IT’S NOT WHATYOU SAY, IT’SWHAT YOU DOMaking the finance sector’snet-zero alliances workfor the climate

TABLE OF CONTENTSIT’S NOT WHAT YOU SAY, IT’S WHATYOU DOMaking the finance sector’s net-zero allianceswork for the climateAuthor:Patrick McCullyContributors:Lara CuvelierAlix MazounieLucie PinsonAngus SatowPaul SchreiberKey Findings and Recommendations41. All talk, net-zero action8a. The litmus test for net-zero alliancesb. “Net zero” conquers the worldc. GFANZ and the Race to Zero2. Net-zero omissions891012a. The elephant in the room: fossil fuels.b. “Analysis Paralysis” vs. immediate actionc. Targets sometime. maybe.d. An accounting matter: Scope 3 emissionse. Missing: absolute emissions targetsf. Failure to close the door to offsetsg. On the wrong pathwayh. No action, no sanctions?Case study. The Asset Owner Alliance: a flawed “gold standard“121314141419191920Thanks to:Pete Erickson, Stockholm Environment InstituteTom Harrison, Global Gas and Oil NetworkGreg Muttitt, International Institute for Sustainable DevelopmentTed Nace, Global Energy MonitorKelly Trout, Oil Change InternationalAlex Wilks, Sunrise ProjectGraphic designers:Jordan JeandonGuénolé Le GalPublication date:November 202123. Tackling fossil fuels: the key for credible net-zero alliances22Annex: An overview of the net-zero alliances and initiatives26Net-Zero Asset Owner AllianceNet Zero Asset Managers InitiativeNet-Zero Banking AllianceNet-Zero Insurance AllianceNet Zero Investment Consultants InitiativeNet Zero Financial Service Providers Alliance3262829303031

KEY FINDINGS ANDRECOMMENDATIONSThe alliances’ guidelines are beset withloopholes and omissionsThe Race to Zero criteria do not mention fossil fuels, by far the singlelargest cause of the climate crisis.1 A flood of net-zero alliancesNearly 300 financial institutions, including many of the world’sbiggest investors, bankers and insurers have joined one of sixsectoral net-zero alliances under the umbrella of the GlasgowFinancial Alliance for Net Zero (GFANZ). Together these financialinstitutions have assets equal to more than a third of the world’sinvestable capital.Joining GFANZ commits the members of the alliances to complyingwith the criteria of the UN’s Race to Zero Campaign. This meansaligning the emissions of the companies in their portfolios with theIPCC’s report on 1.5 C, which requires halving emissions by 2030 andreaching net zero by 2050.The Net-Zero Asset Owner Alliance is the oldest of the GFANZ entitiesand has produced the most comprehensive guidelines. It is the onlyalliance to require its members to set 2025 targets in addition to 2030ones.2 Analysis paralysis: the alliances’ approach isslow and opaqueThe alliances are failing to meet the Race to Zero’s insistence on urgencyand are falling into the trap of “analysis paralysis” of which it warns.The alliances’ approach to target setting is based on their memberscalculating the “financed emissions” (or “insured emissions”) of theirportfolios. This requires a complex years long and opaque process thatmakes it difficult for outside analysts to monitor progress at meetingtargets. While these approaches are needed in the longer term, they don’treplace the imperative for immediate and transparent action on the biggestpolluters.The Net-Zero Banking Alliance allows its members three years before theyhave to set targets for all nine required carbon-intensive sectors and an extrayear before they have to explain what actions they are taking to meet all thesetargets. The Net Zero Asset Managers Initiative sets no deadline before 2050for its members to set targets across their portfolios.4It is not mandatory for alliance members to reduce Scope 3emissions from the companies they support. This is particularlyproblematic for the fossil fuel sector where Scope 3 emissionsaccount for around 88% of their total emissions.Absolute emission targets are not required. The alliances suggestbut do not require that targets are set using absolute emissionsnumbers, instead requiring only emission intensity metrics.None of the GFANZ alliances prohibit the use of offsets, or setany numerical limits on their use.The Asset Owner Alliance calls for an end to investments in newcoal mines and power plants, but it does not require its membersto act on this. As of mid-October 