Where does the net zero targets come from?
The origin of the term "net zero" in the context of climate change can be traced back to discussions within the scientific and political communities, particularly in the early 2000s.
It rose to prominence with the adoption of the Paris Agreement in 2015, where countries committed to keeping the increase in global temperatures to well below 2 degrees Celsius above pre-industrial levels, attempting to limit it to 1.5 degrees Celsius. Achieving these goals requires net-zero greenhouse gas emissions by mid-century, as outlined in the agreement.
Since then, net zero has become a widely recognized and adopted target by governments, businesses, and organizations to address climate change and transition to a low-carbon economy.
What does net zero mean?
To meet the growing demand from investors and the public, but also for economic purposes, companies are increasingly setting net zero targets, aiming to reduce greenhouse gas emissions to nearly zero by 2050.
This can be achieved through various strategies, such as transitioning to renewable energy, enhancing energy efficiency, and reducing waste.
These commitments go beyond operational emissions to include the entire value chain—suppliers, customers, and product lifecycle.
If reducing emissions directly isn't feasible, companies offset their emissions by purchasing carbon credits that will be used to finance projects such as tree planting or renewable energy development.
The benefits of adopting emission reduction targets
- Reputation: Companies that prioritize sustainability and actively address the climate crisis are more likely to attract consumers and investors.
- Competitiveness: With increasingly stringent regulations and carbon pricing mechanisms worldwide, companies with net zero targets will be better positioned to comply with new regulations and manage associated costs.
- Innovation: Pursuing net zero emissions drives companies to develop and adopt clean technologies, including renewable energy, energy-efficient equipment, and sustainable materials, giving them a competitive advantage.
Achieving net zero emissions is more than a trend; it’s an opportunity for businesses to contribute to a sustainable and resilient future. The concept of a just transition ensures this shift is equitable and inclusive, creating quality job opportunities and ensuring no one is left behind. This approach is particularly important in economies heavily reliant on fossil fuels, such as Canada’s.
Companies that commit to net zero emissions targets can reap multiple benefits: reducing their environmental footprint, boosting their competitive edge, and safeguarding the planet for future generations.
Case Study
CN is one of the largest railway operators in North America. As a more affordable and environmentally sustainable option than truck transportation, rail networks have a competitive advantage in long-haul transport and distribution.
- Moving freight by rail instead of trucks reduces greenhouse gas emissions by up to 75%.
- As part of its commitment to the Science-Based Targets initiative (SBTi), CN has pledged to achieve net-zero carbon emissions across its value chain by 2050.
- CN's climate-related initiatives include retrofitting pre-owned locomotives, which improves the reliability of its current fleet and helps reduce their rail carbon footprint.
Source: Fiera Capital Corporation, 2024
You can find this stock in NBI Sustainable Canadian Equity ETF and NBI Sustainable Canadian Equity Fund
How can climate strategies benefit investors?
According to Solène Hanquier, Head of Responsible Investment at NBI:
"These strategies are attractive to investors because they offer opportunities to invest in companies that are well positioned to benefit financially from the transition to a low-carbon economy and also reduce the carbon footprint of their portfolio. It's the best of both worlds!”
The global shift towards net zero presents both challenges and opportunities for businesses. An investment portfolio featuring companies committed to achieving net zero goals is well equipped to navigate the transition to a low-carbon economy.
When you invest in climate solutions, you play an essential role as an investor to shape the future economy.