Opinion: The 9 Net Zero loopholes big business don’t talk about
More and more banks and fossil fuel companies are releasing plans to align their financial operations with the Paris Agreement, and announcing ‘Net Zero by 2050’ commitments. Large financial sector players like Barclays, Banco Santander, Morgan Stanley, JPMorgan Chase, HSBC, TD Bank and Bank of America , and fossil fuel companies including Shell, BP and RWE have recently announced Net Zero and carbon neutrality commitments.
We expect many more of these announcements from both financial institutions and fossil fuel companies in the runup to COP26, the 5th anniversary of the signing of the Paris climate agreement, to be held in Glasgow in November. This is certainly encouraging and shows that climate action is gaining momentum. But the flurry of announcements also diverts attention from what is actually happening in practice, with an imminent risk of ‘greenwashing’ as big businesses bluff the public in to thinking they are taking meaningful action.
Moving to Net Zero will require significant changes in current business practices, and this is where the exploitation of loopholes come in. Here are 9 loopholes in the Paris/Net Zero announcements of banks and fossil fuel companies to look out for:
- A focus on long term targets without defining what those mean for action in the short term. This can include delaying emissions reductions until closer to 2050, thereby postponing transition even though the impacts of climate change are evident now.
- The use of carbon footprint assessment methodologies that are misleading. For example, in some methodologies an investment in an oil pipeline is considered as infrastructure investment, and therefore classified as low carbon. Although the GHG emissions from the construction phase are counted, the emissions that result from the expansion of oil production, facilitated by the pipeline, which are far more relevant, are not.
- In some cases, business emission reduction targets only encompass what are known as scope 1 and scope 2 emissions - the emissions from the business’s assets and operations such as factories, offices, power supply etc. But targets must also include scope 3 emissions which are those the business contributes to through the use of their end product or through financing , as these are often the most relevant.
- Over reliance on Carbon Dioxide Removal (CDR) or climate compensation. Some companies plan to rely on carbon offsets from massive tree plantations, but the question is whether sufficient land is available for those. Also there are many risks associated with such plantations as they can result in biodiversity loss and land grabbing, at the expense of local communities.
- Many companies are not transparent about which part of Net Zero will be achieved by emissions reductions, and which part by carbon dioxide removal. This raises the suspicion that businesses will overly rely on carbon dioxide removal without addressing Green House Gas reductions, which is the priority.
- Some commitments use carbon intensity targets - how much Greenhouse Gas a company emits per dollar earned or per unit produced - as a measure towards net zero, instead of using absolute Greenhouse Gas targets - how much the company emits in absolute terms - which is the only relevant true measure.
- Net Zero announcements that confine commitments to one operational area while it remains ‘business as usual’ in others. For example banks may commit to Net Zero practices when considering what kind of projects to lend to, but simultaneously continue to finance corporate loans or engage in asset management and Mergers and Acquisitions that do not meet Net Zero commitments.
- Many Net Zero announcements are aligned to or rely on IEA scenarios for a 2 degree global temperature increase, rather than the recommendation of the Intergovernmental Panel on Climate Change - IPCC – which has made it very clear that we must limit warming to 1.5 degrees.
- Increased financing of renewable energy technologies or initiatives is counted as offsetting fossil fuel finance, which isn’t true offsetting.
As a result of these 9 loopholes, commitments by financial institutions and fossil fuel companies that claim to be on a Paris-aligned pathway actually risk a dangerous postponement of the transition to Net Zero. Climate scientist, Dr Jonathon Foley puts it well when he highlights what he calls predatory delay:
“Net Zero commitments can be used by polluting industries to make it appear they are working on climate change, without actually reducing their emissions at all. And that’s a distraction we cannot afford. It’s the ultimate climate fig leaf and is a form of “predatory delay” — an attempt to keep stalling meaningful climate action a few more years, while still raking in giant profits. And big polluters have mastered the art of predatory delay. Be on the lookout for it.”
Banks and businesses can’t keep kicking the can down the road to avoid taking climate action. Their Net Zero commitments need to be backed up with real Net Zero practices. #NoMoreEmptyPromises