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Net-Zero Basics

Why net-zero matters for investors

clock 5 minute read

Climate change is the single greatest challenge humankind has faced and its consequences are already all too apparent. Flooding, fires and drought are harbingers of the dislocation to come if the planet doesn’t slash emissions of greenhouse gases to reduce warming.

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What is net-zero?

Averting a climate disaster will demand a rebuilding of the global economy from one that relies overwhelmingly on fossil fuels for energy to an economy that takes as much carbon out of the atmosphere as it puts in. In short, it will require reducing greenhouse gas emissions to net-zero. The 2015 Paris Agreement set a goal of preventing the worst effects of climate change by limiting global temperature rise to well below 2 degrees Celsius (2°C), preferably 1.5°C , above preindustrial levels by the end of the century. But absent large-scale reductions in emissions, average global temperatures are very likely to exceed the 1.5°C threshold by 2040 and continue to rise for at least a decade thereafter, according to the latest report by the U.N. Intergovernmental Panel on Climate Change (IPCC). Net-zero may on the surface seem straightforward. But companies, countries and organizations and institutions across society need to do the work of aligning their emissions with the global goal. That’s where the details start to matter.

“Net-zero is becoming increasingly important for investors now.” Remy Briand, MSCI’s global head of ESG, discusses the imperative to address the financial risks and opportunities of climate change.

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