Net zero? What does it mean?

author blog

Personal Investing

13 January 2021

We look at the definition of net zero and ask why it’s so important in the battle against global warming.

Public concern over climate change has reached such a level that the term ‘net zero’ was chosen as one of the Oxford English Dictionary’s most commonly used words of 2020. But how many of us know what ‘net zero’ actually means?

Think of net zero as an overall balancing act

Pepper any text with the words ‘net’ and ‘gross’ and many readers find themselves suddenly disinterested. But when net zero is seen in the context of an overall balancing act to ensure that the amount of carbon-absorbing assets on our planet (namely trees, soil and oceans) is matched with the carbon we emit (such as fumes from industrial, agricultural and energy processes), then the term starts to make more sense.

While some commentators focus on the narrower definition of limiting carbon dioxide emissions, we believe it is necessary to talk about limiting the use of overall greenhouse gases (GHG). While carbon dioxide forms the greatest contributor to GHG, another GHG gas – methane – is even more potent. Limiting greenhouse gases is vital because, when released into the atmosphere, they trap the sun’s energy, thereby increasing global temperatures.

Why is net zero so important?

In 2015, some of the world’s most high-profile leaders signed a landmark agreement known as the Paris Accord to put in motion an accelerated phase-out of fossil fuels (coal, oil and gas) and to promote the growth of renewable or sustainable energy streams.

The Paris Accord aims to limit global warming to no more than 1.5° above the pre-industrial age. This target is informed by research which suggests that if global warming continues at its current rate, this will have damaging consequences for our health, livelihoods, and economic growth.

The consensus is that the safest and most effective way to achieve this goal is to reduce net zero carbon emissions by 2050.

The COP 26 conference – an important milestone

The agreement has gathered much momentum since then. Governments, industries, environmentalists and many others continue to push for the necessary policies to make the global economy more ‘green’. As a company, we are also playing our part through initiatives such as our Climate Impact Pledge.

And 2021, we believe, will be a particularly important one for the environmental lobby in the UK. In November, for the first time ever, the UK will play host to the COP26 climate change conference in Glasgow, with the aim of announcing bolder policies than ever before to set the world on a course towards net zero.

Achieving net zero by 2050 is an ambitious target. Many of us continue to drive diesel cars, travel on aeroplanes and eat food which is intensively farmed. But we believe participants globally, including financial service companies such as us, all have a vital part to play.

Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.

Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.