Executive Summary

The quest for Net Zero commitments involves a complex landscape of climate science, corporate strategy, and policy frameworks. Net Zero refers to achieving a balance between the amount of greenhouse gases (GHGs) emitted and the amount removed from the atmosphere. Research in this area spans multiple disciplines, focusing on best practices, challenges, and implications for corporate governance and investment. While companies increasingly integrate Net Zero strategy into their operations, the global economy remains far from these goals as evidenced by recent surveys. Challenges like emissions accounting, strategy valuation, impact on financial statements, and credible offset strategies surface as recurring themes. Despite these hurdles, progress continues through financial innovations, voluntary carbon markets, and stakeholder engagement.

Research History

Accounting for Net Zero commitments in corporate sectors has evolved substantially since the Paris Agreement. Foundational papers laid the groundwork for our understanding of how Net Zero pledges influence market value and corporate action:

• Allen He's "Unpacking the Value of Corporate Net Zero Commitments" quantifies market responses to decarbonization goals, illustrating the positive market performance of Net Zero companies over time.
• Tyler Winterich's "Accounting for Climate Risk" identifies challenges related to tracking and impacting financial filings in light of decarbonization efforts.

These papers were selected for their early exploration into the economic ramifications of Net Zero pledges and their foundational frameworks which underpin many subsequent developments.

Recent Advancements

Recent advancements focus on incorporating Net Zero commitments into corporate strategies and financial accounts:

• "Scaling Voluntary Carbon Markets" by Chakravorti et al. examines the improvements needed to make voluntary carbon markets a credible tool for Net Zero pathways.
• "Back to the Future: The Impact Valuation of Net Zero Transition Plans" by West and Euler proposes a model for valuing Net Zero transition plans, addressing uncertainties in positive and negative impacts of corporate activities.

These papers were chosen for their novel insights into valuation models and market mechanisms critical for transitioning to Net Zero.

Current Challenges

Despite progress, substantial challenges in accounting for Net Zero commitments persist:

• "Constrained by Accounting" by Watson et al. argues that current accounting practices constrain Net Zero transitions, calling for a normative accounting approach.
• "Investor Preferences and Responses to Disclosure" by Shawn Kim highlights differences in investor response to net-zero pledges due to heterogeneous environmental preferences.

These contributions are notable for addressing how existing financial frameworks impact Net Zero progress and investor behaviors, which are critical for shaping corporate strategy and policies.

Conclusions

Research related to Accounting for Net Zero Commitments is dynamically evolving. Studies have moved from establishing the importance of Net Zero in market valuation to developing frameworks that allow companies to credibly report and act upon these pledges. However, challenges like investor preferences, accounting practices, and the efficacy of carbon offset markets remain. To progress toward our global Net Zero targets, continued innovation in financial tools, transparent reporting, and robust standards are needed. The future of corporate climate action will undoubtedly be shaped by how well these challenges are navigated and addressed.