“Carbon neutral since March 2020,” the airline boasted on its cocktail napkins. “Fly with confidence knowing we’ll offset the carbon emitted on your Delta flight.”
What the towels don’t say is, in 2021, Delta fell short of its goal. To make up the difference, it spent $137 million to buy carbon offsets at a price that experts say has little impact. The offsets cover 27 million megatons of “unavoidable” carbon dioxide emissions – a price that equates to just $5.04 a ton, which some experts find absurd.
“A bottle of water at an airport costs me $5. It is impossible for the social value of this carbon to be $5 a ton,” said Shivaram Rajgopal, a professor of accounting and auditing at Columbia University’s business school. “Delta manages to wash away the sins of its shows.”
As the West Coast withers from a historic drought, the Mississippi River dries up and increasingly intense hurricanes hit the Southeast, American companies are under greater scrutiny than ever to meet their ambitious commitments climatic. Many, like Delta, are struggling to deliver.
There is a mixture of reasons. Early on, some companies adopted climate goals 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 accountable for their ESG commitments, short for “environmental, social and governance” policies.
“A lot of it is about marketing and virtue signals,” said Sam Lissner, chief executive of Ridgewood, a private equity firm that invests in infrastructure and energy in the United States. “The reality is that it is very difficult to reduce the greenhouse gas emissions of an industrial company like an airline or a manufacturer without becoming much less profitable in the short term.
Cynthia Dalagelis, senior vice president for ESG and impact investing at Amalgamated Bank, recalls receiving calls from PR firms asking for advice on how companies could jump on the bandwagon. towards sustainability. “I said” you see it wrong. This is not a “marketing move.”
In Delta’s case, the airline initially adopted carbon offsets that would fund renewable energy, landfill gas and the prevention of deforestation.
But Delta now has a new sustainability director, Pam Fletcher, who said she opposes buying such credits.
“It was the best tool at the time. So congratulations on giving impetus to climate change,” she said. “Now we are focused on decarbonization in our business and our industry working on the issues within our own walls.
Over the past two years, a new service industry of accountants, lawyers and consultants has sprung up to help companies meet their climate goals, and companies are feeling the pressure to act quickly.
“The ticking time bomb is the year 2030 when so many places have declared net zero or some reduction goal,” said Sam Stark, chief executive of Green Project Technologies, which advises companies on how to achieve their climate goals.
Companies could face consequences if they overstate or fail to meet their climate and ESG commitments. 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 on climate risks, emissions and sustainability investments.
When disclosing their climate impacts, companies must detail their “Scope 1 and 2” emissions. These are the impacts of their own operations, supply chains and energy purchases. Scope 3 emissions are more difficult to calculate and reduce because they relate to greenhouse gases created during the use of products by customers.
In its 119-page 2021 Environmental Sustainability Report, Microsoft said it reduced Scope 1 and 2 emissions by 16.9%, or 58,654 metric tons of carbon dioxide equivalents. But on the next page, the report includes a graph showing that Scopes 1 and 2 combined represent only 2% of Microsoft’s total emissions of 14 million metric tons.
Its remaining greenhouse gases – Scope 3 – increased by 22.7%, in part because the company’s sales increased.
Microsoft says it still plans to cut half of its carbon emissions by 2030.
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Proctor & Gamble is mired in a dispute with its own shareholders, two-thirds of whom in 2020 voted for a resolution urging the company to report on its contribution to the degradation of sensitive boreal forests in Canada. Shelley Vinyard, who works on the P&G campaign at the Natural Resources Defense Council, said “one of the most frustrating things about the ESG process is that shareholder resolutions are not binding. The company has released several reports. None of them get to the heart of the matter.”
P&G has also developed an ESG “scorecard” to calculate executive bonuses. The scorecard can reduce executive bonuses by 20% for not meeting ESG goals, or it can add 20% to those bonuses, according to the company’s proxy statement.
While companies use climate “ambitions” to promote themselves in advertising campaigns, there are risks in doing so. In Australia, a shareholder advocacy organization is trying to hold a company accountable for its own rhetoric. Last year, the Australasian Center for Corporate Accountability filed a lawsuit against Santos, Australia’s largest natural gas supplier, accusing it of “greenwashing”. The ACCR said Santos made misleading comments in its 2020 annual report to achieve net zero by 2040 and thus violated both corporate and consumer law.
Santos, which claims its natural gas is “clean energy”, says it has a “clear path to net zero emissions by 2040” and that its “target of net zero by 2040 is backed by a sheet transition route that is clear and credible”. The ACCR also alleges that the company is relying on untested assumptions about the viability of large-scale carbon capture and sequestration, without which it will not be able to meet its 2040 goals. answered questions about the trial.
David A. Baay, head of energy litigation at law firm Eversheds Sutherland, said he offers standard advice to clients: “Avoid broad and vague claims.”
“It’s tempting to publicize this kind of all-encompassing language like ‘the product is clean’ or ‘sustainable’ or ‘eco-friendly,'” Baay said at a recent roundtable in New York. “These are keywords that plaintiffs’ attorneys will pick up and dig into your practices to show there’s no way to support this.”
The airline industry faces some of the greatest hurdles to reducing greenhouse gas emissions, largely because there is no fast alternative to today’s fuel-powered aircraft engines. of aviation. As Moody’s Investor Service recently stated, these realities “will not support a rapid decarbonization of the airline industry.”
About 10 million gallons of low-emission aviation fuel were produced globally in 2021, or about 10% of current industry needs, Moody’s said. Replacing aging aircraft will only reduce emissions by 15-35%, he added, noting: “There will not be a new model that materially improves fuel efficiency, or significantly reduces emissions, and offers the same utility in terms of number of passengers. and freight as current product lines, before 2040.”
Although Delta once saw carbon offsets as key to its future, the airline is now poised to directly reduce emissions, Fletcher said. It has electrified ground equipment that tows aircraft and carries baggage. He buys airplanes that are 25% more efficient. He is looking for sustainable jet fuels. And it’s collaborating with the Massachusetts Institute of Technology’s Aviation and Environmental Laboratory in a quest to prevent contrails, long-lasting clouds that trap heat and warm the earth.
To achieve its 2050 goals, Delta also intends to use technologies that suck carbon directly from the air and store it underground.
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In contrast, United Airlines was moving in this direction much earlier and is bragging about it now. It has invested heavily in companies looking for low-emission synthetic jet fuel. He has set a goal of 3 billion gallons by 2030 for US production, although this will require the development of 300 to 400 synthetic fuel plants; it currently has about ten.
“Many companies set goals without a roadmap to get there,” said Lauren Riley, general manager of global environmental affairs and sustainability at United Airlines. “We realized that relying on a mechanism like carbon offsets would be like writing someone a check to capture the carbon somewhere else when we wouldn’t be making any different decision. This seemed dishonest and would not affect our operations in any way. Why would we do that?”
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