2021 at least 34 of the 58 AOAmembers lacked a policy to restrict investments in coal developers.The alliances must focus on fossil fuelsThe only way that the alliances can respond to the urgencyof the climate crisis is to reorient their efforts to a rapidwind down of financing for fossil fuels.The IEA has explained that staying under 1.5 C meansstopping financing for fossil fuel expansion. Several of thealliances explicitly state their support for the IEA’s scenarios.They must require their members to end their support fornew coal, oil and gas supply projects.The alliances must stop financial services for coal-heavycompanies and require other companies to adopt plans thatexit coal by 2030 in industrialized countries and 2040 globally.Financial services should only be provided to utilities withplans to phase out their gas power production by thedeadlines given by the IEA: 2035 in wealthy countriesand 2040 globally.Financial services should only be provided to oil and gascompanies with plans to wind down their productionbetween 2020 and 2030 consistent with at least theaverage annual rates given in the UNEP Production GapReport: 11% for coal; 4% for oil; 3% for fossil gas.543

GLOSSARYAOA: Net-Zero Asset Owner AllianceAMI: Net Zero Asset Managers InitiativeFSPA: Net Zero Financial Service Providers AllianceGFANZ: Glasgow Financial Alliance for Net ZeroICI: Net Zero Investment Consultants InitiativeNZBA: Net-Zero Banking AllianceNZIA: Net-Zero Insurance AllianceFinancial services: all types of financial supportincluding investments, insurance, lending, capitalmarket underwriting, advisory/consulting services etc.GHG: Greenhouse gasIEA: International Energy AgencyIPCC: Intergovernmental Panel on Climate ChangeISF: University of Technology Sydney Institute ofSustainable FuturesPCAF: Partnership for Carbon Accounting FinancialsPRI: Principles for Responsible InvestmentUNEP-FI: UN Environment Programme FinancialInitiative“The gap between rhetoric andaction needs to close if we areto have a fighting chance ofreaching net zero by 2050 andlimiting the rise in globaltemperatures to 1.5 C.”Dr Fatih Birol, ExecutiveDirector of the IEA67

But if words and promises could reverse climatechange, the finance industry would alreadyhave saved the world. There cannot be manyCEOs of major global finance institutions whohave not expressed their deep concern overthe climate crisis. The industry is awash withclimate-related initiatives and commitments.Our key message is that the alliances shouldrefocus from their current emphasis on settingeconomy-wide targets for the thousandsof companies in their portfolios throughcomplex, opaque, loophole-ridden, andprotracted processes. Instead, the alliancesneed to act swiftly on the prime culprits forclimate change: the major producers andconsumers of fossil fuels.In this report we focus on a key financialsector grouping: the four alliances and twoinitiatives that have signed up to the GlasgowFinancial Alliance for Net Zero (GFANZ). (Weuse net zero or GFANZ “alliances” throughoutthis report to refer to both the alliances andinitiatives. This is for brevity, and becausethere is no clear difference in function orstructure between what is called an alliance,and what an initiative).1. ALL TALK,NET-ZERO ACTIONa. The litmus test for net-zeroalliancesIn the six years since the Paris Agreement,the world’s 60 biggest banks have pourednearly 4 trillion into the fossil fuel industry.Bank finance for fossil fuels dropped in 2020,but it had risen in the previous four years, anda single pandemic-hit year does not make atrend.1 Research on 12 of the biggest fossilfuel projects under development in 2020showed that 20 huge investors owned 535billion in stocks and bonds of the companiesdriving these projects.2 Some of the world’slargest insurers, mostly in Europe, havenow ended or limited their coverage for coalprojects, but the majority of their US andAsian peers continue to insure coal as before.Very few insurers have taken any steps to pullback from enabling the oil and gas industries.3And an army of consultants, advisers, dataproviders and accountants continue doingbusiness with fossil fuels without any obviousrestraints.We are now nearly two years into a decade ofextraordinary consequence for our climate.A decade in which the