Davos Agenda

How nature can help carbon-intensive companies meet their net-zero commitments

Ramping up efforts to protect and restore tropical forests would slash one-fourth of all global greenhouse emissions. Image: Philip F Smart/Unsplash

Michael B. Jenkins
President and Chief Executive Officer, Forest Trends
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Davos Agenda

  • For hard-to-abate sectors like transport, energy and aviation, tropical forests are a key tool for setting and following through on ambitious net-zero climate commitments.
  • The new LEAF Coalition offers a high-integrity platform for public-private co-investment in forests at the scale necessary to support Paris Agreement targets.
  • Nature-based solutions need greater transparency, high-integrity standards and clear guardrails for following through on commitments.

With six months to go before COP26 in Glasgow, we’re down to the wire when it comes to producing a plan to halve global emissions by 2030 and achieve net-zero by mid-century.

We’re moving in the right direction, but too slowly. Recent analysis shows we need to reduce carbon intensity of electricity generation at least three times faster, grow low-carbon fuels’ share in our energy mix eight times faster, and roll out electric vehicles 22 times faster than current rates.

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Hard-to-abate sectors feel the squeeze

But how to close the gap? For some companies, cutting emissions is simply a matter of procuring renewable energy or increasing efficiencies. But for many companies in carbon-intensive sectors like transportation, energy or aviation, reducing emissions is technologically and financially challenging. New business models, production processes, infrastructure and technologies will eventually make zero carbon possible – but it can’t happen overnight.

So how can these companies reduce emissions in the short term, when cuts are needed now? One transition strategy is carbon offsets, a system that enables emitters to pay for a reduction in emissions made elsewhere to counter their own emissions. Offsets aren’t a permanent fix, but they can be a kind of 'net-zero training wheel', designed to come off after a short period.

As the former governor of the Bank of England, Mark Carney, has pointed out, voluntary carbon markets will have to scale very, very rapidly (on the order of 20-fold) to meet growing demand fueled by net-zero pledges. Some carbon market actors are already predicting a coming shortage of verified credits. The credit rating agency Fitch Ratings projects a supply shortfall by 2025. In the first quarter of 2021, voluntary offsets retirements (i.e., demand) exceeded issuance (i.e., supply) for the first time in years – possibly an early sign that the squeeze is beginning.

Tropical forests offer solutions – but also hard lessons

Carbon credits can be generated through projects that generate renewable energy, distribute clean cookstoves, capture landfill methane and more. But one of the largest – and still largely untapped – sources of potential offset supply is tropical forests, which are currently under extreme threat, despite their enormous climate benefits. Without tropical forests, it is hard to see where else a near-term supply surge could come from that would allow companies to follow through on their net-zero promises.

Ramping up efforts to protect the tropical forests we still have in Latin America, Southeast Asia and Central Africa, and rehabilitating and replanting some that we have lost, would slash one-fourth of all global greenhouse emissions in one fell swoop. And on the other side of the equation, harnessing net-zero ambitions is perhaps our last chance to put an end to deforestation before it’s too late. New data suggests the Amazon is flipping right now from a carbon sink to a net carbon emitter. Climate ambition depends on forests, and forests depend on climate ambition.

But protecting and restoring forests isn’t easy. It requires aggressive government action and strict monitoring and enforcement. More so, it requires uprooting deeply ingrained economic incentives – mostly around commercial agriculture, the largest driver of deforestation worldwide. For many countries, clearing their forests to produce soy, palm oil, beef and timber for export to the United States, Europe, China and beyond remains a solid path to economic growth, especially when climate finance to protect forests has been slow to materialise.

These hurdles are, in fact, what hobbled progress on the New York Declaration on Forests (NYDF) – a pledge to halve deforestation this year and end it in 2030. We all remember the wave of enthusiasm seven years ago at the New York Climate Summit when the NYDF was signed by heads of companies, governments and civil society groups. We thought we were experiencing a breakthrough for tropical forests.

But in the last half decade, deforestation has actually gotten worse. None of the companies that pledged to eliminate deforestation from their supply chains by 2020 have delivered.

Learning from experience: What the zero-deforestation movement taught us

We need to heed the lessons of the NYDF. One is that the economics in favour of forest conservation need to be far more compelling than the economics of deforestation. This happens through the combination of a high-enough carbon price and predictable large-scale demand signal for forest-based emissions reductions, together with strong policy and regulation to stamp out illegal deforestation.

For CEOs, another key takeaway should be the importance of working in concert with governments and civil society to end forest loss and restore natural carbon sinks. We know now that the private sector can’t do it alone. Governments, international institutions and NGOs can help tackle corruption and illegality that contributes to deforestation, and ensure that forest projects are high-integrity and protect human rights, local livelihoods and biodiversity. Public-sector partners can provide leverage for corporate funding, making those dollars go farther and sending a clear demand signal that climate commitments are serious.

Public-private coalitions like the newly launched LEAF Coalition show how such a partnership for tropical forests could work. The LEAF Coalition aims to mobilise at least $1 billion in financing for countries that protect tropical and subtropical forests. Funding will come from the governments of Norway, the UK and the US along with companies including Amazon, Airbnb, Bayer, Boston Consulting Group, GSK, McKinsey, Nestlé, Salesforce and Unilever. For participating companies, emissions reductions secured through the LEAF Coalition will be in addition to, not in place of, internal emissions cuts. The impact will be to accelerate ambition, not provide an “out” for companies to avoid or delay the low-carbon transition.

It’s "an ‘and/also’ situation,” as Christiana Figueres, former UN climate chief, has put it. Amazon’s climate strategy offers a good example: the company is spending heavily on renewable energy and a fleet of electric delivery vehicles, while also committing $100 million to nature-based carbon emissions reductions and removals through the Right Now Climate Fund.

The Lowering Emissions by Accelerating Forest finance (LEAF) Coalition is working with a number of governments and large companies.
The Lowering Emissions by Accelerating Forest finance (LEAF) Coalition is working with a number of governments and large companies. Image: LEAF

Collective action, radical transparency and high integrity

A second lesson is the importance of transparency and clear guardrails for following through on commitments. For CEOs, the world of carbon offsets and forest projects will require study and care. Isolated carbon offset projects can be undermined by larger economic forces or shifting deforestation patterns. New jurisdictional approaches can help. Companies need more information and guidance on the world of carbon offsets and forest projects.

Our Ecosystem Marketplace initiative has recently launched a new carbon hub, focused on radical transparency, helping companies to follow through on net-zero pledges. The Four Principles for Nature-Based Solutions, backed by the We Mean Business coalition and The Climate Pledge, offer a good starting point for developing a credible net-zero strategy that includes investments in nature. The Climate Pledge Fund has put up $2 billion to invest in sustainable technologies and market infrastructure to ensure high-quality projects. These resources have the potential to benefit every company with a net-zero commitment.

The Green Gigaton Challenge estimates that it is well within our reach to secure 1 gigaton per year of emissions reductions from tropical forests by 2030 through public-private ambition, on top of current pledges. This is comparable to taking 80% of the cars off American roads, or half of what we’d need to cost-effectively achieve a 2°C target together.

The transition to a low-carbon economy is a daunting one, requiring nothing less than a transformation of our economy. Tropical forests are one place where we can secure some clear wins this November in Glasgow.


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