Wrestle with PESTLE: the race to net zero

Reading time: 10 minutes

This LCN Says is part of LawCareers.Net’s ‘Wrestle with PESTLE (WWP)’ series, which looks at various business case studies using the PESTLE technique. 

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PESTLE stands for: 

• political; 
• economic; 
• sociological; 
• technological; 
• legal; and
• environmental. 

This technique involves using these six external factors to analyse the impact on a business and/or industry. 

Case study: The race to net zero

The Paris Climate Accords, also known as the Paris Agreement, were signed in 2015 by 195 countries and all but three have since ratified it.

The agreement's goal is to limit the rise in mean global temperature to "well-below" 2°C above pre-industrial levels, and preferably to 1.5°C in order to reduce the effects of climate change.

Following the introduction of the Paris Agreement, the Intergovernmental Panel on Climate Change (a United Nations body) released a report in October 2018 on the 1.5°C target. The panel concluded, with high confidence, that the achievement of net-zero emissions of CO₂ and a reduction in net non-CO₂ emissions by 2050 would halt human-caused climate change in the long term. This is due to the fact that CO₂ is naturally sequestered away (meaning that the gas is removed from the air) by plant life and oceans. If humanity ceases to emit CO₂, the ecosystem will naturally reduce its concentration in the atmosphere.

Non-CO₂ emissions refer to gases such as methane, nitrous oxide and fluorinated gases. While these trap more heat in the Earth's atmosphere than CO₂, it’s generally much more difficult to decrease their emissions in areas such as agriculture, so scientists propose a longer-term approach to their reduction.

Political

While almost every country in the world has signed and ratified the Paris Agreement, the first ‘Global Stocktake’ (an evaluation process of the agreement which considers the states' policies, scientific findings, and inputs from NGOs) determined that "the world is not on track to meet the long-term goals of the Paris Agreement".

One of the reasons for the lacklustre results is the lack of political will to pursue the agreement’s goals. The race towards net zero will inevitably require a decrease in the amount of CO₂ released into the atmosphere – necessitating either vast investments in renewable sources of energy, or development of less environmentally harmful production methods. This, in the short term, will lead to lower profits for companies and possible reductions in the standards of living for western populations.

Because of this, there were significant corporate lobbying efforts to stall the transition to net zero; either by reducing the targets or extending the timeframe beyond 2050.

There’s also no consensus among voters as to the correct approach to the climate crisis, and the rejection of scientific evidence can at times prove a successful political tactic – as shown by the USA's (temporary) withdrawal from the Paris Agreement under the leadership of US President Donald Trump, or the comments made by UK Prime Minister Rishi Sunak in his recent speech.

At the same time, politicians face increased pressure from environmental activists to commit to ambitious goals to reduce emissions. The actions of organisations such as Just Stop Oil or Extinction Rebellion strive to highlight the limited response of the world’s governments to the climate crisis, and the increasingly disruptive forms of protests are meant to force the states to commit to science-based, verifiable and binding targets.

As world leaders face these two opposed forces, environmental concerns are becoming a key factor deciding elections across the world.

Economic

The transition to net zero will require an enormous investment into green energy, other ancillary technologies and the necessary infrastructure.

There are challenges: while estimates vary, it’s generally understood that yearly funding of at least $3 trillion would be required to meet the 2050 target – a significant sum that many companies will find too onerous to meet. Many will need to reconsider their business models – eg, procuring sufficient carbon credits to offset emissions.

Such a significant economic transition may create an upheaval in necessary skill sets for employers –  existing roles in sectors such as mining, resource extraction, energy production and manufacturing might be cut to make room for investments in more eco-friendly activities.

At the same time, there are plenty of opportunities for states, companies and individuals around transition to net zero. This could be either due to top-down regulation forcing companies to decrease their emissions, or bottom-up pressure exerted by society and changing spending patterns. Countries that are quick to develop the necessary infrastructure, pipelines of talent and production capabilities can then reap the benefits of strong exports. Companies will be able to capitalise on a rapidly growing market and individual investments in the space could yield significant returns.

Social

The approach to net zero is already a polarising issue in most societies around the world. On the one hand, environmental activists are employing increasingly disruptive methods of protests to force a more ambitious approach to combating what they perceive as an existential threat to humanity. On the other hand, there are people worried that the transition to net zero could decrease their standard of living, lead to higher bills, or even loss of employment.

The response of the UK government to the protests organised by ecological organisations is also worth noting, as both Priti Patel and Suella Braverman took a strict approach towards the disruptive forms of protests often employed by environmental activists. Both home secretaries encouraged the police force to use the full extent of its powers to arrest and charge protesters – including well-known eco activist Greta Thunberg for her refusal to comply with an order made under section 14 of the Public Order Act 1986.

