by Jamie Bonham.

Net-zero plans must be wedded to corporate strategy if they are to be truly credible.

Editor’s note: This article first appeared in our Q2 Active Ownership Report

The last quarter saw a flurry of energy-related developments that were dizzying in scope and precedent-setting in scale. They are indicative of the growing prominence of net zero as the focal point for investor engagement, which was a big factor in most if not all these developments.

In short: the International Energy Agency released a net-zero scenario that called for no new oil and gas exploration and development; ExxonMobil lost a proxy battle with an activist investor bent on a more robust climate strategy; several climate-themed resolutions received majority support from investors; and Royal Dutch Shell was ordered by a court to set more ambitious greenhouse gas reduction targets. (See this blog for more detail.)

Closer to home, Suncor released a net-zero strategy that met a longstanding ask of investors, including NEI, who have wanted to see the company combine all the work it has been doing on low-carbon technologies into a cohesive, net-zero strategy Two different low-carbon hydrogen projects were announced in Alberta (one by Suncor and ATCO , the other by Air Products ). Finally, all the major oilsands companies announced a combined strategy to achieve net-zero emissions by 2050 using shared carbon capture and storage infrastructure. This last announcement, though very dependent on yet-to-be-announced government incentives, is striking for its potential to help decarbonize other heavy-emitting industries in the region.

But will all this make any difference in the fight against climate change, or is it just a distraction while companies pursue a business-as-usual approach? Undoubtedly, it will be both. The stated ambition to align with a net-zero future is undeniably necessary. We will not get there without industry doing some heavy lifting, and as the balance shifts toward companies aligning their strategy with a net-zero goal, we are assuredly in a better place. At the same time, it is easy to see the appeal of making a 2050 commitment for current managers who will be enjoying their company-sponsored pensions when the time comes to be held accountable. Likewise, it is relatively easy to make a commitment when the onus is on government to provide financial or regulatory incentives to make it viable. Finally, there are legitimate concerns that industry will lean too hard into the “net” of net-zero, choosing to buy offsets instead of substantively changing strategy. When so much of the net-zero pathway is uncertain, investors must be wary of vague commitments that seem divorced from current strategy.

And therein lies the path forward on net-zero plans. They must be wedded to corporate strategy. Not just a bolt-on or parallel path—a net-zero plan needs to be the strategy if it is to be credible. To make it credible, investors must push for quantifiable, near-term targets that are accompanied by detailed transition plans that chart the path to significant emissions reductions, increased low-carbon investments, and that ultimately result in business model transformations. All this needs to be resourced adequately through capital allocation and human resource commitments.

There is a great deal of uncertainty (and outright pessimism) about how we will make the seemingly impossible possible. We need to start with ambition, and we need to give companies the space to voice this ambition. But ambition needs to be paired with a genuine strategy that starts now, not in twenty years. This next phase in the net-zero conversation is critical to get right and will continue to be a focus of our engagements this year.