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Carney’s stumble at Brookfield intensifies focus on ‘net zero’ claims

A major stumble by UN climate adviser Mark Carney over the carbon accounting methods used by Brookfield Asset Management, where he is vice chair, has thrown the spotlight on controversial climate claims and the contested definition of “net zero”.

Carney earlier this year claimed Brookfield, which has significant fossil fuel investments, had achieved net zero emissions because its clean energy business offset its coal, oil and gas investments.

The UN special envoy on climate action and finance became head of impact investing at Brookfield six months ago. He told a Bloomberg conference audience in February that Brookfield was “net zero” across its entire $600bn portfolio due to its “enormous renewables business that we’ve built up and all of the avoided emissions that come with that”.

Climate experts led by the respected Science Based Targets initiative promptly deemed it “greenwashing”, and Carney swiftly rowed back his remarks, saying he was “a strong advocate for net zero science-based targets” which so-called avoided emissions “do not count towards”. 

In March, Brookfield also revised its public position, telling the FT that “our global business is not net zero today, and it was not our intention to suggest that we have achieved our objectives in carbon reduction”.

The backlash illustrates the complexity of climate accounting, which lacks standardisation and is open to manipulation, and the ease with which even experienced climate ambassadors can fall foul of the still-emerging rules.

Climate finance experts say it also highlights the fragility of global efforts to strive for net zero, a goal that is not clearly defined and relies heavily on the goodwill of those making claims. 

“We really need convergence and more direction on, and parameters around, what is a credible net zero commitment,” said Sagarika Chatterjee, director of climate change at the UN-backed Principles for Responsible Investment. “Only a subset” of corporate targets are “credible”. 

The atrium of Brookfield Place, a shopping mall in Manhattan’s financial district © Bryan Thomas/Getty

Brookfield’s sprawling businesses across real estate, renewable power, infrastructure and private equity are fraught with climate challenges, which Mr Carney will need to navigate in his board role.

The group’s infrastructure arm includes investments in 4,200km of natural gas pipelines alongside a renewables division. A letter to shareholders in February stated that a greater volume of hypothetical emissions were “avoided” by the group’s renewable energy investments than were generated by its direct business, energy use and supply chain, making Brookfield net zero “on an avoided emissions basis”. 

Brookfield made a similar claim in 2020, even as its infrastructure division outlined the “potential” to expand its metallurgical coal operations in Australia. Despite its carbon-intensive investments, Brookfield Infrastructure said in February that it could “offset and avoid our current emissions using favourable group-level attributes”.

This methodology is not unique to Brookfield. Impax Asset Management, which invests in environmental solutions, said last year its investments in renewables meant the group’s “carbon avoidance exceeds emissions”. In other words, these avoided emissions offset Impax’s own release of emissions from its operations and investments. Impax’s avoided emissions calculations included the assumed savings from the distribution of natural gas in China, as it had displaced coal in general usage, the company said. 

“Given the numerous ‘net zero’ and Paris alignment frameworks, standards and methodologies emerging ahead of COP26 [UN climate talks], we plan to review these to ensure that our approach remains best in class,” Impax said.

Critics of the “avoided emissions” method of carbon accounting say it is selective, misleading and illegitimate. The inclusion of the measure in making carbon footprint calculations is “taking credit for something that happens independently from your own carbon footprint”, said Alexander Farsan, a member of the Science Based Targets initiative steering committee.

“You shouldn’t account for reductions where you haven’t accounted for the emissions in the first place,” Farsan said. 

Avoided emissions are generally baked into carbon accounting already: they are the reduction that results from switching to a clean energy source, for example.

The concept of avoided emissions has also generated debate in the market for carbon offsets, which organisations can use to compensate for their emissions as part of net zero plans. Many schemes generate offsets on the basis of carbon avoidance, rather than removal, such as those that protect existing forests.

Since companies buy offsets as a “trade” for reducing their own emissions, what matters is whether those purchases represent “a tonne [of carbon] removed”, not avoided, said Jonathan Goldberg, chief executive of the advisory group Carbon Direct.

Farsan said claiming carbon neutrality on the basis of having bought avoidance offsets was illegitimate, since those credits “cannot play the role of carbon removals”.

A task force co-founded by Carney that aims to scale up the offsets market has acknowledged concerns that certain avoidance schemes that generate offsets may not always deliver genuine, permanent carbon benefits. 

One of the groups the task force is consulting as part of its work is an energy trading company called Hartree Partners, which sells offsets, often from “avoided deforestation” projects.

Hartree is linked to Brookfield through the asset manager’s majority ownership of Oaktree Capital. In turn, Oaktree is a part-owner of Hartree.

The task force said it was consulting individuals from more than 200 organisations, and Hartree had no “special decision or content rights”. Carney had “no decision rights” over the task force’s output, it said, and there was “no connection” between his role at Brookfield and position as a “supporter” of the task force. Brookfield also said Carney had no Hartree involvement at all.

Several international groups are working to define what credible net zero plans should look like, including the Science Based Targets initiative as well as the powerful Climate Action 100+ investor group, which represents institutions that collectively manage $54tn in assets.

Brookfield said that as a signatory to the Net Zero Asset Managers initiative, which is made up of more than 40 institutions, it was “fully committed to the goal of achieving net zero greenhouse gas emissions by 2050”.

“We will build on our deep capability in renewable power and go much further to take a leadership role in contributing to this transition, including through science-based emissions reduction strategies.” 

Creative carbon accounting is enabled by the absence of an agreed definition of net zero, which is “still a nascent concept”, said the PRI’s Chatterjee. “We’re really risking credibility and diluting ambition by not now having some of these basic parameters.”

Maximilian Horster, head of climate solutions at ISS-ESG, the responsible investment arm of Institutional Shareholder Services, said the Carney episode demonstrated “the thin ice that everyone is walking on when talking about net zero”.

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This is not a CAPTIS article. Originally, it was published here.