The six biggest Wall Street banks have now promised to get to net-zero emissions, after Citigroup Inc., Goldman Sachs Group Inc. and Wells Fargo & Co joined the club this month. But what does “net-zero” actually mean? For the planet, it’s the point at which the levels of greenhouse gases in the atmosphere stabilize, ending the sharp increase in heat-trapping emissions since the industrial revolution that have brought us to dangerous levels of global warming.
Financial institutions interpret this in a number of ways. It could mean continuing to finance carbon-intensive fossil fuel activities while finding ways to absorb carbon dioxide elsewhere, and even using creative accounting to balance its emissions score. Or it could mean actively engaging with companies to ensure they have credible climate plans, using divestment or the withdrawal of its credit and services as a threat to make sure they improve.
The space in between is vast, and there’s no global oversight of how the term “net zero” is used in the private sector. For years, drawing up such definitions was left to business friendly non-governmental organizations and the more progressive industry groups. The Greenhouse Gas Protocol, for example, was launched in 1997 by the World Resources Institute and the World Business Council for Sustainable Development.
A new framework for net-zero investing announced earlier this week was developed by the Institutional Investors Group on Climate Change. The organization is made up of pension funds and asset managers who manage a combined $33 trillion, including Pacific Investment Management Co. and Fidelity International.
It takes an important stand in warning against one of the biggest loopholes in net-zero pledges: using carbon offsets as a replacement for cutting emissions. The most common example is planting trees or protecting forests rather than, say, reducing reliance on coal, oil and methane. Still, the recommendations are at an early stage and don’t fully grapple with the pollution that comes from companies and projects supported by the finance industry, a core part of their climate responsibility.
Another influential framework is the Taskforce on Climate-Related Financial Disclosures. Established by former Bank of England governor Mark Carney and Bloomberg LP’s founder Michael R. Bloomberg, it’s the closest to a unifying standard in the industry for reporting climate risks.