IPCC has shown weneed to cut global emissions in half — whichessentially means cutting fossil fuel burningin half — to be on track to keeping warmingunder the key threshold of 1.5 C. The IPCCexplained this brutal math to us in late 2018,yet three years later emissions are shootingback up to their pre-pandemic level.The finance industry — hand-in-glove withgovernments and corporations — has playeda key role in enabling our economy to becomedisastrously addicted to fossil fuels. It has asignificant responsibility to help mitigate thiscrisis. Yet so far there are far too few signsthat Big Finance is seriously willing to changeits habits.8The IPCC made it clear in 2018 thatconsumption of fossil fuels must be slashedby 2030. The UNEP-supported ProductionGap Report concluded in late 2020 thatstaying under 1.5 C requires fossil fuel supplyto fall by an average of 6% each and everyyear of this decade. And the InternationalEnergy Agency made it clear in April 2021 thatthere is no room in the 1.5 C carbon budgetfor any investments in new coal, oil and fossilgas production.We focus on the GFANZ network because itis the largest grouping of financial institutionsthat have committed to 1.5 C, and the broadestgrouping in that it includes institutions fromacross the key sectors of private finance —asset owners and managers, banks, insurers,service providers and consultants (see Annexfor an overview of each of the alliances). Asof mid-October 2021, the net-zero alliancesincluded nearly 300 financial firms managingand owning assets of around 90 trillion4 —a huge amount of financial firepower thatis equivalent to over a third of all investablefinancial assets worldwide.5 All the membersof the net-zero alliances have signed up to aset of common criteria, and all are connected(if in rather convoluted ways) to the UNthrough the climate convention and the UNEnvironment Programme Finance Initiative(UNEP-FI).To meet these daunting goals, we don’t needmore initiatives or statements of concern. It istime for action. Time for the GFANZ alliancesand their members to put an immediate andconcerted focus on developing policies thatexclude financial services for the companiesthat are destroying our future. Time to showwhether the alliances are really determinedto turn down the global temperature dial— or if they are just a sign of what Germansociologist Ulrich Beck describes as “organizedirresponsibility.”6b. “Net zero” conquers theworldThe phrase “net zero” became solidlyembeddedinglobalclimatepolicydiscussions only after the release of theIPCC’s pathbreaking Special Report on 1.5 Cin October 2018. In what veteran oil industryanalyst Daniel Yergin says is “one of the mostimportant sentences of the last few centuries,”the IPCC concluded that to keep warmingunder 1.5 C, carbon dioxide emissions wouldhave to be cut “by about 45%” between 2010and 2030 and reach “net zero around 2050.”Eric Roston of Bloomberg calls this the “halfby-2030, all-by-2050 guidance”.7In this report we describe who is behind thealliances, who is in them, what their membershave committed to, and what are some of theirstrengths and weaknesses. We lay out a set ofrecommendations to move the alliances fromrhetoric and studies to action. Because of theurgency of the climate crisis we focus mainlyon actions that need to be taken this decade.We focus on the meaningful efforts that can,and must, be taken now, and which providethe litmus test by which we can tell if net-zeroalliances are serious about their mission.9

sector networks with “net zero” in their titleare just a subset of a Byzantine jumble offinance industry task forces, partnerships,frameworks and tools. These initiatives havemostly emerged since the Paris Agreementand variously describe themselves as Paris-,net zero- and/or 1.5 C-aligned. Net zero and1.5 C are usually implied in the financial worldas being synonymous, although in reality netzero is a means of getting to the ultimate goalof limiting global warming to 1.5 C. A (noncomprehensive) guide to these finance sectorcollaborations published in July 2021 runs toalmost 60 pages.9Since 2018, “net-zero emissions” has becomethe key long-term climate target for thousandsof corporations, colleges, hospitals and otherinstitutions, as well as for governmentsranging from small towns