With COVID-19, the word most heard this year on the economy is probably “carbon neutral”. And net zero. Everywhere, investors, businesses and governments are announcing their intentions to reduce and offset their greenhouse gas emissions to fight climate change.
The movement is picking up speed, which is encouraging. On the occasion of the 26e Conference of the Parties (COP26), where all countries will have to put forward their climate intentions, China, the world’s largest emitter of greenhouse gases, has in turn announced its commitment to achieve neutrality carbon before 2060.
Governments have already made many commitments, which have rarely been honored. We don’t really believe them anymore.
Governments change, so do priorities, and elected officials are reluctant to impose the stricter rules it takes to get results for fear of damaging their economy or losing the next election, or both.
In many ways, businesses and investors have more power to make a difference. Companies can set goals and measure the progress they are making and the results they are achieving. Investors, on the other hand, can choose companies that make efforts to tackle climate change and inspire them to do more and better.
This is what is at work. Not a day goes by without an announcement of a carbon neutral target. A few years ago, it was mainly companies in the service sector that dared to take the step towards carbon neutrality. It is easier when operating stores than when manufacturing paper.
More and more manufacturers and producers of all kinds of goods have decided to get started. This is the case with Suncor in Canada. The producer of oil from the tar sands of western Canada aims to be carbon neutral in 2050. Even Saudi Arabia, the world’s largest producer of oil, has set itself the goal of being carbon neutral by 2060.
From 2019 to 2020, the number of companies that announced a zero-emission goal doubled, according to MCSI, the research firm that advises large investors. A growing number have embarked on a process of decarbonizing their activities, which means that they have made a public commitment to reduce their emissions.
Words, words, words
For large investors, the trend is the same. One after another, financial institutions and investment funds are announcing their intention to contribute to the fight against climate change. Capital flows into companies that have ESG rules in place, i.e. those that take environmental, social and governance factors into account in their decisions. The pension funds are gradually announcing that they are withdrawing their logs from the most polluting sectors.
All these announcements suggest real progress in the will to act. So much the better, but it remains to be seen whether the results will measure up. It’s easier today to measure progress against announced goals, especially for large companies whose shares are listed on the stock exchange and whose progress is scrutinized by analysts.
But the evaluation criteria are far from perfect, and there is still a lot to do on this side to get a sense of what has been accomplished and what remains to be done.
We can already begin to lower our expectations, at least with regard to large investment funds. Out of 16,500 investment funds analyzed by the Carbon Disclosure Project, only 158 have invested in accordance with the objectives of the Paris agreement to limit the rise in temperatures to 1.5 ° C.
That’s barely 0.5% of the US $ 27 trillion in assets held by these 16,500 public funds reviewed by the international organization that specializes in collecting environmental data.
These results show that few companies have walked the talk since 2015 and that pressure from large investors is not enough to change things. Money talks, as they say. But not yet strong enough, it seems.