestment. Reliance on nature-based solutions, i.e. planting new forests etc. is unrealistic as we have a finite land area on earth. For example, Eni and IAG could exhaust 12% of CO2 offsets through new forests. Reliance on emissions reduction technologies like carbon capture and storage is hopeful but problematic as these technologies are not scalable or affordable currently. And finally, if companies are relying on divesting from the ‘problematic’ assets or businesses, then we are just handing over responsibility to someone else. This means our portfolios will look great but there won’t be real-world Net Zero impact.

The conversations are changing from whether companies are committing to Net Zero to how companies will achieve Net Zero. Are you listening? And more importantly, are you asking the right questions?