You’ve switched your charity’s office to renewable energy. You’ve cut most flights. The office fridge is stacked high with oat milk, and lycra-clad staff are proudly showing off their subsidised bicycles. On your way to net-zero, right?
But operational emissions are just one part of the net-zero picture: your money, too, has a carbon cost attached. In fact, the impacts of your cash and investments could dwarf everything else you do.
This is because money in your bank and with your asset manager isn’t just sitting quietly – in most cases it’s being loaned out or used to invest in stocks, corporate and government debt, property and other assets. In some cases, it may be invested in companies that themselves are working hard to become net-zero or which are actively facilitating the transition by building low-carbon infrastructure. But in other cases, it could be invested in high-polluting and harmful industries or even providing direct financing for fossil fuel expansion. A recent study of global corporations such as Amazon, Johnson & Johnson and Microsoft found that more carbon emissions could be being generated by their cash and investments than all their operational emissions combined.
Making a credible net-zero pledge means understanding what your money may be financing – and the consequences of those activities in light of the urgent need for global emissions reductions.
Of course, most charities don’t invest their capital directly: they use asset managers to select their investments and keep their cash in the bank. This means that most charities will in practice rely on their banks and asset managers to make effective net-zero pledges and decarbonise their money on their behalf. So, what exactly are your financial service providers doing to reach net-zero?
How are financial institutions planning to reach net-zero?
Most major asset managers and banks have now made a public pledge to align investments with net-zero by 2050. Some have made independent pledges, but most have signed up to the Net Zero Asset Manager (NZAM) initiative and Net Zero Banking Alliance (NZBA), two high-profile industry platforms through which financial institutions set a public net-zero commitment.
But it’s not enough to make a net-zero pledge – the quality of that pledge matters. As we outline in our introduction to net-zero for charities, the details of the pledge will determine how credible and ambitious it is – and this can vary widely between financial institutions.
Does the pledge cover all of the money they manage, or just a fraction of it? Does the pledge rely on heavy use of offsets to meet the target, despite concerns about the effectiveness and human rights impact of these schemes? Is the asset manager or bank using their influence over companies they invest in and buy debt from to push for climate action – or letting companies just continue business as usual? Are they continuing to provide financing for expanded fossil fuel production, despite the science telling us that this is incompatible with limiting temperature rise to 1.5 degrees?
And perhaps most critical of all: what are the financial institution’s plans for immediate emission reductions? While ‘net-zero by 2050’ is the headline, the Intergovernmental Panel on Climate Change has also estimated that global emissions need to reduce by 45% by 2030 to have a chance of keeping warming to 1.5 degrees. And while 45% is a global average, the ability of countries to make this level of cuts to emissions without hindering their ability to meet basic human needs varies – as does responsibility for historical emissions – so richer countries may need to cut even deeper than this. In short: this means that urgent action to bring down emissions is critical.
NZAM and NZBA provide a framework for thinking about some of these areas, including committing banks and asset managers to regular public target-setting and disclosure, and setting a 2030 emission reduction target. However, as detailed in our guide to net-zero, asset managers and banks have wide latitude under these industry platforms to determine the ambition and scope of their pledge – meaning some institutions who have signed up may still take many years to meaningfully reduce their emissions, if they do at all.
If signatories are not held accountable for the quality of their pledge, there’s a risk that they become just another way to greenwash and delay the urgent action on emissions that we need.
What charities can do to raise the net-zero bar
At first, the technicalities of net-zero pledges can seem daunting and complex – but at the Charities Responsible Investment Network (CRIN), we’ve been exploring the role that charities and other asset owners can play in pushing for more ambitious net-zero targets from the financial sector. We don’t have all the answers – but here are three initial steps that charities can take.
First and foremost: ask for transparency from your asset managers and banks on their net-zero commitments. If they have set a net-zero commitment, ask to see the details – and ask them to commit to publicly reporting progress against their targets.
Secondly, engage with your financial institutions on the specifics of their pledge. Our guide to net-zero also provides a list of suggested questions you can use to engage your asset manager and bank on the quality of their commitment and hold them to account. Some of our CRIN members email questions such as these to their asset managers or raise these in regular review meetings.
Thirdly, think beyond stocks and shares. What your asset manager and bank are doing is important, but there are many other ways that charities can play a role in driving the global transition to net-zero – for instance, directly allocating capital to key transition sectors and activities through impact investing. We’ll be continuing to have these conversations within CRIN to share innovative ideas and help shape thinking in the sector.
Net-zero pledges in the financial sector have the potential to be a powerful lever to drive wider decarbonisation throughout the economy. But, right now, there’s a long way to go to make these pledges credible.
Katie Stewart is senior research officer at ShareAction