Net zero commitments, financial vehicles evolving in a context of decarbonization trend

Companies’ commitments to net carbon emissions can be difficult to decipher and measure, which is an issue energy companies must address as the market for linking commitments to finance tools grows, people said. investment and industry experts.

“It’s a real minefield,” said Moody’s vice president for climate solutions Andrew Grant of variations in the wording and scope of companies’ commitments to reduce and offset their gas emissions. Greenhouse effect.

Many companies avoid both the use of binding language in net zero commitments and the inclusion of end-use emissions from Scope 3, Grant said during a series of panels hosted by his credit rating agency on September 23.

Energy companies are taking action to resolve this issue or being offered remedies. Oil and gas supermajors such as Royal Dutch Shell PLC and Eni SpA have gone further than other fossil fuel companies by setting mandatory “targets” instead of “softer targets,” Grant said.

The science-based targets initiative Steps up pressure on companies by changing their net-zero best practice criteria to increase required Scope 3 emission reductions from 67% to 95%, according to Cynthia Cummis, SBTi board member and director of the World Resources Institute . SBTi is a partnership between the global operator of the CDP Disclosure System, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature.

Tackling these emissions “is becoming the biggest problem for businesses,” Cummis said at the virtual event.

Difficult targets

Grant noted that while some fossil fuel exporters take Scope 3 emissions into account, the system of labeling shipments as carbon neutral remains problematic.

“One of the real stories this year was the start of sales of LNG and crude bundled with offsets to be carbon neutral, including Scope 3,” Grant said. “Clearly there are a lot of challenges with this … just because you’ve bought enough offsets to offset your emissions doesn’t mean you’re risk free.”

The distinction between the different types of compensation is critical. “Only 4% of carbon credits ever issued are phase-out credits,” said Richard Manley, director of sustainable investing for the Canada Pension Plan Investment Board. “[Ninety-six percent] of them are avoidance credits, so in terms of building disposal capacity… at the end state of net zero we still have a long way to go. “

Green bonds

Some energy companies go beyond net zero targets by linking measures to frameworks of sustainability obligations. In December 2020, Utility NRG Energy Inc. issued $ 900 million in senior notes in what was North America’s first use of the emerging finance instrument, and Canadian pipeline giant Enbridge Inc. announced in June, a similar vehicle linked to environmental, social and governance performance indicators.

Jeanne-Mey Sun, vice president of sustainable development at NRG, said the bond issue has been underwritten more than four times and the utility has already “surpassed the target” of reducing emissions as defined. as part before issuing a $ 1.1 billion sustainability note in August. .

“We want to be part of the solution,” Sun said. “And our customers want us to do it.”

According to a May 17 memo from Moody’s ESG Solutions Group, global sustainability bond issuance totaled $ 8.5 billion in the first quarter, “already comparable to the annual total from 2020.”

Iinvestment company Nuveen Investments Inc. has seen the market for these alternative financial instruments grow significantly in North America. “On the contrary, we have a lot of untapped potential demands from the United States that haven’t even been fully explored,” said Sarah Wilson, Managing Director of Responsible Investment.

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