Comment: How business, nonprofits can boost net zero efforts

Published 1:30 am Thursday, May 4, 2023

By Anne Finucane and Gina McCarthy / Bloomberg Opinion

We’re riding a wave of momentum from weeks of climate change action.

New World Bank leadership promised to place climate front and center. President Biden convened the world’s largest economies to raise ambition and issued a long-awaited executive order on greenhouse gas reductions. Earth Day energized citizens. These meaningful milestones all responded to what the world’s climate scientists declared as their “final warning,” and echoed what United Nations Secretary General António Guterres labeled “a clarion call to massively fast-track climate efforts” … “everything, everywhere, all at once.”

But for private-sector mobilization, April came in like a lion and went out like a lamb. This is a tragedy, because businesses and nonprofit groups each have unique strengths that, when combined, can help bring the planet back from the brink, particularly if we build successful voluntary carbon markets to galvanize investment.

Investment, of course, is needed, with a capital “I.” Achieving net zero will require more than $4 trillion annually, in a sprint to mid-century and beyond. Governments don’t have the resources. Philanthropy offers only a fraction of what is needed. The business community and capital markets can accelerate decarbonization solutions consistently and at scale, but to do that, they need a credible, navigable and transparent path forward. It has yet to be defined.

In the industrial nations, the private sector is mobilizing hundreds of billions of dollars for clean-energy activities to bring advanced technologies online. But in the developing world, new capital is woefully inadequate to stand up renewable-energy projects and to protect natural habitats that reduce greenhouse gas emissions. The nations most adversely affected are least able to finance change.

To some extent, businesses and nonprofits have been collaborating to identify the most worthwhile ESG (environmental, social and governance) practices and to establish rules of the road to entice as many companies as possible to help finance progress in more challenged areas. Nonprofits have effectively advocated for transparency, a reporting structure and disclosed reductions.

Meanwhile, companies have argued they need a framework and policy criteria consistent with sound business practices, familiar market mechanisms and some sort of tangible value. This synergistic approach has already succeeded in taking vague, insufficient concepts of voluntary markets and giving them teeth and promise.

The result is a nascent “voluntary carbon markets” (VCM) model — with a commitment to enhanced measurement, reporting and verification tools — and improvements in nature-based industrial and technology credits. But the final decisions too often stall over areas of fundamental disagreement, both ideological and practical. It is time to move quickly toward more productive outcomes. The question is how.

Most industries today cannot completely decarbonize operations, let alone erase emissions from their carbon “value chain” encompassing vendors, clients and partners. With time, the infrastructure and technology will be available, and credible markets will mature to put complete decarbonization within reach. Certainly, the Bipartisan Infrastructure Law and the Inflation Reduction Act provide an engine that will accelerate new infrastructure and technology, putting that day within reach in the United States. But this will still take years.

In the meantime, smart and strategic deployment of offsets in VCMs can make an enormous difference in assembling hard-to-achieve financing for the developing world.

Voluntary carbon markets allow companies to purchase offsets to cover the differential between their own decarbonization efforts and carbon-neutral status. They also empower corporations to offer capital through the purchased offsets, which are projects largely found in the developing world.

We need business and nonprofits to accelerate their discussions and agree that the perfect cannot be the enemy of the good. Ideological disagreements over what parts of a company’s carbon footprint can be addressed with carbon offsets and credits have already delayed the market and held up potentially billions in relief for the developing world.

We could, however, learn from the productive role government and nongovernmental organizations have played together in driving successful compliance markets in California and the European Union. This would build on an established system where companies are evaluated for meeting emissions caps while working on long-term decarbonization plans.

The California and E.U. systems were designed to accelerate progress, rather than succumbing to the stringency bogging down deliberations over voluntary carbon markets. They require participants to comply with greenhouse gas standards while allowing the trading of carbon credits and offsets based on emissions against regulated limits. Companies in voluntary carbon markets should likewise be encouraged to use carbon credits to close the gap between where they are today and the carbon-neutral status they’re striving to achieve.

Thousands of companies, including hundreds of financial firms not currently bound by regulations, have committed to the goal of net zero. They have voluntarily agreed to conduct carbon audits, reduce emissions using science-based goals and disclose their progress. In the voluntary carbon markets, as in the regulated markets, these efforts need to include a transition period to compensate for emissions that exceed carbon-neutral outcomes. The use of carbon offsets and credits can put capital into solutions for the developing world now.

The nonprofit and business communities can leverage each other’s strengths in this journey. The nonprofit community is invaluable in setting science-based goals, measuring progress and providing guidance. The financial community can drive innovation and capital at scale, but only if the process makes sense to businesses that are committed to consistently reported and transparent carbon disclosures.

Let’s stop debating. We all share the same goal: a cleaner, healthier and more just world for our children and future generations. April is over. Let’s make May stand for mobilization.

Anne Finucane is the former vice chair of Bank of America and chair of Bank of America Europe. She is a senior adviser to TPG Rise Climate Fund and chair of Rubicon Carbon. Gina McCarthy is a former White House national climate adviser and Environmental Protection Agency administrator. She is a fellow at the Fletcher School at Tufts University, a senior adviser at TPG Rise Climate Fund and Bloomberg Philanthropies, and an operating adviser at Pegasus Capital Advisors.