Net Zero: Investing in Decarbonization

Net zero investing is a profitable way to help the world reach net-zero targets. Environmentally conscious investors will be happy to learn they can grow and do good simultaneously by investing in these specific companies.

Global warming and climate change are wreaking havoc on the planet and all who live there. Yet, there is a path away from environmental destruction.  Read on to learn all you need to know about this environmental goal and investment opportunity.

What Is Net Zero? 

The meaning is linked to the target of negating greenhouse gasses resulting from human activities. This ambitious goal will be reached by reducing emissions and finding ways to absorb carbon dioxide from the atmosphere. In addition, the definition makes the goal much clearer to investors, corporations, and governments.  

Why Is It Important? 

Reaching low emissions goals is vital to survival both in the future and present. The effects of global warming – heat waves, droughts, floods, and more – are leaving death and destruction in their wake. Wildfires are increasing in intensity and frequency. Warming oceans are threatening entire ecosystems and creating more powerful typhoons and hurricanes. 

Gross Zero vs. Net Zero 

Gross zero emissions would mean the end of all emissions of greenhouse gasses from human activities. Gross zero emissions would significantly improve climate change outcomes, but this goal isn’t realistic. Net-zero targets look at lowering emissions of greenhouse gasses and removing unavoidable emissions that are necessary for travel and manufacturing.  

While gross zero would dramatically change human lifestyles and activities, net-zero would allow life to go on much as it does today, only with fewer greenhouse emissions and less threat of climate change. 

Essentially, it is the difference between not producing any carbon emissions and producing limited emissions that are mitigated through capturing carbon from the atmosphere. 

Key Requirements of the Net Zero Standard 

Developed to help companies transition, the Net Zero Standard seeks changes that will support sustainable climate change goals. Its essential requirements include: 

Drastic Emissions Cuts 

Deep cuts of greenhouse gas emissions are essential to limit the planet’s temperature rise to 1.5 degrees Celsius. Lowering emissions that are part of a company’s value chain, including those produced by a company’s processes, purchased electricity, and the utility use of suppliers and end-users, will greatly impact global warming.  Under this standard, most companies would have to reach 90 to 95 percent decarbonization rates. 

Set Targets 

These specific requirements include setting short- and long-term targets, including cutting greenhouse gas emissions in half by 2030 and producing nearly zero emissions by 2050. In addition, unavoidable emissions would be captured from the atmosphere. 

Reach Beyond the Value Chain 

Science-Based Targets, or SBTi, advises companies to reach past their value chains to help lower greenhouse gas emissions elsewhere.  

How and Why to Set a Net Zero Target 

Net-zero companies set science-based targets to lower their greenhouse gas emissions and mitigate any unavoidable emissions. 

Setting targets should be done by first analyzing what can be realistically achieved, planning steps toward that goal, and implementing those steps. Evaluating progress and making changes to achieve greater results is the fourth step in that process. 

Some companies may set net-zero targets to appear to be environmentally friendly. However, companies should only set these targets because their leaders are genuinely concerned about the future of the planet and the worsening effects of climate change seen today. 

Who Can Set a Target 

Many companies are eligible. The Net Zero Standard was created for corporations with 500 or more employees that want to set net-zero targets through the SBTI. This gives net-zero investors a wide array of net-zero stock choices.  

Net Zero Targets vs. Greenwashing 

How can environmentally conscious investors tell the difference between commitments and mere claims? The SBTi Net Zero Standard can differentiate between realistic targets and attempts at greenwashing as a marketing ploy. Investors can check if a company has set goals through the Net Zero Standard to know if they are truly investing in a net-zero company. 

FAQs 

You may still have questions about investing in net-zero companies. These frequently asked questions may give you the answers you need. 

What Does It Mean to Reach Net-Zero Emissions? 

Reaching net-zero emissions as defined by the International Energy Agency (IEA) and SBTi means that a company has drastically reduced greenhouse gas emissions and mitigates any unavoidable emissions.  

When Does the World Need to Reach This Goal? 

Carbon emissions must reach net-zero emissions by 2050 to limit global warming to 1.5 degrees Celsius, and emissions of all greenhouse gasses must reach net-zero by 2068. Reaching net-zero earlier makes limiting global warming more likely, while achieving net-zero later nearly guarantees that the world will surpass the 1.5 degrees Celsius level before it eventually drops. 

Does the Paris Agreement Commit Countries to Achieving Net-Zero Emissions? 

The Paris Agreement, signed in 2015, was adopted by nearly every nation in the world. Most countries made commitments in the Paris Agreement to reduce their climate pollution over time. However, these cuts are not at net-zero levels. 

What Needs to Happen to Achieve This? 

Net-zero emissions will be reached when all greenhouse gas emissions are offset by the number of greenhouse gasses removed from the atmosphere through carbon removal. The first step in this process is dramatically reducing carbon emissions and other greenhouse gasses, such as manufacturing and fossil fuels, into the atmosphere.  

How Many Countries Are On Board? 

Sixty-seven countries have set net-zero targets. They include Sweden and Germany, which have legally binding net-zero targets for 2045, and France, Denmark, Spain, Hungary, and Luxembourg which have their targets set for 2050. 

Is the World on Track to Reach Net-Zero Emissions on Time to Avoid the Worst Climate Impacts? 

The world reaching net-zero emissions of greenhouse gasses by 2050 is still possible, but it will require drastic changes. By 2050, net-zero emissions would require that 90 percent of the world’s electricity come from renewable sources, with 70 percent of those sources being wind or solar power.  

Final Thoughts from Conscious Impact Financial Planning

Currently, the world is on a trajectory of warming at least 3 degrees Celsius this century, a level that would create global devastation. However, a net negative amount of greenhouse gas emissions could further reduce global warming, and a net-zero economy could change the trajectory of global warming and climate change trajectory.

For angel investors, those who buy shares of companies that offer solutions to existential problems, investing in these types of socially responsible companies supports climate change solutions. In addition, purchasing shares of these companies funds efforts to reach these goals. Businesses with zero carbon goals range from startup companies to multinational corporations.

While also encouraging corporations with environmental sustainability initiatives, these investors will see their profits grow through dividends and share prices. Investing in these companies will fund future solutions to climate change and retirement accounts. 

Looking for a Net Zero Financial Planner? We take our fiduciary duty seriously and offer unbiased comprehensive financial planning. Click here to learn more.

Conscious Impact Financial Planning is registered in Austin, TX and operates from Texas as well as Colorado Springs, Colorado. CIFP is owned and founded by Meghan Lape AFC®, CFP®, EA®, a socially responsible financial planner for families, individuals and businesses.