Michele Leung, Green Finance Advisor of Friends of the Earth (HK) 

In May, Shell was ordered by the court to cut its global carbon emission by 45% by the end of 2030 compared with 2019 levels. Though Shell made its Net Zero commitment, the targets was said to be insufficiently robust.  The court added that its “policy intentions and ambitions for the Shell group largely amount to rather intangible, undefined and non-binding plans for the long-term”.

As climate change is becoming the top agenda among investors and corporates, establishing decarbonization and Net Zero targets are gaining traction, however there is not sufficient visibility on these targets and the main problem lies in the heterogeneity, for example, not all companies look into their value chains and it is difficult to compare their commitments.

To fully understand the companies’ Net Zero targets, we should look into these three dimensions,

1. Comprehensiveness

How much footprint is covered by the Net Zero target? Which scope is under the target? Does it cover scope 1, 2 and all categories of scope 3 emissions? Most often, companies exclude scope 3 in their targets. For example, it is found 87% of energy sector average of carbon emissions come from scope 3, yet only 18% of these energy companies set the targets on those scope 3 emissions. These companies’ decarbonization goals clearly miss out a great part of their carbon footprints.

2. Ambition

Does the company target reach Net Zero or not? How much we capture at target date? What would have been the residual emissions after the target is met?

3. Feasibility

What are the companies’ track records in meeting the goal? What are their strategies in achieving the target? These track records can help inform likelihood of meeting the goals, while also develop confidence in the target setting.

In conclusion, these three dimensions would help to breakdown the comprehensiveness, ambition and feasibility of companies’ emission targets.  A proper framework would help investors better analyze and manage their risk exposures under climate change.

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