Companies globally are racing to reduce their carbon emissions. But what does it really take to achieve ambitious green targets? FedEx’s recent pledge to achieve net-zero carbon operations by 2040 highlights the issues that investors should consider.

Striving to meet carbon reduction goals is crucial for our climate. For companies, a credible, sustainable climate action plan is also a sign of a well-managed business and a positive signal to both shareholders and customers.

FedEx Makes a Bold Pledge

FedEx is the world’s largest express transportation company. Few companies in the world are more reliant on fossil fuel to run their business. As a result, their decision to target carbon-neutral operations raises the bar for carbon-intensive companies across sectors.

Of course, a commitment with a 20-year time horizon extends way beyond the tenure of the current management team. That makes a well-considered plan highly important. Investors need to understand the practical obstacles that companies face on their way to net zero. And in-depth research and engagement with management is essential to identify leaders and laggards—not least because disclosure levels vary across companies.

Understanding the Path to Net Zero

Companies can employ various strategies to mitigate, reduce or negate their carbon emissions. At first, buying carbon offsets may be a legitimate approach ahead of transforming operations. That’s because large-scale changes to upgrade business assets can exact a significant up-front carbon cost and hurt earnings.

But over the long term, only real operational changes can bring about positive climate outcomes. Companies that focus on offsets rather than reductions may ultimately create problems, not solutions. Notably, purchasing offsets may simply result in more competition for forested land. There’s a big difference between companies that buy their way toward net zero through carbon offsets and those that make real commitments to decarbonizing their footprint.

FedEx is making an initial US$2 billion investment across three key areas: vehicle electrification, sustainable energy and carbon sequestration. This marks a significant first step towards the longer-term goal. And it extends across the full range of their operations from vehicles to aircraft to facilities.