Keywords for carbon neutrality

By Kim Sung-woo

About two to three years ago, we rarely came across the terms "carbon neutrality" (the state of net zero carbon emissions) or "ESG" (environmental, social and corporate governance). However, ESG garnered increasing attention in 2020 even amid the COVID-19 pandemic, with countries around the world declaring their commitment to these concepts and aims.

In 2021 and onward, carbon neutrality and ESG became two of the most popular buzzwords in Korea, if not around the world. Nevertheless, few seemed to have grasped an understanding of, or reached a consensus on, their substantive meaning ― some of which can be very comprehensive and perplexing.

Against this backdrop, stakeholders are making increasingly stronger demands on environmental issues and carbon neutrality became one of the top priorities for many corporations. As such, I'd like to explain a few keywords that you may encounter in the process of implementing carbon neutrality and what their implications are.

First, "Scope 3" emissions is emerging as a new buzzword. Carbon emissions have three components: Scope 1 emissions are direct emissions generated from sources within company boundaries, Scope 2 emissions are indirect emissions generated from the company's purchase of electricity and heat and Scope 3 emissions are supply chain emissions generated outside the company's boundaries.

Simply put, Scope 3 emissions include emissions generated by customers, suppliers, vendors and client companies. These days, the realm of carbon neutrality is expanding as companies that joined the movement toward carbon neutrality recently are being asked by their stakeholders to manage Scope 3 emissions as well.

Controversies over "greenwashing" will also intensify. Greenwashing is a tool used to inform stakeholders that the company is making significant efforts to promote eco-friendliness while, in fact, it is not. As companies are facing increasingly challenging demands to disclose carbon neutrality-related targets and achievements and an increasing number of stakeholders are keeping their eyes on them, controversies over false and exaggerated claims about going green are already increasing.

Another key topic is the quality of carbon credits. As the demand for carbon reduction increases dramatically, the demand also increases for carbon credits, which serves as both a proof of carbon reduction and the right to emit carbon.

To secure carbon credits, companies may either invest in carbon reduction and receive the corresponding amount of carbon credits in return, or purchase them instead. If the carbon credits secured or purchased turn out to be not backed by a clear proof of the company's contribution to carbon reduction, the company may be exposed to reputational or even litigation risks.

The green investment impact will also attract increasing attention from investors. A growing number of investors will take a closer look at whether green investment has achieved its goals not only in terms of profit but also in terms of environment. Green investment is continuing its upward trend, with HSBC predicting that about 1,000 trillion won worth of green bonds will be supplied this year.

Investors are now focusing on whether the funds raised with green bonds will actually contribute to the protection or improvement of the environment worldwide. Further, various other keywords related to implementation of carbon neutrality such as mandatory information disclosure and race to acquire relevant technologies began to draw attention as well.

The keywords described above may look overwhelming, given that even the terms carbon neutrality and ESG has not yet been fully digested by most people. It might sound harsh, but I think the situation is like doing all the homework on the last day of the winter vacation before the semester starts ― and it is ourselves who kept procrastinating on the homework.

However, what if the government, companies and individuals do not even do this long-overdue homework? According to a report published by the Korea Meteorological Administration at the end of last year based on the scenario of the Intergovernmental Panel on Climate Change (IPCC), if we maintain carbon emissions at the current level, our children and grandchildren will spend about half of the year in summer, about a month in winter and three months of tropical nights.

An even bigger problem is that we will see an increase in extreme weather events. Following the early heat wave in June 2020, the extraordinarily heavy rainy season continued in July and August, causing significant damage such as floods and landslides. In March this year, a joint research team, including Seoul National University and the National Institute of Meteorological Sciences, said the cause of extreme weather in the summer of 2020 was greenhouse gases (primarily carbon), which are the main culprit of climate change.

Analysis of data in 45 regions across the country from 1973 to 2020 confirmed that extreme weather, such as those events which occurred in the summer of 2020, appeared only in models with increased greenhouse gas scenarios. This warns us that extreme weather will appear more often and may intensify if the current level of carbon emissions continues.

We should be mindful not to hand over the planet to our descendants in what may in the future be more like a sauna. This is why we have to do our overdue homework by reflecting upon the emerging keywords of carbon neutrality, no matter how perplexing they may appear.

Kim Sung-woo is the head of the Environment & Energy Research Institute at Kim & Chang.