all the way up tothe multi-state European Union. As of August2021, more than 65% of global emissionsand 70% of the world’s GDP — and all theworld’s top ten economies except India — wasgenerated in countries with net-zero pledges.8The financial world has joined the clubover the past two years with a gush of netzero announcements. The specific financialpledging to reach net-zero emissions as soonas possible and by 2050 at the latest, withan interim 2030 target. This 2030 target is toreflect “maximum effort toward or beyond afair share” of the halving of CO2 named in theIPCC’s report on 1.5 C.15 The Race to Zero’sexpert review group notes that this halvingby 2030 implies average annual reductions ofapproximately 7%.16must commit to reporting, at least annually,progress in meeting the targets.The Race to Zero’s official expert advisorygroup stresses that members must take“immediate actions . . . within months, andnot more than a year.” It goes on to staythat “[w]hile full plans may take time toformulate, all entities have available a numberof ‘no regrets’ measures to reduce emissionsimmediately. ‘Analysis paralysis’ should notprevent immediate action.” Issuing a plan isnot considered sufficient, says the advisorygroup. “Tangible actions are also required.”17Members must explain within 12 monthsof joining the Race to Zero what actions— especially short- and medium-term actions— will be taken to meet their targets, andThe GFANZ Network 6 alliances and initiatives 58 asset owners 8 insurers 82 banks 12 investment consultants 128 asset managers 18 financial serviceproviders 90 trillion, nearly a thirdof all investable financialassets worldwidec. GFANZ and the Race to Zeroclimate and “catalyze strategic and technicalcoordination.”12GFANZ is chaired by Mark Carney, the UNSpecial Envoy for Climate Action and Finance,and the initiator of a finance industry taskforce on expanding offset markets.10 It wasestablished by the COP26 Private Finance Hub(also led by Carney) in partnership with theCOP26 Presidency (the UK government), theUNFCCC Climate Action Champions (currentlyChilean and British green entrepreneurs,Gustavo Muñoz and Nigel Topping), and theUN Race to Zero.11 It brings together the netzero alliances into one “sector-wide strategicforum” which is supposed to “broaden, deepenand raise” the finance sector’s ambition onFor an alliance to join GFANZ they must beaccredited by the UN Race to Zero Campaign.Race to Zero, launched by Carney and thepresidents of COP25 and COP26, is led by“climate champions” Muñoz and Topping.13It is intended to encourage cities, regions,businesses, investors and colleges to committo net zero and so to send a message tonational governments of broad support for theParis goals 14Accreditation by the Race to Zero requiresmeeting a brief set of criteria including1011

2. NET-ZERO OMISSIONSThere are many positive aspects to thenet-zero alliances. It is positive thatso many of the world’s most powerfulfinancial institutions are coordinating effortsat pressuring companies to change. It is goodthat the Race to Zero and so by extensionthe GFANZ network have accepted the 1.5 Ctarget and the IPCC’s “half-by-2030, allby-2050” guidance.fossil fuels are not even mentioned in theRace to Zero criteria — rather like a global antismoking campaign not mentioning cigarettes.In 2016, Oil Change International warned thatburning just the reserves in currently operatingcoal, oil and gas fields would take the worldpast 1.5 C.18 The obvious conclusion from thisfinding was that there should be an immediatehalt to the construction of new fossil fuelextraction infrastructure. This conclusion wasemphatically confirmed by the InternationalEnergy Agency in May 2021 in their reportNet Zero by 2050: A Roadmap for the GlobalEnergy Sector. This says that 1.5 C means “nonew coal mines or mine extensions” and “nonew oil and gas fields.”19 This message wasreiterated in the October 2021 release of theIEA’s influential World Energy Outlook report.Yet none of the net-zero alliances have comeout against financing new fossil fuel mines orfields.But despite the positives, there are a numberof shortcomings to the approach of theGFANZ network which greatly limit its impact.If these shortcomings are not addressed, theability of the net-zero alliances to