It is becoming common for the largest public companies to offer up net-zero goals – but investors at the forefront of ESG say they want more than simple promises from CEOs.
While it is encouraging that businesses have made net-zero pledges – even oil and gas companies – there remains much to be done in showing shareholders how they plan to get there, said panelists at a recent forum run by US SIF: The Forum for Sustainable & Responsible Investment in Santa Ana Pueblo, New Mexico.
Crucially, corporations need to align their political spending with their own stances on environmental issues, a topic that becomes complicated by trade group lobbying.
“To get to net zero, accountability is a huge thing,” said Rick Walters, director of corporate social responsibility at The Pension Boards of the United Church of Christ.
“Only if shareholders are activists can we demand the accountability that companies owe to us as investors … Boards of directors need to be accountable. They need to ensure oversight of climate goals and not just pronouncements of climate goals, but actually how to achieve them.”
Getting to net zero is a massive endeavor that requires work from policy makers, the public and companies, panelists said. How businesses plan to eliminate their greenhouse gas outputs before the world runs out of fossil fuels to combust is a big question.
“We will eventually be at net zero, because we will eventually burn all the carbon,” said James Andrus, interim managing investment director, board governance and sustainability at CalPERS.
“The question becomes, ‘How do we get industries and people that have depended on the carbon industry to not burn all of the carbon that they have in reserve?’”
Because oil and gas companies have effectively been allowed to dump greenhouse gases into the atmosphere without penalty, trying to rein in emissions in a way that is fair for countries that historically have contributed little to climate change is all but impossible, Andrus said.
“Sadly, I don’t think we can,” he said. “We have to realize that the richest countries in the world are the ones that are saying ‘climate change is an issue,’ and where assets will get stranded are in places that never got to burn the carbon.”
Financially prosperous countries that have benefited from heavy fossil fuel use for long “have no intent on paying for the damage that burning carbon has done historically,” he said.
The most effective way to attack emissions is through policy – but not enough has been done by regulators, Andrus said.
Politicians have also come up short in trying to persuade the public to cut down on individual carbon footprints, he added.
Because climate change represents a financial risk, institutional investors such as CalPERS have little choice but to engage with portfolio companies, even though that is “about the third best thing” in addressing greenhouse gas emissions, he said.
So far, about 200 American companies have made net-zero commitments, he said.
Microsoft, for example, has pledged to be “net negative” by 2030, and the company plans to have taken enough carbon out of the atmosphere by 2050 to offset what it has produced since 1975.
“We need more companies involved,” Andrus said.
Taking carbon out of the atmosphere is a crucial component in limiting climate change, but the existing strategies are limited and challenging to implement, said Julie Gorte, senior vice president for sustainable investing at Impax Asset Management.
“Sequestering carbon is a harder thing than you think it is. And if you plant a forest – if you plant one in California – what is the chance that it is going to burn up?” Gorte said. “Unfortunately, getting to zero is going to be tough. But anything worth doing is tough.”
An optimistic view is that existing technologies can be used to sequester as much as 75% of the carbon necessary to limit climate change enough to avoid the worst effects of it, she said.
One company – Climeworks – uses direct air-capture machines that remove carbon dioxide from the atmosphere and store it in the form of stone when it reacts with basalt. That firm has put 15 such machines into operation since 2017.
“It’s good that they are doing it,” Gorte said. But, she added, “You have the entire atmosphere of Earth that you are trying to pass through a collector … It’s not economical.”
Impax has been engaging with companies over physical climate risk, which is something for which very few are prepared. The company queried all but one of the S&P companies and received responses from 80 about their physical climate risk preparedness, she said.
Of those, three companies had reports and plans.
“We have to avoid the unmanageable, and we have to manage the unavoidable,” she said. “There is a lot of adaptation we are going to have to do.”
Another area of engagement is around political spending as it relates to climate issues.
On that topic, public companies’ contributions and associations with trade groups often contradict the pledges they have made, Walters said.
He cited ICCR data showing that there have been at least 21 shareholder proposals on the topic this year, with 16 having been withdrawn after companies complied with requests.
“We have this tremendous opportunity, because corporations provide the funding that makes the policy. The company will say, ‘We are aligned with net zero and climate goals.’ But their political spending and lobbying does not align with net zero,” he said.
“We’re in a battle right now between investors, who are generally supportive of the [SEC’s] disclosure rules, and trade groups.”
See also: Asset managers’ net-zero targets not showing real-world impact – [Research]
