From net-zero pledges to real-zero promises

Financial institutions in the US and Canada continue to invest in fossil fuels despite pledges to reduce emissions, according to a report titled 'Gendered and Racial Impacts of the Fossil Fuel Industry in North America and Complicity Financial Institutions' released last month by the Women’s Earth and Climate Action Network (WECAN).

The Role of Financial Institutions 

Several big banks have made public statements announcing their alignment with the Paris Agreement’s 2050 Net Zero goals, have signed onto frameworks that evaluate the environmental and social risks of their investments and have pledged billions of dollars to clean energy buildout. However, these institutions continue to insure and invest in fossil fuels despite the industry’s detrimental impacts on human and environmental health. 

Vanguard, BlackRock, Capital Group, JPMorgan Chase, Royal Bank of Canada, Bank of America and Liberty Mutual are among the banks that the report implicates as financiers of the climate crisis. 

Last year, JPMorgan released a sustainability report emphasising its intentions to achieve Net Zero emissions and to invest USD 2.5 trillion over 10 years in sustainable development. JPMorgan has also invested over USD 434 billion in the fossil fuel industry since the Paris Agreement was adopted in 2015 and has been the primary financier of ConocoPhillips, the energy company in charge of carrying out the Willow Project, a major oil-drilling venture in Alaska’s western arctic region. The venture is projected to release 239 million metric tons of carbon dioxide over its 30-year lifespan and will toxify the air with particulate pollutants like ground-level ozone. 

In 2021, Vanguard joined the Net Zero Asset Managers Initiative (NZAM) only to withdraw one year later. As of March 2023, Vanguard sits among the top three shareholders of ConocoPhillips accompanied by BlackRock and JP Morgan Chase. Similarly, BlackRock participates in the Task Force on Climate-Related Financial Disclosures (TCFD) as well as ClimateAction100+, an investor-led initiative that pressures the top GHG emitters to meet 2050 Net Zero targets and to halve their greenhouse gas emissions by 2030, yet still maintains billions worth of shareholdings in oil and gas. 

According to WECAN, if financial institutions wish to make progress on climate, they will have to change course and adhere more closely to international guidelines that stipulate their responsibility to protect human rights and the environment.

What About Net Zero Pledges? 

Over 11,000 non-state actors, including hundreds of financial institutions, have joined the UNFCCC global Race to Zero campaign to halve emissions by 2030 and achieve Net Zero by 2050. The campaign recommends that financial institutions ensure their investment portfolios align with emissions reduction targets, which would require that they halt ongoing investments in fossil fuel expansion and exit extractive industries.

So, why haven’t they done it? 

Net Zero pledges can only suggest, not require, that signatories adhere to reduction guidelines. 

Furthermore, achieving Net Zero means that companies do not emit greenhouse gasses or that they remove what they have emitted via carbon offsets. Therein lies the loophole: carbon offsets allow companies to continue polluting if they promise future investment in clean energy or carbon removal tactics such as carbon capture and storage (CCS) or reforestation, both of which may produce variable outcomes at slow rates. 

WECAN executive director and report co-author Osprey Orielle Lake told FairPlanet that carbon capture and storage, in her view, is a false solution. "Ultimately, the same harmful patterns will continue because CCS technology is based on continuing fossil fuel expansion."

She added, "Industries are investing in CCS facilities because they can continue business as usual while profiting from the harmful extraction of the land in and around low-income and BIPOC communities like in Beaumont, Texas."

Should financial institutions aim to make progress on climate targets and drastically reduce emissions in the short term, she argued, they will need to implement what environmental activists and the WECAN report call "Real Zero" goals. 

Replacing Net Zero with Real Zero Goals 

Real Zero goals would set an absolute reduction target for emissions within a certain timeline - without reliance on market-based carbon offsets – and would require that corporations divest from fossil fuels. The transition to Real Zero emissions would also require major improvements to emissions-reporting systems. 

Since 2001, the GHG Protocol has been the predominant system used by corporations to monitor and report their emissions output. Under the GHG Protocol, under-reporting and estimating data has made regulating emissions difficult.

Requiring that corporations use a more accurate auditing method like that of the E-Liability Institute, an accounting algorithm that allows companies to produce live data for their direct, supplier or product emissions, may help avoid unreliable reporting in the future. 

Beyond emissions reductions, WECAN’s version of Real Zero recommends that financial institutions implement policies that prioritise human rights and include indigenous, frontline and local community representatives in their decision-making processes.

This might look like creating robust sustainability advisory boards that consult with indigenous women or elevating protections for local communities in company investment guidelines. Many financial institutions have joined pledges like the Principles for Responsible Investment (PRI), yet continue to invest in harmful industry expansion due to lackluster internal accountability frameworks. 

Among the few companies that have started to take responsibility for their impact is NextEra energy, a major US energy corporation that has stated explicit plans to operate carbon-free by 2045. La Banque Postale has also laid out aggressive plans to suspend financing of companies expanding oil and gas and to exit their financing of both sectors by 2030. 

On a local level, women-led initiatives are providing accessible resources for affected communities; the WECAN report highlights Vanessa Gray’s app Pollution Reporter, which helps residents of the Aamjiwnaang First Nation report health concerns related to pollution, and Kristal Hansley’s company WeSolar, which provides solar power to communities in Maryland, among others.

The Limitations of Real Zero 

The WECAN report calls for financial institutions to commit to 2050 Real Zero targets and to establish explicit fossil fuel phase-out plans starting this year. What’s stopping big banks from changing course?  

Financial institutions in the US are inextricably linked to fossil fuels. Whether for fear of short-term profit loss or a shifting client base, financial institutions continue to delay their responsibility to transition the economy away from fossil fuel dependence. In addition, fossil fuel companies have substantial lobbying influence and continue to block progressive US and global climate policy action.

To diminish fossil fuel companies’ staying power, the report's authors state, financial institutions would need to cut back on new investments in the fossil fuel sector, support the growth of clean energy and support the electrification and decarbonisation of the rest of the economy. 

To account for the risks associated with this kind of change, local and federal governments should work to develop a "coherent policy framework that includes regulations throughout the economy to both require and incentivise decarbonisation across all sectors," Lisa Sachs, director of Columbia’s Center on Sustainable Investment, told FairPlanet. 

Real Zero is not just about a reduction in carbon emissions, according to Lake from WECAN, but also about introducing what she calls "a cross-cutting, intersectional approach" to climate policy which would work to overturn oppressive systems that disproportionately harm low-income communities, communities of colour and women. 

Environmental advocates say that steering investments away from fossil fuels and toward local, indigenous and women-led initiatives could be an immediate and impactful way for corporations to work in tandem with those most deeply affected by the climate crisis. 

Image by Curioso Photography.