drive theclimate transition at anything like the speednecessary will be greatly diminished.a. The elephant in the room:fossil fuelsWhile the Race to Zero stresses the need forits partners to take immediate actions, it failsto note the most important immediate actionto take, which is to adopt policies to restrictthe production and use of fossil fuels. In fact,The Asset Owner Alliance (NZAOA), theBanking Alliance, and the Insurance Allianceall refer to the use of IEA scenarios. TheNZAOA even issued a statement in January122021 stressing the importance of the IEA’sthen still-in-development net-zero scenarioand urging that the agency “take a clear-eyedview of the risks of stranding of high-carboninfrastructure and reserves as well as theimplications for oil and gas developments –specifically including the need for managedphase-down of production and use.” TheNZAOA also stated that: “We look forwardto being able to deploy such a scenario toadvance our objectives in alignment withthe global imperative to achieve net-zeroemissions by 2050.”20 In its 2025 Target SettingProtocol, also published in January 2021, theNZAOA recognizes that companies investingin “the expansion of oil and gas production”are “locking them[selves] into assets thatare incompatible with the goals of the ParisAgreement.”21 Yet as of mid-October 2021,the NZAOA had not responded to the IEA’srejection of investments in new fossil supply.and calculating what proportion of theseemissions should be attributed to whichfinancier.Various initiatives are underway to developmethodologies to attribute corporateemissions to individual investors, insurers,lenders and underwriters. The mostbroadly supported of these initiatives is thePartnership for Carbon Accounting Financials(PCAF).23 It has already developed standardsfor measuring and reporting financedemissions from six asset classes includingstocks, corporate bonds and business loans.It is currently working on methodologiesfor underwriting of issuances of stocks andbonds, and, along with the Insurance Alliance,“insured emissions.”24More than 170 financial institutions nowsupport PCAF and many of them now haveteams diligently working on how to tally uptheir financed emissions across the coveredasset classes. This work is important, but it isslow and complex.Launched shortly after the IEA’s net-zeroroadmap, the Insurance Alliance’s “statementof commitment” explicitly states thatits members must take the report “intoconsideration.”22 But the statement makesno mention of the IEA’s conclusion on no newfossil fuel supply projects.And once PCAF has developed itsmethodologies, the financial institutions thenmust start their own cumbersome processesfor applying the methodology across thethousands of companies that they support.And because of this complexity, as wellas issues around disclosure of proprietaryinformation, the process of enumeratingemissions will inevitably be extremely opaqueto anyone from outside trying to monitorand verify financial institutions’ numbers andto hold them accountable to their claims ofprogress on meeting their targets.b. “Analysis Paralysis” vs.immediate actionWe are rapidly running out of time to makethe deep changes necessary to keep warmingbelow 1.5 C (and even 2 C). Unfortunately, asense of urgency is rarely detectable in thework of the net-zero alliances. Indeed, theanalysis paralysis warned against by the Raceto Zero is a key problem with the “financedemissions” approach that is at the center ofall the alliances’ target setting.Portfolio-wide financed/insured emissionapproaches should therefore not be theprimary strategy by which the finance sectorseeks to reduce emissions, at least in theshort term.The IPCC’s “half-by-2030, all-by-2050“guidance applies to emissions across theentire economy. The net-zero alliances havetaken this to mean that their targets shouldbe set across all (or at least large partsof) their portfolios. Setting portfolio-wideemission reduction targets means knowingthe emissions of all of the many hundreds oreven thousands of companies in portfoliosAs the Race to Zero has stated, it is vital totake action immediately. Investors, banksand insurers know that the great majority ofgreenhouse gas emissions are from burningfossil fuels, and they know who the big fossilfuel producers and consumers are (theyhave been financing them for years). Those13