And what do the experts say about a failure to achieve net zero, and the likely resulting increase of the world temperature? The World Health Organisation estimates that there are 250,000 additional yearly deaths around the globe due to the effects of climate change. It states that certain areas of the planet, such as island nations and land around the equator, may become uninhabitable due to the increased sea levels and average temperatures; and more frequent and extreme natural disasters and weather patterns could arise. This could result in unprecedented waves of climate migration and refugees, and the need to house and support these people would likely result in similar, if not worse, social and political tensions across Europe and the UK.

Technological

The net-zero target recognises some emissions as inevitable – either due to the very nature of specific activities, or existing technological limitations. These emissions can be ‘offset’ by capturing the CO₂ already present in the air and depositing it into the Earth.

This process is called carbon capture and storage, often shortened to CCS. There are multiple proposed means of achieving this:

• capturing CO₂ released while producing energy out of biomass;
• pulling CO₂ directly out of the air;
• spreading finely milled minerals which naturally capture CO₂; or
• the introduction in large quantities of such materials into the oceans.

However, these methods are still in their infancy. Direct air capture is prohibitively expensive and energy intensive (as electricity production relies on fossil fuels). Other methods are currently short on proof of concept and scalability. Research in this area could prove crucial in the world's quest for net zero.

At the same time, further improvements to the existing low-emission technologies (such as electric vehicles, renewable energy and batteries) would make the pursuit of net zero cheaper and faster by decreasing our reliance on high-emission assets and infrastructure.

Incremental improvements in other areas can also add up to significant savings to humanity's carbon budget. For example, improvements to insulation technology, farming practices or electronics efficiency.

Legal

The Paris Agreement has no enforcement mechanism – it’s up to the political will of the signatory countries (and the governments ruling them) to meet the target.

However, this doesn’t mean that there aren’t legal consequences. NGOs such as ClientEarth and Friends of the Earth successfully use the legal system to force governments and companies to strengthen their response to the climate crisis.

Many countries also introduced national laws to assist them in meeting the net-zero targets; the UK legislated its own target into law in the Climate Change Act 2008. It can be expected that the governments and legislatures will be more inclined to impose legal obligations on private and state actors as the 2050 deadline nears. For example, quoted UK companies are now obliged to report on their global energy use; the CMA and the EU both introduced guidelines on environmental sustainability agreements, allowing businesses to cooperate on climate-related issues while staying compliant with competition law; and the proposed Energy Security Bill would give Ofgem (the energy sector regulator) a legal mandate to consider the net-zero target in their decision-making process.

Compliance with net zero is also becoming increasingly relevant in private dealings of companies. ESG-linked financial instruments are gaining popularity as banks strive to ensure their portfolio is sufficiently ‘green’ and companies hope to capitalise on their net-zero efforts.

Environmental

Some scientists are opposed to the idea of ‘net’ zero for a number of reasons. One reason being that companies and states can purchase ‘carbon credits’ – permits that allow an entity to emit a certain amount of greenhouse gases in exchange for payment. Those funds are then used to capture carbon out of the atmosphere. Currently, this usually means that the money pays for reforestation projects and investments in renewable energy.

Others say there are doubts as to the effectiveness of these credits – or whether they can be described as ‘like-for-like’ removals. They argue that a newly planted tree can take 20 years to capture enough carbon to meet the promise made by some offset schemes. Often the money paid to protect forests against deforestation can be in vain – either because the efforts to protect the area would’ve succeeded anyway, or because there was never any threat. The other argument is that it’s not certain that these projects will capture and retain carbon long term – especially if the more extreme weather patterns are taken into account. Forests on the surface of the Earth can burn; fossil fuels which remain underground generally don’t.

It's also not a certainty that carbon capture will ever reach the scale necessary to reverse (or stop) the climate crisis, or that reforestation will work – especially if the area's previous ecosystem ends up replaced with a monocultural forest.

Additionally, a net-zero target focuses solely on the average world temperature. It doesn’t account for other negative impacts of human activity on the environment – such as the destruction of ecosystems, waste production, animal extinction and water pollution.

The verdict

The net-zero goal set by the United Nations will remain a hot topic for the foreseeable future, especially as the effects of man-made climate change become more pronounced. On closer inspection, we can see that the pursuit of net zero will have a wide range of impacts and that there are many stakeholders with opposing views. The shift to net-zero emissions will be a significant one, requiring huge investments and political willpower. And its effects will be wide ranging, whether or not we meet the target.

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Aleksander Larski (he/him) is a trainee solicitor at Mayer Brown International LLP.