The Carbon Net Zero Challenge

The need for the world to transition to carbon net zero has never been greater

Unless the global economy meets the aims of the Paris Agreement, keeping climate change well below 2C, the world is expected to suffer extreme weather conditions leading to mass migration and global catastrophe. 

Yet 55% of business leaders believe their companies are not transitioning fast enough and just 47% fully support the aims of the Paris Agreement, that’s according to a survey conducted by Standard Chartered of 250 large companies and 100 investment specialists, titled Zeronomics.

With trouble looming, what can be done to accelerate change? For Bill Winters, group chief executive officer of Standard Chartered, the answer lies in banking.

“The fact is, the companies that are responsible for the bulk of the world's emissions are typically financed either by or through banks,” Winters points out in a new Standard Chartered podcast series called Transitioning to Carbon Net Zero.

Click below to listen or search Transitioning to Carbon Net Zero on your preferred podcast platform.

For the uninitiated, carbon net zero means reducing the carbon generated by a company’s activities to the point that the amount generated and the amount extracted from the atmosphere are equal. But calculating an organisation’s emissions can be a challenge.

Full disclosure

The starting point, says Winters, is disclosure. “You have to start by understanding what your emission footprint is. What am I emitting today?”

One widely-recognised way to calculate an organisation’s emissions is a three-scope methodology defined by the Greenhouse Gas Protocol, a platform that provides a standardised framework to measure and manage greenhouse gases from companies and their value chains.

Under the Greenhouse Gas Protocol, scope-one emissions come from the energy a company uses on its own sites. Scope two covers indirect emissions from assets owned or controlled by the company. Scope three, meanwhile, includes all other indirect emissions from a company’s value chain, such as investments.

Standard Chartered has pledged to reach carbon net zero according to scope one – its own emissions from its direct operations – by 2030. This is through making small changes such as banning single-use plastics and reducing paper use, big changes, such as becoming more energy efficient, as well as offsetting any remaining emissions that cannot be entirely prevented.

To calculate scope-two emissions, data is collected from its various properties, allowing the company to review its power sources and set more environmental targets. 

Scope three is trickier to deduce. “The most difficult by far is to determine what is our responsibility for the emissions of our clients to whom we're providing financing,” says Winters. “If we lease an aircraft to an airline, how much carbon emission from that airline… is going to be chalked up to Standard Chartered?”

Standard Chartered has set a goal of reaching net-zero carbon emissions from its financing activities by 2050, an objective which Winters says cannot be achieved without a period of transition.

A defunding drive

Helping clients become carbon neutral is one of the biggest challenges for the financial industry. Many companies in emerging markets still rely on fossil fuels for energy and will struggle to switch to renewables without more investment, says Winters. “They're under pressure from their stakeholders, from their owners, from their local governments,” he says. “It's an expensive proposition to decommission a coal-fired power plant and replace it with renewables, it requires a significant capital investment upfront.”

That’s why banks can play a role incentivising the transition to a low-carbon economy, says Winters. “Our job is to pull that funding together and direct it towards the projects that can have the highest impact for our clients, but also the highest impact in the fight against climate change,” he says.

The bank has said by 2030 it will stop financing new coal-fired power plants and will only provide financial services to clients who are less than 5% dependent on coal. To this end, Standard Chartered has earmarked US$40 billion of financing for clients who need help making the switch from coal to cleaner power sources.

“We will make substantial funding available to [clients] to invest in alternatives… to not build that coal-fired power plant, but rather to build a solar farm or engage in a hydro project,” says Winters, who is also the chair of the Taskforce on Scaling Voluntary Carbon Markets, which helps regulate the market for carbon offsetting and help finance organisations involved in taking carbon out of the atmosphere.

By making investing in renewable energy projects more accessible, in turn it helps Standard Chartered to achieve scope three. “I think our clients are very happy that we're helping them in their transition, which is the only way that we can help ourselves in our own transition,” says Winters.

Offsetting

Some carbon emissions will probably never be eradicated entirely from certain industries, such as air travel or construction.

“No matter how hard we try, we're still going to have some power that's not entirely green and we're still going to have some financing activity with clients who themselves can't get down to zero emissions,” says Winters.

When emissions cannot be further reduced, carbon offsetting is the next best thing, says Winters. Offsetting emissions is paying for or investing in organisations that can extract carbon from the atmosphere to help others reduce their footprint.

It could include investing in reforestation projects or new technologies that suck carbon out of the atmosphere and sequester it underground permanently, technologies to replace jet fuel with alternative green fuels, or switching fossil-fuel-powered facilities with hydrogen-powered facilities.

As part of its offsetting program, Standard Chartered has committed to funding US$75 billion of sustainable infrastructure, cleantech and renewables over the next 25 years.

Resetting expectations

There will be some cases where banks end up making a loss from clients who continue to want to use fossil fuels. But it is a loss worth making, argues Winters.

“In some cases, we just have to say ‘no’ and we're going to lose some money,” says Winters. “But it's still the right thing to do. And we will do that because we've got a broader agenda, a broader purpose that we are serving … By doing the right things for society we will attract more clients and more excellent people will want to work for us.”

This article was produced for Standard Chartered by BBC StoryWorks, the commercial content division of BBC Global News.

Clearly old ways of thinking can, and are, being replaced by the urgent mission to minimise climate change. The time to act is now.

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