The corporate backlash against net zero

This is an audio transcript of the FT News Briefing podcast episode: ‘The corporate backlash against net zero’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, December 2nd, and this is your FT News Briefing.

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Europe is moving towards a price cap for Russian oil. Investors poured back into emerging markets. And many of the world’s global corporations have plans to move toward net zero emissions. But there is a backlash brewing. I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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In just a few days, the European Union will ban Russian crude oil shipped by sea. The December 5th deadline adds pressure on EU member states to agree on a global price cap for Russian oil. The idea is to curb Moscow’s oil revenues, which haven’t been dented much by western sanctions so far. Yesterday, Brussels proposed a cap of $60 a barrel. If member states agree, other G7 countries would have to go along with that price. Russia will likely discuss a response with the Saudis and other oil producers at an Opec meeting on Sunday.

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It has been an awful year for emerging markets. But last month, investors had a change of heart. They poured back into emerging markets, stocks and bonds. JPMorgan’s broad gauge of dollar-denominated emerging market debt jumped more than seven and a half per cent in November, its best month since 1998. Here’s the FT’s Tommy Stubbington.

Tommy Stubbington
So yeah, this was a rally across the board. Although it is true that some of those that had sold off most sharply and that is, you know, particularly things like certain countries that had basically been pushed to the brink of debt crises or into debt crises by what’s happened in markets this year are among those that have recovered most sharply. So, you know, we’ve seen, for example, a country like Sri Lanka has defaulted on its debt. We’ve seen a debt crisis brewing in Pakistan, also in Ghana. Those countries bonds recovered very sharply. But it wasn’t just those ones. It was emerging markets across the board.

Sonja Hutson
So, Tommy, how much does this November rally make up for losses earlier this year in emerging markets?

Tommy Stubbington
So that’s the point. We have to remember that these markets are still down heavily this year in much the same way that the US stock market is still down heavily this year and stock markets everywhere are. Yes, November was the biggest rally in many, many years, both stocks and bonds, but they’re both still sitting on double digit losses for the year as a whole.

Sonja Hutson
And is this return to emerging markets expected to continue, you know, as major central banks raise rates more slowly, or is this just a temporary relief? What are you hearing?

Tommy Stubbington
Well, I think there’s a reluctance to predict a kind of more lasting rally for emerging markets here. Now, the reason being is, yes, we have relief provided by what’s going on in US interest rates. But bear in mind that emerging markets, like the rest of the world, are probably about to face a global recession. Those economies that are already in debt distress are going to be battered by weaker demand at home and abroad. So even if you have relief from the interest rate cycle, you then have the kind of the fundamentals deteriorating. The ability to repay your debts and for companies to make profits at home are gonna get worse. So I think there is some sense out there, and obviously it remains to be seen, but there’s some sense that this could be a sharp rally in the middle of a bigger bear market.

Sonja Hutson
Tommy Stubbington, is the FT’s capital markets correspondent.

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About a third of the world’s leading corporations have made net zero pledges or goals to reduce carbon emissions to zero. But at the recent UN climate conference, COP27, the FT’s business columnist Pilita Clark noticed a backlash in corporate sentiment. She joins me now to talk more about this. Hi Pilita.

Pilita Clark
Hi. Great to be here.

Sonja Hutson
So Pilita, you regularly go to these huge UN climate conferences. What changed between last year’s meeting and this year’s meeting?

Pilita Clark
So there was a huge difference for business people. At COP26 in Glasgow last year, I guess the overwhelming sense that these businesses felt was that they were on the right path and they were part of the solution. They turned up in Egypt a year later at COP27 and were pretty much told that they were part of the problem by a group of experts who’d been appointed by the UN to look at these corporate net zero pledges. And their message literally was that too many of them are just rubbish. They’re far too woolly. They haven’t got enough scientific rigour and really businesses need to do a lot better.

Sonja Hutson
What exactly did the report say? What do these corporations need to be doing better?

Pilita Clark
So there were many, many things they needed to be doing better. But for example, the report said that companies could not claim to be net zero if they were continuing to build or finance new supplies of fossil fuels — oil, gas or coal. It also said that they couldn’t rely on cheap and often fairly suspect carbon credits or carbon offsets to offset their own carbon pollution. And instead they had to focus on cutting their own emissions. And so, you know, all of this is, for some companies, it’s a lot more than what they had bargained for when they set their net zero targets. And so there was quite a bit of unhappiness and quite a bit of kind of people saying, well, you know, it took us ages to get my company to agree to even set a net zero target. And now we’re being told that everything that we’re doing pretty much is not good enough.

Sonja Hutson
So, I mean, does this mean or is there a possibility that we’re gonna see companies just get so fed up, say, you know, “Well, we can’t do anything right,” and abandon their their net zero pledges?

Pilita Clark
So this is what is a great unknown, actually. And I don’t think it’s going to be easy at all to abandon a net zero pledge once it’s made. The difficulty is that for some sectors that, you know, if you’re trying to make trucks, for example, and you’re buying steel, that is generally, at the moment, overwhelmingly made with coal. Can you go out into the marketplace and say, well, “I’d just like to stop buying the steel made with coal and I’d like to buy the steel made with green hydrogen things”? Well, turns out there’s hardly anyone making that green steel at the moment. That’s where governments have to come in. They really need to step in and introduce the sorts of policies that are going to accelerate the production of things that are really needed by a lot of companies in order to help them reach their net zero target. So we’re kind of in this very messy, difficult stage at the moment. Companies in many cases are actually, I think, pretty well motivated and are full of people who really would like to do the right thing. But it’s incredibly difficult sometimes and incredibly expensive to do that.

Sonja Hutson
Why is it so difficult to get this whole system of government and businesses on board? Because this whole apparatus needs to work together, right?

Pilita Clark
So in many ways it’s not surprising because as a species, humans have never tried to shift away or transform the global energy system in a matter of years rather than decades, which is what really needs to be done. We rely overwhelmingly on fossil fuels at the moment for our energy, and we have to cut that really, really quickly. It’s incredibly difficult and fraught and messy, and I’m afraid I don’t see that changing any time soon. But I do think that the overwhelming direction of travel towards cutting emissions is not going to change.

Sonja Hutson
That’s the FT’s Pilita Clark. Thanks, Pilita.

Pilita Clark
Thank you so much.

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Sonja Hutson
Before we go, this week has been thrilling for volcano researchers. The largest active volcano on the planet finally woke up. Mauna Loa on Hawaii spewed lava up in the air and down the mountains. Our science editor Clive Cookson saw a video of it and describes it as . . . 

Clive Cookson
 . . . a huge illuminated orange fountain. It’s like a line of molten rock gushing out of the earth’s surface. It’s one of the most spectacular things I’ve ever seen.

Sonja Hutson
Volcanologists are also beside themselves, not just because they’ve been waiting nearly 40 years for this, but also because the mountain is covered in scientific instruments for collecting data.

Clive Cookson
And now that it’s erupted, they’ll be analysing all that data for two reasons. One is to sort of find out more about the internal volcanic plumbing underground, to find out how this magma, the molten rock at about a thousand degrees centigrade, rises up and then suddenly comes out. And secondly, perhaps more importantly, they want to learn lessons about how better to predict volcanic eruptions. Because no one knew quite when this was going to happen.

Sonja Hutson [
That’s the FT’s science editor, Clive Cookson.

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You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Marc Filippino, Fiona Symon and me, Sonja Hutson. Our editor is Jess Smith. We had help this week from David da Silva, Michael Lello and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.