Corporations made commitments to help cut carbon emissions. It is not going as expected.
Delta Air Lines has embraced one of the corporate world’s most ambitious targets for lowering carbon emissions. In 2020, the airline vowed to invest $1 billion over 10 years to reduce its carbon footprint, with money going to new planes, the development of cleaner jet fuel and hundreds of millions in savings in operations. “Carbon neutral since March 2020,” the airline has touted on its cocktail napkins. “Travel confidently knowing that we will offset the carbon emitted on your Delta flight.” What the napkins don’t say is that,in 2021, Delta failed to hit its target. To make up the difference, it spent $137 million to buy carbon offsets at a price some experts say has little impact.The offsets cover 27 million megatons of “unavoidable” carbon dioxide emissions – a price that works out to just $5.04 a ton, which some experts find preposterous. “A bottle of water in an airport costs me $5. There’s no way that the social value of that carbon is $5 a ton,” said Shivaram Rajgopal, professor of accounting and auditing at Columbia University’s business school. “Delta gets to wash away the sins of its emissions.”
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Fires, floods and droughts are making people look at the corporations and say – Keep your commitments!
With the West Coast withering from a historic drought, the Mississippi River drying up and ever-more intense hurricanes hitting the Southeast, U.S. corporations face more scrutiny than ever before to meet their ambitious climate commitments. Many, such as Delta, are struggling to deliver. There are a mix of reasons. Early on, some companies adopted climate targets or “ambitions” for public relations purposes. Other companies have grown faster than expected. Still others misjudged the challenge of transforming their operations, or assumed they would never be held to account for their ESG commitments, shorthand for “environment, social and governance” policies. “A lot of it is marketing and virtue signaling,” said Sam Lissner, a managing director at Ridgewood, a private equity firm with investments in U.S. infrastructure and energy. “The reality is it’s very challenging to reduce greenhouse gas emissions of particularly a heavy industrial company like an airline or manufacturer without becoming a lot less profitable in the near term.” Cynthia Dalagelis, senior vice president for ESG and impact investments at Amalgamated Bank, recalls getting calls from public relations firms seeking advice on how companies could jump aboard the sustainability bandwagon. “I said ‘you’re seeing it the wrong way. This isn’t a marketing movement’.” In the case of Delta, the airline initially embraced carbon offsets that would finance renewable energy, landfill gas and the prevention of deforestation. But Delta now has a new new chief sustainability officer, Pam Fletcher, who said she opposes buying such credits. “It was the best tool at the time. So kudos to getting some momentum on climate change,” she said. “Now we are laser-focused on decarbonization in our company and industry working on the issues within our own four walls.”
A service industry has opened up to meet these needs.
Over the past couple of years, a new service industry of accountants, lawyers, and consultants has sprung up to help companies meet climate objectives, and companies are feeling the pressure to move quickly. “The ticking time bomb is the year 2030 when so many places have said net zero or a certain reduction goal.” said Sam Stark, chief executive of Green Project Technologies, which advises firms on how to meet their climate targets. Companies could face consequences if they exaggerate their climate and ESG pledges or fail to deliver on them. They could become the target of lawsuits and shareholder battles. Or they could run afoul of new Securities and Exchange Commission regulations, which require corporate transparency about climate risks, emissions and investments in sustainability. In disclosing their climate impacts, companies must detail their “Scope 1 and 2” emissions. These are impacts from their own operations, supply chains and energy purchases. Scope 3 emissions are more tricky to calculate and reduce because they involve the greenhouse gases created when customers use the products. There can be lengthy documents disclosing what the company will do.
There can be lengthy documents disclosing what the company will do.
