Settling Climate Accounts: Navigating the Road to Net Zero

As drivers of climate action enter the fourth decade of what has become a multi-stage race, Net Zero has emerged as the dominant organizing principle. Hundreds of corporations and investors worldwide, together responsible for assets in the tens of trillions of dollars, are lining-up for the UN Race to Zero. This latest stage in the race to save civilization from heat, drought, fires, and floods, is defined by steering toward zeroing out greenhouse gas emissions by 2050.

Settling Climate Accounts probes the practice of Net Zero finance. It elucidates both the state of play and a set of directions that help form judgements about whether Net Zero is going to carry climate action far enough. The book delves into technical analyses and activates the reader’s imagination with narrative accounts of climate action past, present, and future. 

Settling Climate Accounts is edited and authored by Stanford University faculty and researchers. The first part of the book investigates the rough edges of Net Zero in practice, exploring questions of hedging risk, Scope 3 emissions, greenwashing, and the business of asset management. The second half looks at states, markets, and transitions through the lenses of blended finance, offsets, debt, and securitization. The editors tease out possible solutions and raise further questions about the adequacy and reach of the Net Zero agenda. To effectively navigate the road ahead, the editors call out the need for accountability and ask: who is in charge of making Net Zero add up?

Settling Climate Accounts offers context and foundation to ground the rapidly evolving practice of Net Zero finance. Targeted at seasoned practitioners, newly activated leaders, educators, and students of climate action the world over, this book embraces the complexity of climate action and, in so doing, proposes to animate and drive hope.

Carbonwashing: ESG Data Greenwashing in a Post-Paris World

In, S.Y., & Schumacher, K. (2021)

Despite the increased attention and capital incentives around corporate sustainability, the development of sustainability reporting standards and monitoring systems has been progressing at a slow pace. As a result, companies have misaligned incentives to deliberately or selectively communicate information not matched with actual environmental impacts or make largely unsubstantiated promises around future ambitions. These incidents are broadly called “greenwashing,” but there is no clear consensus on its definition and taxonomy. We pay particular attention to the threat of greenwashing concerning carbon emission reductions by coining a new term, “carbonwashing.” Since carbon mitigation is the universal goal, the corporate carbon performance data supply chain is relatively more advanced than that of the entire sustainability data landscape. Nonetheless, the threat of carbonwashing persists, even far more severe than general greenwashing due to the financial values attached to corporate carbon performance. This chapter contextualizes sustainable finance-related carbonwashing via an outline of the communication as well as the measurement, reporting, and verification (MRV) of carbon emission mitigation performance.

Blended Finance for State-Led Decarbonization

Choi, E., & In, S.Y. (2021)

Blended finance has gained traction in recent years as a promising solution to bridge the funding gap in transitioning to a decarbonized economy. Yet, there exists little guidance and knowledge on the “how” of this approach, especially in specific country contexts. This chapter examines the Republic of Korea as a case study and the government’s efforts to trigger the introduction and institutionalization of green finance for decarbonizing its economy. Focusing on the design of incentives and institutions by the public sector to manage risks and catalyze private capital, we highlight necessary conditions for the successful application of blended finance. First, consensus building between public and private investors can facilitate harmonizing and internalizing the concept and practice of green finance. Second, designating a dedicated coordinating agency for green finance activities can reduce fragmentation and promote the efficient allocation of capital in the economy. Third, instituting stringent reporting standards and monitoring and evaluation frameworks can ensure climate finance is allocated to impactful projects and sectors. Lastly, climate-related sectors, such as energy, should be structurally conducive to private investment and activities. A state-led approach may be rapid in execution, but it should also be accompanied by these four measures to direct private finance towards green investments and to scale its impact.