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SFI Seminar: Steering Towards Net Zero Mobility: The Case for Emission Liability Management in the Automotive Industry

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Join SFI’s monthly seminar to meet our faculty and fellows and learn more about our ongoing research projects. We’ll cover innovative policy and financial mechanisms designed to rapidly decarbonize the global economy.

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This case study underscores the critical need to address embodied emissions within the automotive sector, a major component of the industry's overall carbon footprint, particularly during the transition to electric vehicles (EVs). Regrettably, embodied emissions have historically received inadequate attention and have been shrouded in obscurity. While a valuable instrument, the Science-Based Targets initiative (SBTi) conflates the manageable embodied emissions with uncontrollable downstream Scope 3 emissions, relies on secondary data and estimations, lacks transparency in validating Scope 3 targets, and incentivizes companies to prioritize Scope 1 and 2 over supply chain emissions reductions. This methodology leads to skepticism regarding the adequacy of attention and rigor applied to Scope 3 emissions and raises questions about whether companies are authentically progressing toward their climate targets. 

This case study on Pirelli exemplifies the drawbacks of the SBTi framework. The introduction of the Emission Liability Management (ELM) approach signals an evolutionary paradigm shift. The E-liability methodology champions using actual emission data rather than estimates and facilitates a quantifiable and auditable representation of a company's decarbonization efforts. Our analysis of the Pirelli Pro Forma (PPF) highlights the insights and transparency E-liability brings. Because it is built on the foundation of solid accounting, ELM allows practitioners to apply tested principles for the recognition of offsetting assets (E-asset) and guides auditable net zero claims.

Speaker bio: 

Xingjian (XJ) Zhang is a seasoned business leader at the forefront of the evolving mobility sector. He has over a decade of experience at the confluence of finance, climate, technology, and global supply chains—elements crucial to shaping the future of mobility. At the Stanford Sustainable Finance Initiative, XJ leverages his multidisciplinary background to explore and advance the concept of net-zero mobility.

XJ is currently with Apex.AI, a Palo Alto-based mobility software company, leading strategic initiatives to advance the sector toward a software-defined future. Previously, as a Vice President and Portfolio Manager, he managed a multi-billion-dollar equity portfolio focused on the mobility and climate sectors. He has firsthand experience, from the Permian Basin to automotive factories in China and the US, leading strategic discussions on the technological and climate transitions within these sectors.

XJ holds a Master's degree from the Stanford Graduate School of Business as a Sloan Fellow, a Master's from the Hong Kong University of Science and Technology as a Beta Gamma Sigma honoree, and a Bachelor's degree from the Hong Kong Polytechnic University as Valedictorian.

Recommended readings: 

Roston, M., Seiger, A., & Heller, T. (2022). The Road to Climate Stability Runs through Emissions Liability Management. Stanford Sustainable Finance Initiative.
Roston, M., Seiger, A., & Heller, T. (2023). What’s Next After Carbon Accounting? Emissions Liability Management. Stanford Sustainable Finance Initiative.
Kaplan, R. S., & Ramanna, K. (2021). Accounting for Climate Change. Harvard Business Review.
Kaplan, R. S., Ramanna, K., & Roston, M. (2023). Accounting for Carbon Offsets. Harvard Business Review

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