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Are corporate net zero claims worthless?

Josie Wexler asks how sceptical we should be of company claims that they are 'carbon neutral' or 'net zero'.

The number of companies with ‘net zero’ climate targets is mushrooming. By the end of 2021, a third of the largest listed companies in G20 countries had net zero claims, up from a fifth the year before.

But confusion reigns about how credible they are. And the population is pretty jaded from so many years of obfuscation and word play in the area – the late renewable energy expert David Mackay once invented a greenwash award for “most creative use of the word ‘zero’”.

Some companies claim their targets are 'science based' without any clear indication of how. A few claim to be working towards net zero while at the same time claiming to already be carbon neutral, which you could be forgiven for thinking sounds like the same thing.

Adam Matthews, chief responsible investment officer at the Church of England Pensions Board, spoke for many when he told the Financial Times: “quite frankly, I didn’t know how to differentiate credible commitments from bullshit”.

We’ll summarise some of the issues here.

What does net zero mean for the world?

Greenhouse gases are emitted through human activities such as the burning of fossil fuels. But they are also absorbed from the atmosphere through what are known as 'carbon sinks' - for example plants that absorb carbon dioxide as they grow, and the oceans that absorb it as it gets mixed into the water.

‘Net zero’ for the world means that the greenhouse gases emitted are balanced by carbon sinks. We can enhance these sinks by restoring forests, peatlands and mangroves.

We can also suck carbon out of the air by growing plants, capturing the CO2 and then burying it, which is called biomass with carbon capture and storage (BACCS), or by capturing it directly from the air and burying it (DACCS). These are known as 'net negatives' - because they remove more carbon than they emit.

'Net negatives' are controversial, particularly as they generally take up a lot of land, and the planet is currently a little rammed. However, all government scenarios under the COP 21 Paris Agreements, which show how we may be able to limit the planet to a 1.5°C temperature rise, see them playing a major role. Their capacity is very limited though – they can only be used to mop up the dregs.

Limiting global warming to 1.5°C requires reducing emissions by about 90% by 2050 from 2010 levels. The remaining emissions, in the sectors which are hardest to tackle, will have to be neutralised with such net negatives in order to take us to zero. Then towards the end of the century we will need to go into negative emissions as a globe to suck out the overshoot.

Carbon neutral is not net zero

Although they have no fixed meanings, the terms ‘net zero’ and ‘carbon neutral’ are generally used quite differently. It’s easiest to understand the essence of how ‘carbon neutral’ is mostly used if you view it as not so much neutral for the climate, but neutral in terms of either tackling climate change or not. It is as if someone says “do you think we ought to tackle climate change?” and you reply “I’m neutral on it”.

This is because ‘carbon neutral’ basically compares to the current business-as-usual scenario, rather than to where we need to be. It refers to a specific product or process at a specific snapshot in time, and it means that any emissions associated with it have been ‘neutralised’, which often means paying someone else to reduce their emissions by an equivalent amount.

But this is just passing the buck onto someone else, which doesn’t work when they need to be reducing their own emissions already – we all have to be wrestling with that buck.

Additionally, ‘carbon neutral’, as defined by the PAS 2060 international standard, only needs to cover scope 1 and 2 emissions. So it doesn't cover emissions from the company's supply chains or its products' use, which are likely to be by far the greatest bit (see definitions below).

In summary: carbon neutral is for scoundrels.

Diagram showing scope 1, 2 and 3 emissions upstream and downstream

What are scope 1, 2 and 3 emissions?

  • Scope 1 emissions are a company’s direct emissions e.g. facilities, vehicles, processes
  • Scope 2 are the emissions of their purchased electricity and heat.
  • Scope 3 are those of their supply chain (upstream) and those emitted during the use of their products (downstream). Scope 3 are generally in the order of 90% of a company’s emissions.

Net zero is a more meaningful term, but still has problems

‘Net zero’ is in general much more meaningful. It refers to the whole organisation, and almost always to future targets, which reflects the reality of the situation: decarbonisation is a process, and there is no way to be genuinely net zero in a world as far from it as we are today. Noone is an island.

The Science-Based Targets initiative (SBTi) Net Zero Standard states that for a company’s target to be ‘net zero’ and align with the 1.5°C target, it must aim to halve its greenhouse gas emissions across Scope 1 and 2 and two thirds of Scope 3 by the end of this decade, and then make a minimum 90-95% reduction in all scopes by mid-century. Only then may it use net negatives to neutralise any last remaining emissions, or pay anyone else to.

That looks pretty solid. In reality, however, many net zero targets fall far short of this, and depressingly, as we see below, that appears to include even some of those approved by the SBTi.

What's wrong with offsetting?

Although the SBTi does not allow offsetting until the end of the process, of the 632 firms which the website Net Zero Tracker identified as having a net zero target in 2021, 43% planned to use offsetting to achieve it. And while offsetting can mean net negatives, more often it just means paying someone else to reduce their emissions, and not at the end but at the beginning, because “we can’t make the changes ourselves yet”.

