Encouragingly, two-thirds of global GDP is now covered by some form of net zero ambition, and just over twenty percent of the 2,000 largest publicly listed companies have similar commitments1. Standard Chartered supports these efforts and is directing its operations, capabilities, relationships and finance to accelerate them.
We also recognise the challenge involved in moving from words to action. Our Zeronomics report sets this out starkly. We asked senior executives at 250 companies about net zero goals. Most executives rated their leadership on the topic but not their measurement or investment. In fact, seven in 10 companies admitted to planning to defer action on climate change to 2030.
1 University of Oxford & ECIU
In order to stay on track with critical targets outlined in the Paris Agreement, net carbon emissions must fall 45 per cent from 2010 levels by 20302. Missing those targets would put the world on course for the worst consequences of climate change. Yet according to our Zeronomics report, there is a risk that the 2020s will become a lost decade in the race to net zero.
2 IPCC
Our Zeronomics report finds three critical impediments to net zero: a lack of urgency, a finance shortfall, and a need for clear standards.
Less than half of senior executives say that their organisation fully supports the aims of the Paris Agreement3. This reflects many different issues ranging from the need for regulatory certainty (62 per cent), a lack of consensus on a net zero definition and targets (61 per cent), and a need for organisation change first (59 per cent). There are also some regional specific issues.
Companies in Japan and South Korea felt that short CEO tenure makes it hard for leaders to tackle the transition to net zero. While in India, 93 per cent of executives cited the economic impact of COVID-19.
Finance is also critical. Sixty-seven per cent of companies believe that a lack of finance is a significant barrier to reaching net zero. Across all companies, 52 per cent believe that the net zero transition will be the most expensive project they have ever undertaken4. In fact, in many cases, the transition to net zero is seen as either too expensive or not commercially viable at all.
3 Zeronomics 4 Zeronomics
Carbon intensive companies face the biggest challenge with 71 per cent of senior executives and 81 per cent of investors seeing a capital shortfall. This has wider implications as it suggests that “hard-to-abate” industries including steel, chemicals, and cement, which need to transition the most, are less likely to get the required financing. In fact, around 91 per cent of carbon-intensive companies believe they require medium to high levels of investment to transition to net zero5. More capital alone cannot solve this challenge. Different types of capital are also needed. The technology that will help carbon intensive industries transition are young and expensive and carry a higher carbon abatement cost.
Public sector grants and the use of blended finance can play an important role to catalyse to scale these technologies and bring costs down.
The lack of global standards for climate transition is another challenge. Net zero is often used interchangeably with “zero carbon”, “carbon neutral”, or even “carbon negative”, yet they imply different decarbonisation pathways and different coverage of greenhouse gasses.
In turn, the quality of targets varies. Several efforts are underway, such as the Science Based Targets Initiative, to improve standardisation and guidance on acceptable net zero pathways and validating targets. Other initiatives include Transform to Net Zero, the Climate Action 100+ benchmark, and The Taskforce on Scaling Voluntary Carbon Markets launched by Mark Carney and chaired by Bill Winters, Group Chief Executive of Standard Chartered.
5 Zeronomics
In recent months the debate on corporate claims has been heating up, in part due to the recent net zero related developments from amongst others, SBTi, Race to Zero, and Oxford University, that have raised questions about the future role of carbon offsetting in net zero claims.
The Taskforce on Scaling Voluntary Carbon Markets recommends following a mitigation hierarchy of: 1) Reduce 2) Report 3) Offset to achieve the global 1.5C ambition.
The most important part is for all firms to reduce their Scope 1,2 and 3 emissions, in line with science-based pathways, and to increasingly remove / neutralise (e.g., using highly permanent removal carbon credits) residual sources of emissions as they get closer to net zero.
To maximise the chances of our planet achieving a 1.5C scenario, financing is also needed to support avoided deforestation and to further accelerate emissions reductions through technology advancements. Avoidance and reduction carbon credits are, therefore, a significant complement that can channel private sector capital towards climate mitigation efforts. It is critical that corporates who follow these guidelines are incentivised to scale up climate finance while making robust and credible claims. Good quality carbon credits should be used in compensation strategies within corporate net zero plans. Companies, having committed to be net zero, should be expected to compensate for their residual non-abated emissions on an annual basis using avoidance, reduction and removal carbon credits, with a move to removal credits alone as we approach 2050.
Emerging markets face the greatest climate change risks in the years ahead.
Already they have suffered almost twice as much economic damage as developed markets relative to the size of their economies6. Their vulnerabilities to droughts, rising sea levels and slumps in agricultural output are exacerbating factors7. Without net zero transition plans backed by ample investment, sustainable economic growth remains at risk.
While emerging markets account for more than half of global clean energy investment from 2012-2019, power sector CO2 emissions in these markets increased 20 per cent during that period8. Now, investment is slowing. A decrease in critical clean energy investment from abroad last year amid the Covid-19 pandemic threatens to slow decarbonisation in the years ahead.
6 IMF 7 Pictet 8 BNEF Climatescope
Another challenge comes in the form of upskilling workers. The net-zero transition will create tremendous new job opportunities. In Latin America and the Caribbean, for instance, the transition will create 22.5 million jobs in sustainable agriculture, renewable electricity, forestry, construction, and manufacturing, while destroying 7.5 million jobs in fossil fuel electricity, fossil fuel extraction, and animal-based food production9.
To transition successfully, companies and governments must ensure that workers – especially younger people – have the skills needed to take up these new jobs.
On the corporate front, perceived investment risk makes it even harder for companies to secure the funding they need to transition to net zero. Risk takes on the form of policy uncertainty, political insecurity, currency fluctuations and more. In turn, 78 per cent of senior executives and 71 per cent of investors expect the most significant net zero transition capital shortfall to occur in carbon-intensive sectors in emerging markets10. Overcoming these challenges in emerging markets is crucial to making net zero a reality for the world.
9 ILO 10 Zeronomics
We need a real conversation about the challenges of net zero. We hope our Zeronomics report helps contribute to that debate. There is good news amongst the issues. The net zero transition is challenging but not impossible.
By late 2020, the number of net zero commitments from governments and businesses had roughly doubled in less than a year11.
That included a surge in commitments from the oil and gas sector, with the European oil majors now on course to reduce annual carbon emissions by an amount equivalent that of Spain12.
Meanwhile, early movers in the technology space are on course to address their entire carbon footprint as soon as 203013.
Standard Chartered wants to help accelerate the world to net zero and has made a strategic commitment to reach net zero carbon emissions from our operations by 2030, and from our financing by 2050. We continue to progress our lending portfolio to align with the goals set by the Paris Agreement of limiting global warming to significantly below 2 degrees.
11 UNFCCC 12 BNEF 13 BNEF
As a key part of our mission to be Here for good, we only provide financial services to clients who manage their environmental and social impacts responsibly.
We expect clients in carbon intensive sectors to have a credible and public strategy to transition their business in line with the goals of the Paris Agreement and we expect them to report their current greenhouse gas emissions preferably in line with the Task Force on Climate-related Financial Disclosures.
This year we will announce our approach in transition finance for eight high-emitting sectors. And going forward, we will continue to raise our ambitions and strengthen our financing criteria in line with these objectives, and to support clients in our footprint markets to achieve our collective goals on transition.
Throughout 2021, we will continue to deliver content focused on that transition including sector-specific industry landscapes, the current state of industry emissions, pathways to decarbonisation and more.
And we will do that through podcasts, articles and case studies with one overarching goal: to highlight opportunities for our clients to transition to net zero. The time to act is now.