In its 119-page 2021 Environmental Sustainability Report, Microsoft said that it reduced scope 1 and 2 emissions by 16.9 percent, or 58,654 metric tons of carbon dioxide equivalents. But on the next page, the report includes a chart showing that scope 1 and 2 combined make up just 2 percent of Microsoft’s total emissions of 14 million metric tons. Its remaining greenhouse gases — Scope 3 — grew 22.7 percent, in part because the company’s sales have grown. Microsoft says it still plans to remove half of its carbon emissions by 2030. Proctor & Gamble has been mired in a dispute with its own shareholders, two-thirds of whom in 2020 voted for a resolution urging the company to report on itscontribution to the degradation of sensitive boreal forests in Canada. Shelley Vinyard, who works on the P&G campaign at Natural Resources Defense Council, said that “one of the things so frustrating about the ESG process is that shareholder resolutions are non-binding. The company has issued several reports. None get to the heart of the matter.” P&G also has come up with an ESG “scorecard” to calculate executive bonuses. The scorecard can shave 20 percent off executives’ bonuses for failing to meet ESG goals, or it can add 20 percent to those bonuses, according to the company’s proxy statement. P&G did not comment.
Companies try to use there planned efforts as a selling item for consumers.
While companies use climate “ambitions”to promote themselves in ad campaigns, there are risks in doing so. In Australia one shareholder advocacy organization is trying to hold a company responsible for its own rhetoric. Last year the Australasian Centre for Corporate Responsibility filed suit against Santos, Australia’s largest domestic natural gas supplier, accusing it of “greenwashing.” ACCR said Santos made misleading comments in its 2020 annual report to reach net zero by 2040 and that Santos had thus violated both corporate and consumer law. Santos, which says its natural gas is “clean energy,” claims it has a “clear pathway to net zero emissions by 2040” and that its “net zero by 2040 target is supported by a transition roadmap which is clear and credible.” The ACCR also alleges the company is relying on untested assumptions about the viability of large-scale carbon capture and sequestration, without which it will not deliver on its 2040 goals. Santos did not reply to queries on the lawsuit. David A. Baay, head of energy litigation at the law firm Eversheds Sutherland, said he offers a standard piece of advice to clients: “Avoid broad and vague claims.” “It’s tempting to whatever you’re putting into the public square for it to be this kind of broad encompassing language like ‘product is clean’ or ‘sustainable’ or ‘ecofriendly.’” Baay said at a recent panel discussion in New York. “Those are keywords plaintiffs’ lawyers will pick up on and drill down into your practices to show there’s no way to support that.”
Airlines have the most trouble as they burn fuel with no alternatives yet.
The airline industry faces some of the biggest hurdles in cutting greenhouse gas emissions, largely because there are no quick alternatives to current aircraft engines powered by aviation fuel. As Moody’s Investor Service recently put it, these realities “will not support a rapid decarbonization of the airline industry.” About 10 million gallons of low-emission aviation fuel was produced globally in 2021, about 10 percent of industry’s current needs, Moody’s said. The replacement of aging planes will reduce emissions by only 15 to 35 percent, it added, noting: “There will not be a new model that materially improves fuel efficiency, or meaningfully lowers emissions, and provides the same utility in terms of number of passengers and cargo as current product lines, before 2040.” Although Delta once saw carbon offsets as key parts of its future, the airline is now moving to directly slash its emissions, said Fletcher. It has electrified ground equipment that tow planes and carry luggage. It is buying planes that are 25 percent more efficient. It is researching sustainable jet fuels. And it is collaborating with the Massachusetts Institute of Technology’s Lab for Aviation and the Environment on a quest to prevent contrails, long-lasting clouds that trap heat and warm the earth. To hit its 2050 goals, Delta also intends to use technologies that suck carbon directly out of the air and store it underground. By contrast, United Airlines was moving in this direction much earlier, and is now bragging about it. It has invested heavily in companies researching synthetic jet fuel with lower emissions. It has set a goal of 3 billion gallons by 2030 for U.S. production, even though that will require the development of 300 to 400 synthetic fuel plants; it currently has about ten. “Lots of companies set goals without a road map to get there,” said Lauren Riley, managing director of global environmental affairs and sustainability at United Airlines. “We realized that to rely on a mechanism like carbon offsets would be writing a check for someone to capture carbon elsewhere while we wouldn’t make any decisions differently. It felt disingenuous and would not be modifying our operations in any way. Why would we do that?”
Especially here where industry makes up to 80% of the emissions the need to do something is urgent.
