The Smoke and Mirrors used by banks and other institutions to jump on the Net Zero bandwagon thereby becoming attractive for investors. A talk given to students of finance at a leading Japanese university.

1. Net Zero Emissions:
Jiggery-Pokery or
Something Else?
Dr Sarma VANGALA
CEO
Metastrategy, Inc
Toronto, CANADA

2. There is nothing quite so useless, as doing with
great efficiency, something that should not be
done at all.
Peter Drucker

4. MoneyTalks
• Banks’ operations {IT systems, branch and office machinery}
consume miniscule amounts of energy, hence negligible
direct greenhouse-gas emissions,
• ‘Financed emissions’, i.e., those associated with banks’
lending and investing activities, are 1 000 times {or more} than
operational ones.

5. The Net-Zero Bandwagon
Come one, come all.

8. Net-Zero Asset Owner Alliance
$ 5 trn assets under management

9. How do you assess portfolio
emissions?
Methodology I: Partnership for Carbon Accounting
Financials {pcaf}
Drawback: Small firms rarely disclose emissions*
Workaround: pcaf uses sector averages
Disadvantage: Double counting is endemic
* HSBC says only 12% of its loan portfolio report this

10. Double and triple counting
Example:
Emissions from an office building which is leased and which has
a mortgage on it.
Emissions on the books of:
Mortgage lender; firms financing the companies leasing space;
firms financing the city where building located.

11. Further complications
Methodology II
pcaf can also use enterprise value {equity plus debt}
Example: Bank lends $10 million to company with enterprise
value of $100 million, hence responsible for 10% of carbon
emissions.
What if value of asset increases over time, or company assumes
more debt? Lender’s carbon footprint falls through no action of
its own.

12. Greenness and the Paris Accord
Methodology III: Alignment with Paris agreement {2 Degrees
Investment Initiative or 2dii}
2dii analyses assets and production of portfolio companies.
Example: Is an electric car maker producing enough cars to
meet Paris goals?
Drawback: Not all asset classes are included

13. Temperature Score
Methodology IV: Assign temperature score to portfolios
Assessment: How much would the Earth heat up by 2100 if
carbon intensity of the world’s economy were the same as a
given portfolio’s.
Scientists contend 3 to 4 degrees above pre-industrial levels.
Financial firms come to same conclusion when adding up
their portfolios’ emissions.

14. Temperature Score
It’s the score and nothing but the score.
Institute Louis Bachelier 1 and I4CE 2 looked at 12 scoring methods.
• Some included supply chains while others did not;
• Companies which stated they met their net-zero targets were
assumed as such.
When the 12 methods were applied to the index of low-carbon
companies, scores ranged from 1.5C to 4C above pre-industrial
levels.
1 a research network
2 a think tank

15. Swiss Accounting
Swiss financial institutions’ holdings in coal plants, by generating
capacity, dropped by 20% between 2017 and 2020.
However, by 2020, the original cohort of coal plants had increased
their capacity by 50%.
• The plants had sought financing from other sources and
• The Swiss banks were moving to zero-carbon on their books.
Source: 2dii

16. The Smoke {in Smoke and Mirrors}
Banks with zero-carbon loan books look good
and will attract customers.
Do they help the planet?
Nope.

17. The Mirrors {in Smoke and Mirrors}

18. Even countries are onto it
United we stand {when it suits us}

19. Promises, promises
By 2030 India promises to reduce ‘emission
intensity’ 1 by 40 %
1 emissions per unit of economic growth

20. A fall in carbon intensity is unlikely to have an
impact on limiting projected emissions.

21. Get the animation for next slide (note to self)

23. Non-fossil fuels
Promise: Non-fossil sources will create energy
capacity of 500 GW by 2030 from its current
level of 120 GW.

24. India is a principled nation and not driven by
politics.
Narendra MODI {August 2020}

25. Commit By Not Being AtTheTable?
India abstained from a meeting focused on reducing emission
of methane gas, one of the most potent of greenhouse gases
which is created by agriculture.
60% of India’s population works in agriculture.

26. Promises
Fully one third of India’s land area will be
covered by forests.

27. Data mis-match
• Global ForestWatch estimates India lost 18% of
primary forest between 2001 and 2020.
• Government of India reports a 5.2% increase in
the same period.
GFW includes only vegetation taller than 5m
whereas GoI reports tree density in any given
area regardless of height.

28. ATree is aTree
Even if it takes 40 yrs to mature

30. SarmaVANGALA, Ph D
Chief Executive Officer
Metastrategy, Inc.
• SarmaVangala is a corporate consultant
specialising in Strategy, M&A and Business
Transformation
• Based inToronto, CANADA
• BTech (IIT(M)); PhD (Exon.); Professional Engineer
• sarma.vangala@metastrategyinc.com

31. Dynamics