involved with the net-zero alliances also know(although they have been very quiet about it)that the IEA has said that no new fossil supplyinvestments are compatible with 1.5 C.targets. They have a further 18 months to settargets for “all or a substantial majority” ofthe carbon-intensive sectors. Furthermore,banks don’t need to disclose the actions theyintend to take to meet the targets for a yearafter setting them.28They also know how to put in place “exclusionpolicies” that restrict financing for fossil fuels.Financial institutions have been graduallyincreasing the number and improving thequality of their coal, and to a limited extentoil and gas, exclusion policies for the past halfdecade and more.25 If written and applied ingood faith, exclusion policies can be quick todevelop and implement, with an immediateimpact on the availability of financial servicesto carbon-intensive sectors and companies.d. An accounting matter:Scope 3 emissionsThe Race to Zero says that its members will“reduce emissions across all scopes” (seeBox for an explanation of the three emissionscopes).29 But this is not strictly the case forfinancial institutions who sign up for the Raceto Zero.c. Targets, sometime.maybe.The Race to Zero requires financial institutionsto include in their targets their own Scope 3emissions, namely the emissions from thecompanies they support. However, it onlyrecommends and does not require that thefinancial institutions should ensure thattargets should be set on the basis of thecompanies’ Scope 3 emissions. For oil andgas companies, omitting Scope 3 emissionsmeans that only their operational emissions— about 12% of the total — would be countedin their targets.30The GFANZ network’s lack of urgency is alsoseen in the fact that the NZAOA is the onlyalliance to require targets to be set for a yearbefore 2030. It is also seen in the painfully slowtimetables that the Asset Managers Initiative(NZAMI) and Banking Alliance have adoptedfor setting targets and publicizing actions.For instance, NZAMI members are requiredto set 2030 targets by November 2021, or atlatest within a year, of joining the NZAMI, butonly for a proportion of the assets that theymanage.26 Its members are free to decidewhat the proportion of assets should be,and what type of assets and which economicsectors should be covered. Every five yearsNZAMI members are to review their targets“with a view to ratcheting up the proportion of[net-zero aligned] assets under managementcovered until 100% of assets are included.”But as no timeline is given for the rate atwhich assets should be brought within thenet zero-aligned pool, it could be decades—2050 even — before NZAMI members haveset net-zero targets across all their assetsunder management.While the four net-zero alliances that requiresetting emission targets all recommend theuse of their clients’ Scope 3 targets, they alsoallow them to be omitted from targets on thebasis of insufficient data.e. Missing: absolute emissionstargetsThe Race to Zero does not mention whetheremission reductions should be based onabsolute or intensity metrics. Absoluteemissions are measured in tons of greenhousegases and are what cause climate change.Intensity emissions are measured in economicformulae such as kilograms of methaneemitted per thousand cubic feet of naturalgas sold, or tons of CO2 per million dollarsof revenue generated, and are how financialinstitutions like to set their targets. Intensitytargets can allow a seeming reduction to turninto an actual emissions increase, for exampleDespite the Race to Zero requirement thatsignatories set targets and explain whatactions will be taken to meet them within ayear of joining,27 Banking Alliance membershave 18 months to set their first round of14Scoping out greenhouse gas emissionsCorporate greenhouse gas emissions are categorized into three “scopes” by aninternationally recognized tool called the Greenhouse Gas Protocol.31Scope 1 covers direct emissions from owned or controlled sources. These couldinclude power plants, steel mills, refineries, vehicles, and methane leaks from oiland gas wells.Scope 2 covers indirect emissions from the generation of purchased electricity,steam, heating and cooling consumed by the reporting