This new report argues that achieving carbon neutrality by 2050 will require correcting the way that ‘net’ emissions are accounted for, which would replace today’s over-optimistic focus on portfolio decarbonisation with more effective mechanisms, backed by regulation, through which the financial sector can push the non-financial sector towards carbon neutrality.
Net-zero is a radical and powerful idea for decarbonising our economies. However, it shouldn’t be used to justify new fossil fuel developments, when we know these are incompatible with the Paris agreement target of limiting temperature increases to 1.5C.
By clarifying the net-zero concept, creating new financial products, adding supervisory responsibilities and giving teeth to climate-related stewardship, finance can contribute to pushing the economy towards net-zero.
Finance Watch says the following measures must be implemented:
For non-financial companies
- Implementation of transition plans must be mandatory and enforceable, not just their adoption
- Transition plans must focus on the reduction of absolute greenhouse gas emissions, not greenhouse gas intensity, including Scope 3 emissions and excluding purchased carbon offsets and avoided emissions; robust rules on using carbon capture and storage and other offsets within own value chains (reliance on available as opposed to hypothetical technology and supervised certification of offsets)
- Transition plans must include final and intermediate targets with concrete dates
- Climate-oriented stewardship via robust shareholder engagement plans or suitable climate covenants must be systematic, impactful and enforced
- Transition-linked financing and insurance products must be developed
- Net-zero oriented financial products subject to robust definitions must be promoted
- Non-financial companies’ carbon neutrality claims and transition plans, and financial institutions’ net-zero claims and carbon offsets must be supervised