The above is a key message that came through during NatWest’s webinar on reducing corporate emissions, as part of the 10th instalment of our “What ESG investors want” series. 

Hosted by Daniel Bressler from Corporate Climate and ESG Capital Markets at NatWest, and Dr Arthur Krebbers, Head of Corporate Climate and ESG Capital Markets, the panellists – Neerada Poduval from Black Rock, Salima Lamdouar from Alliance Bernstein, Stephanie Maier from GAM Investments, and Bill Gilbert from NatWest – delivered a succinct summary of their ‘make or break’ criteria when reviewing corporate decarbonisation strategies:  focus on ‘organic’ emission reduction with offsetting and asset disposals as ‘supplements’, transparency of net zero plans, and an adequate level of ambition - underlined by appropriate CAPEX spend - are all prerequisites to fulfil what ESG investors want to see. 

Expectations towards corporate net zero plans and their scrutiny have significantly increased amongst ESG investors was also highlighted by the panel’s message that the transition to net zero needs to work from a social angle, too: a green transition must be a just transition.  

Other key take-aways from the expert discussion included:

• Reduction comes first: Companies should clearly prioritise reducing carbon from their own operations before resorting to carbon offsetting solutions. This includes a focus on decommissioning old processes rather than simply asset disposal, and an investment into clean energy. 
• Net zero plans could soon be required to be signed off via stakeholder vote: While ESG investors are already scrutinising in much more detail short-term, midterm and long-term climate targets for all scope 1, 2 and 3 emissions, corporates will soon find themselves under pressure to put their plans to all their stakeholder to vote on, meaning companies will face another level of evaluation/scrutiny of their targets and an additional layer of governance of their progress.   
• Sustainability-Linked Bonds (SLBs) and green bonds documentation provides a good structure for outlining the net zero journey to investors:  The required documentation for SLBs and green bonds, as well as corresponding frameworks, details the projects issuers are undertaking to achieve net zero, and as such help investors to better understand the decarbonisation strategy of a company, but there was a preference toward to specific green use-of-proceeds structure

• Carbon credits need to be understood as a supplement to tackle only those emissions that can’t be fully eliminated.  
• Carbon credit due diligence comes first: Companies ought to follow the “know before you buy” principle and conduct proper research into the carbon credits they plan to buy. A detailed due diligence is a ‘must’ – beyond the certification – to ensure that the credits deliver what they promise and that the type of credit fits with the overall net zero strategy. ESG investors will ask carbon credit buyers in detail about the motivation behind buying certain credits, how they assessed those credits (and ensured they deliver additionality), how much they paid for them, and what they expect those credits to deliver in the short and long-term. The clear message from the panel: “It’s just not an option for Corporates to try a ‘quick and cheap’ offsetting of emissions.”
• Removal and avoidance projects (that generate carbon credits for their funding) are equally important:  While nature-based projects currently form the majority of carbon credits, the development of tech-based solutions that can help avoid emissions in the first place are equally vital. Therefore, corporates should be looking at carbon credits from both project categories.  
• Carbon credit projects need to deliver for the communities at their origin: ESG investors, and the wider public, are starting to look much more closely at the social benefits of nature-based or tech-based projects: ‘Do they help create additional employment? Do they help the local community to advance?’ are typical questions that investors will ask - and corporates will have to have an answer for.

To hear more about ESG investors’ views on reducing corporate emissions, watch the replay of our webinar.

To watch replays of the other webinars in our “What ESG investors want” series, please click on the links below:

• What ESG investors want 
• New sustainable debt structures 
• UN SDG Investment Strategies
• Key developments that should be on a company’s radar 
• ESG investing in 2021
• Transition Finance
• High Yield Market
• Sustainability Linked Bonds
• The outlook for 2022