As investors become increasingly attuned to the financial – and reputational – risks of inaction, business titans have been eager to put their carbon credentials up in lights. Quite literally, in the US, web giant Amazon this week began rebranding a Seattle sports stadium to be named “Climate Pledge Arena”, as part of its net-zero emissions push and to encourage other corporations to join it in its goals.
The surge in commitments, however, is drawing closer scrutiny and tougher questions from investors and customers: Are they all truly green? Or are some simply “greenwashing” their polluting activities to present themselves as environmentally responsible?
“It’s quite easy for big companies to come out and say they are committed to climate, to say we want net-zero by 2050,” warns Dan Gocher of shareholder activist group the Australasian Centre for Corporate Responsibility.
“It’s a cliche, but the devil is in the detail. How much is actually going to happen in the next five to 10 years?”
More and more, big companies are showing their climate stance by setting goals to become a “net-zero” emitter – or “carbon neutral” – by at least 2050, a target that climate scientists say the world needs to meet in order to avoid the most catastrophic effects of global warming.
To achieve this, companies can switch out carbon-intensive power sources and industrial processes with clean-energy alternatives. New electric technology, powered by emission-free renewables, can replace carbon-emitting processes. Food manufacturers, for example, can buy electric heat pumps to replace gas fired boilers. Transport companies can replace combustion-engine petrol or diesel vehicles with electric ones. Property developers can convert their buildings into power generators by installing solar panels and energy efficient devices.
This often, however, will only achieve so much, especially for industries where clean replacements are not as readily available, like airlines which rely on aviation fuel or steel and aluminium makers that rely on industrial heat. To make up the difference, companies can also use carbon “offsets” to neutralise their overall carbon footprint by investing in programs such as tree-planting that suck carbon out of the atmosphere.
“As trees grow and soil develops, they draw down carbon out of the atmosphere to build their bark and branches and leaves,” explains Glenn Walker, campaigner at the Wilderness Society. “Every tree we look at is made up of a lot of carbon. Every tree grown has soaked up a lot of carbon out of the atmosphere. So when you take that at a forest level, it’s a lot.”
Forestry-related offsets mainly include projects for protecting or planting trees. Elsewhere in the offsets market, other programs are focused on the avoidance of emissions through undertaking activities aiming to reduce the amount of carbon that would have been emitted otherwise, such as installing cleaner-burning stove tops in developing nations or investing in renewable energy generation.
While offset programs are undoubtedly a force for good, are they really a substitute for the absolute emissions cuts that would come from minimising the use of fossil fuels? It’s a question that doesn’t necessarily have a straightforward answer. And among some environmentalists, there are concerns that some emitters are leaning far too heavily on offsets and could even be using them as a free pass to continue “business as usual”.
“Many companies could be using these commitments as an act of greenwashing and delay the necessary, fast action we need to combat climate change,” says Walker. “What if, 20 years down the track, that forest they’ve invested in burns down? We’ll end up with both the emissions from that forest being lost and the carbon that they’ve burned.”
Offsetting also forms part of the federal government’s $2.5 billion Climate Solutions Fund, which credits offsets that can be purchased by large emitters in order to reach emissions-reduction requirements. To date, it has issued 450 contracts to abate a cumulative 190 million tonnes of carbon, most of which so far have gone to waste-management and tree and vegetation projects. However, using offsets as a main mechanism of emissions policy has faced criticism by those who say direct taxation is a more efficient driver of carbon abatement. “Very unsuitable,” says Paul Burke of The Crawford School of Public Policy, “compared to a carbon tax or trading scheme.”
Australian companies are announcing new climate policies with such regularity the Monash University’s ClimateWorks policy advisory body has launched a website that breaks down the commitments and tracks companies’ progress.
ClimateWorks chief Anna Skarbek says carbon offsets are a temporary fix for businesses looking for emissions reductions and could delay them investing in long-term, low-emissions technologies. However, she says they can lead to surprisingly strong results.
“It can delay the inevitable action that a company would end up needing to take anyway,” she says. “But what we find is companies often begin this journey through a carbon offset route which can be immediately enacted and it’s still better than being not carbon neutral.”
Rather than waiting years to roll out zero-emissions technology – or for the technology to be developed – offsets allow emitters to begin addressing the problem immediately. And ultimately, says Skarbek, carbon offsets could end up having a similar effect to a carbon price.
After a business has bought offsets, “the following year they look at the offset investment, because it must be continued every year” she says, “and it starts to function like a price on their emissions”. “Then we find they look more closely at the technology solutions available and it acts as an internal price signal for the company – literally placing a price on the company’s carbon emissions offsets,” she says.
Earlier this week, Australia’s second-largest superannuation fund, First State Super, outlined a plan designed to safeguard its members’ retirement savings from the threat of climate change.
To slash emissions across its investments by 30 per cent by 2023, and 45 per cent by 2030, the fund said it would be engaging with company boards about their strategies to decarbonise and divesting emitters that fail to demonstrate a commitment to act.
First State chief executive, Deanne Stewart, says she expects companies’ sustainability pledges to come with clear short and long-term goals. “Not just out to 2050 – what are they doing over the next decade out to 2030, and with what sort of disclosure?” she says.
“It isn’t just about saying you’ll do something out to 2050 on a wing and a prayer. You actually want to see action. It’s time to take bold steps forward.”
In the race to reduce the world’s emissions, the next few years could prove critical, shareholder activists warn, pointing out that “tipping points” – from melting ice sheets to record 38-degree temperatures in Siberia – could be playing out before us.
“We need to be focused so heavily on 2030, as the next few years are critical,” the ACCR’s Gocher says. “Buying time – that’s often a big part of greenwashing, too.”
Beyond timeframes, he adds, another thing to consider when assessing resources companies’ net-zero commitments include whether their targets account for only their operational emissions (known as scopes 1 and 2 emissions) or also cover the emissions generated by the end-use of their products around the world, such as the power stations that burn their coal and natural gas, or the steelmakers that buy their iron ore. Known as “scope 3” emissions , these are vastly greater than companies’ own emissions, and investors have begun stepping up demands that they be included in climate goals.
The Investor Group on Climate Change, which represents big investors with more than $2 trillion under management, says it was critical that companies, governments and investors set net-zero emissions goals for 2050 or sooner as it created a market direction that in turn guides a whole range of investment and policy decisions.
“But it is the start of the journey, not the end,” says the group’s chief executive, Emma Herd.
“While net-zero by 2050 is ultimately where we need to get to, it has to be matched with credible short and medium-term action.”
Investors are well aware that “not all net-zero goals are created equal”, says Herd, but nor do they expect companies to know exactly how they are going to achieve them right now, especially in the more difficult-to-abate industries such as aviation and heavy manufacturing. What they want to see is good-faith action on targets, strategy, climate-risk disclosure and clear executive accountability.
“I haven’t seen an investor yet say ‘company X has set a net-zero 2050 goal, job done’,” says Herd. “It becomes a marker for future engagement on business strategy, reporting and corporate governance on climate change.”
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Mike is the climate and energy correspondent for The Age and The Sydney Morning Herald.
Business reporter for The Age and Sydney Morning Herald.