company. For mostcompanies, electricity will be their main source of Scope 2 emissions.Scope 3 includes all other indirect emissions that occur in a company’s valuechain. For fossil fuel companies Scope 3 emissions are particularly significantbecause they cover the emissions from the burning of the coal, oil and gas theysell. Consultancy IHS Markit calculates Scope 3 emissions are around 88% of oiland gas company emissions.32The NZAOA, NZAMI, NZBA and NZIA rightly require their members to set targetson their Scope 1, 2 and 3 emissions. For a financial institution their Scope 1 and 2emissions from heating, cooling and lighting their offices will be relatively small.The great majority of their emissions will be their Scope 3 “financed” or “insured”emissions — those that they enable from the companies they invest in, lend toand sell insurance too. But the problem is that none of alliances require thecompanies to which they provide financial services to count their Scope 3 data.So while the NZAOA, for example, would need to include in its sub-portfoliotargets a utility’s Scope 1 emissions from its power plants, it would not needto include the Scope 3 emissions that result from an oil company’s customersburning gasoline and diesel.33of carbon accounting trickery, masking thepossibility of increased emissions beneath aveneer of climate cases where a company extracts more oilbut does it with less methane leaked per barrelpumped. With revenue intensity targets, allthat may need to happen for the targets to bemet is for prices of oil of whatever commodityis being extracted or produced to increase.The NZAOA, for its main “sub-portfolio”target setting approach, and the BankingAlliance, recommend (but don’t require) bothintensity and absolute emissions to be used.The NZAMI and the Insurance Alliance havenot made any recommendations on intensityor absolute emissions. But because highemitting companies generally prefer intensitytargets, it is likely that most members of thealliances will use only intensity metrics unlessabsolute metrics are mandated.Production-based emissions intensity targetsdo have a role — they can for example help driveefficiencies in sectors without clearly viablezero-carbon alternatives such as cement andsteel. However to ensure that they actuallyreduce emissions into the atmosphere, theymust be accompanied with absolute targets.Otherwise, they are just another example15

onsultantsProvidersInitiativeAllianceEmission reduction targetsRequires 2025targets?YesNoNoNoNoNoRequires 2030targets?YesYesYesYesYesYesRequires absoluteemissions targets?NoNoNoNoNoNoRequires targetsinclude Scope 3emissions?NoNoNoNoNoNoNumericalrestriction onuse of offsets?NoNoNoNoNoNoFossil fuelsRequires coal phaseout?NoNoNoNoNoNoRequires haltto fossil fuelexpansion?NoNoNoNoNoNo1617

Offsetting realityOffsetting allows polluters to meet their emissions targets by purchasingcertificates that supposedly represent avoided emissions or removals of GHGsfrom the atmosphere. Unfortunately, more than two decades of experience withregulated offset schemes shows that the supposedly simple concept behindoffsetting is fatally flawed.Offsetting, especially through the Kyoto Protocol’s Clean DevelopmentMechanism and California’s Compliance Offset Program, has been rife withcheating and defective methodologies. 34 Claims that all these problems can befixed with better governance are simply naïve; program designers and regulatorshave known for years of the problems with these programs and yet have nevershown the will nor ability to fix them.Avoided emission offsets are particularly problematic as they are based on theconcept that an emission in one place can be zeroed out if an emission is avoidedsomewhere else; for example, by replacing a diesel generator with a solar array,or by protecting a forest. But it is clear from the terrifying math of the global 1.5 Ccarbon budget that we must reduce emissions everywhere and not waste carbonreduction opportunities i

6 7 AOA: Net-Zero Asset Owner Alliance AMI: Net Zero Asset Managers Initiative FSPA: Net Zero Financial Service Providers Alliance GFANZ: Glasgow Financial Alliance for Net Zero ICI: Net Zero Investment Consultants Initiative NZBA: Net-Zero Banking Alliance NZIA: Net-Zero Insurance Alliance Financial services