Investors who want to engage with companies on their commitments to addressing climate change through natural solutions have a new resource in the form of a report released Tuesday by Ceres and the Institutional Investors Group on Climate Change.
Natural climate solutions such as reforestation are a common component of many companies' net-zero action plans and can be used to offset greenhouse gas emissions. The Role of Natural Climate Solutions in Corporate Climate Commitments: A Brief for Investors helps investors understand the role and use of natural climate solutions in climate commitments.
The report also offers guidance on how to facilitate engagements with portfolio companies and expectations for climate disclosures as transparency is a critical part of achieving net-zero emissions.
"We will not meet the goal of the Paris Agreement to limit temperature rise to no more than 1.5-degrees Celsius without protecting and restoring forests and other natural ecosystems and better managing agricultural land. Companies that produce or source agricultural and forestry products must support the necessary transition to sustainable land use within their value chains," the report said.
Lead author Meryl Richards, director of research for food and forests at Ceres, said the report introduces investors to the "missing middle ground" in the debate over natural climate solutions and emissions offsetting. "We hope to empower investors to help companies avoid actions that pose climate-related and reputational risks to their portfolios and, instead, help them make investments that deliver on their projected promises to cut emissions," she said.
"We are trying simplify it down to what investors can use for their engagements and to ask about net-zero targets," Ms. Richards said in an interview.
While there is an uptick in companies setting net-zero targets, "the question is, what is in those targets, such as offset credits as opposed to proactive steps. That poses a risk that targets are meaningless. What investors should be asking companies is, who is really doing the work?" Ms. Richards said.
The use of carbon credits increased by 81% in the first quarter, and credits from natural climate solutions such as forest protection comprised the greatest share at 20 million credits retired, the report said. Using natural solutions, however, is "not a substitute for rapid and deep decarbonization. And it must be accompanied by appropriate social and environmental safeguards to ensure real benefits for climate, nature and people," it said.
IIGCC is the European membership body for investor collaboration on climate change with more than 300 members with more than $45 trillion in assets under management. The Ceres Investor Network has more than 195 institutional investors with a collective $37 trillion in assets.
