Net Zero

BACKGROUND

The whole finance system has a crucial role to play in achieving global net zero emissions.

CFOs and their finance teams are key in supporting the efforts and plans of organizations to progress towards net zero – providing information needed to drive decisions, allocating funds and leading interaction with the capital markets.  

The financial sector also plays a critical role in redirecting finance towards sustainable outcomes and away from unsustainable ones, making a 1.5°C future more attainable.

At A4S, we work with  finance teams, accounting professionals and capital markets to create guidance and generate action to help achieve a net zero economy; to prevent a worsening climate crisis, mitigate risks and seize the opportunities in the energy transition.

Why is net zero necessary?

The scientific community has clearly stated the need to reach net zero greenhouse gas (GHG) emissions and reduce the destructive impacts of climate change.  

The world is currently on track to warm by 3-5°C above pre-industrial levels by 2100 (UN World Meteorological Organization)[1], which would cause profound and irreversible changes to the global environment, humanitarian crises and considerable economic and financial challenges.

The Paris Agreement of 2015 set out that in order to avert catastrophic climate change, the planet’s temperature must not rise more than 2°C above pre-industrial levels. The IPCC’s Special Report (SR15) has since concluded that there is a substantial difference in impact on the planet between a 1.5°C and 2°C trajectory, as demonstrated in the image below [2], and in order to reach a 1.5°C above pre-industrial levels, it requires global GHG emissions to be halved by 2030 and reach net zero by 2050. [3]

Image: WWF, 2020

Net zero will be achieved when emissions and removals of GHGs to the atmosphere are balanced. As awareness of the need to reach net zero emissions has grown, so has the need for a common understanding on what net zero targets mean for organizations and how to achieve them.  

What does it mean to be net zero?

Reducing global emissions may seem a large task, but there are resources to help you set meaningful targets and understand the opportunities of transition.

The Science Based Targets initiative (SBTi) has defined what it means to reach net zero emissions at the corporate level: achieving a state in which the activities within the value chain of an organization result in no net impact on the climate from GHG emissions.[4]

This is reached by: 

  1. Achieving value chain emission reductions consistent with the depth of abatement achieved in pathways that limit warming to 1.5°C, with no or limited overshoot.
  2. Neutralizing the impact of any source of residual emissions that remains unfeasible to be eliminated by permanently moving an equivalent amount of atmospheric carbon dioxide. 

The SBTi has translated the scenarios and pathways underlying the IPCC Special Report on 1.5oC into a set of resources that companies can use to model 1.5°C aligned targets. This includes a technical paper and a science-based target setting tool.  

Progress towards net zero emissions provides great opportunities; it is often synonymous with resource efficiency and can be a powerful driver of innovation. Bold climate action could deliver a direct economic gain of US$26 trillion through to 2030 compared with business as usual.[5]

What is the role of CFOs and finance teams?

The finance function has a crucial role to play in driving towards a net zero economy.

 Finance professionals can make a difference by:

  • Accurately tracking and reporting performance against reduction targets.
  • Embedding GHG reductions within organizational decision-making processes.
  • Raising and allocating the funds needed for transition and adaptation.
  • Leading interaction with the capital markets.

A4S works with CFOs and their teams to explore the practical steps that they can take to progress towards net zero emissions.

The CFO signatories of our Net Zero Statement of Support are showing leadership through demonstrating their ambition and commitment to a net zero emissions future.

The 52 signatories of our Statement of Support have the opportunity to influence over 350.2 million tonnes of indirect emissions. 

What is the role of the financial sector?

With trillions invested worldwide, the investor community plays a very significant role in whether a net zero economy can be achieved.

Investors can make a difference by:

  • Recognizing and driving capital towards the best ideas and enterprises.
  • Being a catalyst for innovation, opportunity and dynamism and an essential actor in achieving a sustainable economy.
  • Financing the transition to a net zero global economy.

Some large financial institutions including asset owners, asset managers and banks, have started to announce commitments around net zero emissions. These actions in turn will have a direct influence on corporate behaviour – which has the power to make or break climate targets.

A4S works with financial institutions to build up the evidence base and develop practical examples of steps to take towards these commitments. This includes how to integrate environmental, social and governance (ESG) considerations into all their financing and investment decisions. 

Click here for more details on our capital market work. 

Our net zero work