Tisha’s Insights

Should We Stop Committing to Net Zero?

March 10, 2022 Tisha Schuller
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The oil and gas industry has entered its third year of net-zero climate commitments. Not surprisingly, these commitments are coming under increasing scrutiny from external stakeholders. Your colleagues might interpret this scrutiny as an annoying drag on their timeline for progress. I propose you instead see it as an invaluable source of perspective.

Consider this: A recent report, Corporate Climate Responsibility Monitor 2022, spawned dramatic headlines such as “World’s biggest firms failing over net-zero claims” and “[C]ompanies accused of exaggerating their climate actions,” reverberating with distrust and despair. In the report, researchers from the NewClimate Institute and Carbon Market Watch questioned the transparency and integrity of corporate commitments to climate leadership. They also found that existing net-zero targets and decarbonization strategies fall short of what is required to meet global climate goals. (To their credit, they did not pick on the oil and gas industry, like the authors of another such assessment.)

It can be disheartening for any leader to undergo the nuanced process of determining what your company can commit to on climate and then articulate the strategy behind your plans — only to be met with disbelief and criticism from the environmental community. Yet criticism, while sometimes painful, is not the enemy of good. Look instead at such criticism with an open mind — for doing so gives you powerful insight into the current state of play. Game-changing leaders are always carefully reading between the lines, keen to observe the details behind stakeholder expectations in order to learn lessons from those who are on the front lines.

Both of These Things Are True:

  • Corporate climate commitments and supporting strategies are increasingly subject to scrutiny as global markets and stakeholders change their focus from aspiration to action.
  • As a key component of the value chain for all industries, oil and gas companies are uniquely positioned for climate leadership — by pioneering the next level of credibility and transparency in their climate actions.

The Situation

The NewClimate Institute and Carbon Market Watch report assessed 25 multinational companies with collective 2020 revenues of $3.18 trillion and combined self-reported greenhouse gas (GHG) emissions of about 5% of the global total. The authors analyzed the level of corporate climate leadership, transparency, and integrity of climate pledges and the associated emission reduction strategies.

Unsurprisingly, the report found a significant level of ambiguity among current net-zero targets, a lack of substantial emission reductions associated with companies’ current commitments, and a need to rapidly scale up best practices for target-setting and emission reduction measures. The authors cited these shortcomings as key reasons to advance stakeholder scrutiny and regulatory oversight.

Here are the top lines of what the assessment found across four key areas of corporate climate leadership:

  • Corporate tracking and disclosure of emissions left questions. All companies analyzed were found to provide some form of disclosure on their GHG emissions. But relevant levels of detail varied significantly, emissions categories were often disclosed without granularity about specific emissions sources, Scope 3 emissions were rarely disclosed in full, and many companies failed to provide clarity about the emissions of their subsidiaries. Clear, complete, and consistent reporting is the new expectations bar.
  • Commitments to net zero were ambiguous, making “net zero” often misleading. While all reviewed companies had some form of net-zero commitment, many did not accompany these commitments with specific emission reduction targets. Even those with specific targets did not address full value-chain emissions within their commitments, nor within their interim targets. Even targets approved by standard setting-bodies such as the Science Based Targets initiative (SBTi) were found to be contentious or inaccurate due to various subtleties (e.g, the target’s baseline year). As outlined by the authors, this lack of full value-chain inclusion (in addition to vague emission reduction targets) suggests the term “net zero” is often misleading.
  • Measures for achieving targets remained unclear. Roughly half of companies outlined specific activities for reducing Scope 1 and 2 emissions; a minority of companies detailed Scope 3 plans. Although good practice examples were identified within the sample of companies, the authors found significant room for improvement in plans to achieve targets.
  • Offsetting plans were not warmly received. This quote from the report pretty much sums it up: “Claims of carbon neutrality today are often misleading; we identified significant credibility problems with all of the carbon neutrality claims from the companies assessed in this report, due to a combination of limited emission coverage, inconsistent messaging, or procurement of low-quality carbon credits.”

Seize the Day

Collectively, our industry represents the “upstream” (up the value or supply chain) Scope 3 emissions for nearly every company in the world! As these companies become subject to increasing pressure around their emission reduction plans, your business will increasingly become relevant as either a part of the solution or a target for scrutiny. Game-changing leaders are taking note of the key report takeaways.

  • Scope 3 has arrived. The elephant in the room of climate targets — for good reason — is the emissions companies incur from their up- and downstream activities (i.e., Scope 3 emissions). As the providers of the lifeblood (energy!) that enables these value chains to exist, oil and gas companies will increasingly play a central role in conversations about these emissions.
  • Expect more scrutiny. The report left a key message to readers: “Companies will be the innovators that find the solutions to the climate crisis, but they must be subject to scrutiny and regulation.” This report will certainly not be the last of its kind, and we can assume that stakeholders (including both investors and customers) will be tuning in to the details behind your decarbonization plans.

This report reinforces the findings in our latest research report, Leader, Fast Follower, or Left Behind? Charting Your ESG Position. If you are a pioneering ESG leader, you will be taking action based on this report. If your company is positioning itself as a fast follower, you’ll be keeping an eye on these cues. And all readers will be keeping an eye on the ESG bar to ensure their companies don’t fall behind.

Perhaps the most encouraging message within the report is this: Companies are crucial. The world cannot begin to achieve its climate goals without the full support and leadership of the corporate sector, and best practices must be rapidly scaled up across our economy to enable progress. The innovation, tenacity, and collaborative strength of the corporate sector will be the fundamental drivers of climate action.

Our industry retains the unique engineering prowess, technological fortitude, and inherent inventiveness to take up the leadership mantle on climate. Unsure where to assert your company as a climate solution? Adamantine offers custom assessments of your peers, customer group, and operational synergies to help inform your company’s decarbonization toolbox. Reach out today for a consultation.

Wishing you insight in the work ahead,

Tisha

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Both of These Things Are True

By Tisha Schuller