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Beyond Net Zero The Broader Perspective Needed in Sustainable Investing

The Impaakt Team

8 min Read Time | May 17th 2023

In recent years, the pursuit of net-zero emissions has taken center stage in the global climate action narrative, with many organizations committing to becoming 'net zero' by mid-century or earlier. While the prioritization of net-zero emissions is undoubtedly a crucial step in mitigating climate change, it may not provide a comprehensive approach when evaluating companies for sustainable investing. 

Here's why a broader/different perspective is essential.

Current Impact VS. Future Impact

A company's current impact refers to the existing environmental footprint it creates through its operations, supply chain, and products or services. On the other hand, future impact pertains to the potential environmental effects that a company can exert based on its forward-looking strategies and commitments.

When looking at net-zero pledges, they typically refer to a company's future impact. For example, a company might commit to achieving net-zero emissions by 2040, implying a future positive effect. However, this doesn't necessarily account for its current impact. A company with substantial greenhouse gas (GHG) emissions today but a net-zero pledge for the future might be deemed 'sustainable,' overshadowing companies that have lower emissions today but lack a net-zero pledge. Thus, focusing on net zero can risk overlooking the existing environmental footprint of companies.

The Greenwashing Challenge

Greenwashing occurs when companies or organizations make false or exaggerated claims about the environmental benefits of their products or services. This can include using vague or misleading language, using images or symbols that suggest environmental responsibility without actually providing evidence, or making false claims about certifications or awards.

Greenwashing can make it difficult for consumers, investors, and policymakers to distinguish genuine environmental progress from empty promises. It can also lead to complacency, as companies may feel that they can simply set future goals and make superficial changes to their operations without actually making meaningful progress. Focusing on net-zero can risk overlooking the existing environmental footprint of companies, leading to an overemphasis on future impact and the potential for greenwashing.

The Limitations of Net Impact

Focusing solely on net impact can create a skewed view of a company's environmental performance. Net impact typically refers to the balance between a company's positive and negative environmental effects. Yet, it can be misused to offset substantial negative impacts with positive initiatives, resulting in an ostensibly 'net-zero' outcome. Carbon offsets should only be used as a last resort to reduce carbon emissions because they do not address the root causes of emissions and can create a false sense of progress without promoting real sustainable changes.

A company might, for example, continue with high-emission activities while investing in carbon offset projects to achieve a 'net-zero' status. While carbon offsetting can be part of the solution, it is not a panacea. Additionally, carbon offsets carry a level of uncertainty in their effectiveness due to challenges in accurately establishing additionality, addressing leakage and permanence issues, and ensuring credible monitoring and certification.

Overemphasis on GHG Emissions

Lastly, focusing primarily on actions related to GHG emissions, while necessary, might not capture the full range of a company's environmental impacts. Environmental sustainability is a multifaceted issue, encompassing aspects such as water use, waste management, biodiversity preservation, and pollution prevention, among others.

By overemphasizing GHG emissions, investors may neglect these equally critical environmental factors. For example, a company might achieve net-zero emissions but still have poor waste management practices or contribute significantly to water pollution. Therefore, a broader, more holistic view of a company's environmental stewardship is necessary for truly responsible investing.

To Sum Up

While the net-zero movement has galvanized unprecedented climate action, we can’t consider it as a silver bullet for identifying environmentally responsible companies for investment purposes. A comprehensive approach that considers both current and future impacts, looks beyond just net impact, and assesses a broad range of environmental factors is critical for responsible investing. Such an approach can help investors make more informed decisions that align with their sustainability objectives and contribute more effectively to the global transition towards positive social and environmental change.


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