This has far too much potential to be a confusing distraction. If a company can’t do it yet, it should be working on the structural changes that will make it possible.

Furthermore, a lot of offsets are of such dubious quality that it is unclear whether they are cutting carbon at all, and 66% of the firms that plan to use them fail to specify any conditions.

Loopholes and other problems with net zero claims

Offsetting is only one way in which net zero targets can fail to be credible. Last month a German NGO called the New Climate Institute released an in-depth analysis of the net zero targets of 25 of the world’s largest corporations, whose combined carbon emissions amount to 5% of the world’s total. It determined that the proposed cuts only add up to 40% by 2050, not 100% (see graph below). Many of the criticised targets were approved by the SBTi.

The issue is copious loopholes, and just terrible practice. Companies are often not reporting on large sources of scope 3 emissions, emissions from their subsidiaries, or emissions associated with land use change. They are counting carbon credits for purchased electricity as zero emission, when in reality many such credits are not meaningful. (In the UK, such credits are called ‘REGOs’– we’ve written about the problems with them in our guide to energy suppliers.)

The Institute also found what appears to just be sneaky cheating. For example, a US health insurance company called CVS Health has a SBTi-approved target for a 47% reduction in Scope 3 emissions from 2019 levels by 2030. All looking good, except that its Scope 3 emissions in 2019 were about 70% higher than in any of the surrounding years. It gives no explanation of this, but even if there was a totally legitimate reason, it means that the 2030 target does not involve any cut from the present at all.

Disturbingly, given that the SBTi is the best we currently have, the New Climate Institute overall says:

“For the majority of the 18 companies assessed in this report with an SBTi approved 1.5°C or 2°C aligned target, we would consider such ratings as either highly contentious or inaccurate, due to subtleties that are difficult to detect.”

The SBTi responded to the report that it “welcomed stronger scrutiny of corporate climate targets”, and that only one of the companies of the 25 in the report had met its new 'Net-Zero Standard' launched in October 2021.

The image below shows the difference between what the corporate net zero targets appear to pledge, compared with what they are committed to in reality, what is left out, and what is unclear.

Graph with 4 columns showing what companies appear to pledge on net zero, what they commit to, what's left out and what is unclear
Image by New Climate Initiative

Multiple misleading corporate net zero claims

Here are a few examples of some grossly misleading corporate claims that rest on the idea of ‘zero’ or ‘neutral’:

1) The (recently collapsed) electricity company Bulb claimed on its website that “the average member lowers their carbon impact by a whopping 3.2 tonnes of CO2e every year ... [because] with Bulb, annual CO2 emissions for the energy you use at home are zero.” 3.2 tonnes is around a third of your carbon footprint, so this is no mean boast. It rests on the fact that Bulb buys REGO credits to offset the electricity it buys, and carbon offsets to offset the gas. A more honest appraisal of the effect this has on your carbon footprint is – not much.

2) Nestlé, which has a SBTi approved target, was one of the companies rated lowest by the New Climate Institute. This is because it states different things in different places: its SBTi target is compared to a 2019 base year, but its own publications suggest that it is really compared to a business-as-usual scenario. It claims to not use offsetting, but individual brands claim carbon neutrality on the basis of offsetting. Its target also doesn’t include major emissions sources, and there is no proper reduction plan.

3) JBS, a Brazilian meat processor, was another of the companies rated lowest by the Institute. Its target – net zero by 2040, is not approved by the SBTi, and the Institute determined that it only covers about 3% of its emissions as it ignores those from farms it does not own, and those related to deforestation.

What needs to happen?

We will not tackle climate change while we are drowning in confusion and bullshit.

In terms of a good example, while the New Climate Institute did not rate any company targets as “high integrity”, Maersk received the best rating of all companies. It is committed to net zero emissions across all scopes by 2040, although it admits it will probably need to use offsetting for the last 5-10% of this. It has interim targets, a detailed credible plan, and it does not use misleading terms like ‘neutral’.

While offsetting cannot be used to avoid cutting emissions, finance is needed to scale up net negative technologies. The New Climate Institute and others suggest that firms buy credits, but rather than reporting it as reducing their emissions, they treat it as an additional contribution to climate mitigation efforts.

Overall we need much more clarity, and standards and regulation from government would be very helpful. In addition, the SBTi and others providing scrutiny need to be much more careful before approving targets.

In the meantime, while consumers and investors are unlikely to be able to do the kind of expert work the New Climate Institute did to separate the wheat from the chaff, it should be possible to gain enough carbon literacy to identify the really seriously chaff – we hope this article helped.

The main things that companies should be doing are:

1) Only making net zero or carbon neutral claims to refer to the end point of a credible, long-term carbon reduction plan that cuts 90-95% of all the emissions they are connected with. Test it against the SBTi’s new standard.

2) Not making claims to have reduced their own emissions on the back of their supporting external carbon mitigation or net negative projects, apart from right at the end once this cut has been achieved. However, it is fine (indeed very beneficial) to support them as an additional contribution to tackling climate change.