Net zero targets and greenwashing
Partner Global Co-Head International Environment, Climate and Regulatory Law Group
15 November 2022
Context for the report
The UN High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities (the Expert Group), report titled “Integrity Matters: Net Zero Commitments by Businesses, Financing Institutions, Cities and Regions” (the Report), was released earlier this week during COP27. Its publication is timely given the current focus on greenwashing.
“We are at a critical moment for humanity. The window to limit dangerous global warming and ensure a sustainable future is quickly closing. This is the stark but unequivocal finding of recent climate change reports." - Catherine McKenna, Chair of the Expert Group.
Non-state action on net-zero is increasingly important against a background of state level action falling short. A joint global assessment of net zero targets by the Energy & Climate Intelligence Unit and the University of Oxford found that while 61% of countries had committed to net zero, only 20% meet the minimum criteria for robustness set out by the UN Race to Zero Campaign.
Although definitions of “greenwashing” vary across jurisdictions, it is broadly understood to mean misleading the public into believing that a company or entity is doing more to protect the environment than it actually is. The spectrum of what can be described as greenwashing is broad and the European Securities and Markets Authority is now considering legally defining the term. Whether this makes a difference remains to be seen. What is clear is the recognition that great corporate disclosure and reporting is potentially a double edged sword. We should expect to see a sharper focus on the content of what is being disclosed or asserted alongside appropriate disclaimers and explicit assumptions.
The Report provides a number of recommendations as to how businesses, investors, cities and other non-state entities can set stronger, clearer and more targeted net-zero pledges and speed up their implementation.
"It is critical that companies’ plans are credible and backed up with bold, immediate action and transparent reporting on progress. Any corporate net-zero targets with loopholes or weak guardrails would put our planet and billions of people in peril." - Ani Dasgupta, President and CEO, World Resources Institute.
The Expert Group believe that non-state entities' focus on reducing the intensity of their emissions or only a part of their emissions chain is misplaced, and should instead focus on their full value chain. This includes setting targets for reducing scopes 1, 2 and 3 emissions, and outlining clear metrics for how to evaluate these targets.
Key recommendations of the report include:
- non-state entities should publish annual reports, in detail, on their progress, including greenhouse gas emissions data, in a way that can be compared with the baseline they set
- incorporating interim targets for net-zero pledges every five years, with concrete ways to reach net-zero in line with existing international standards (for example the IPCC)
- prioritising urgent and deep reductions in emissions across value chains and
- publicly sharing comprehensive net-zero transition plans which detail what non-state entities will do to meet all targets, align governance and incentivise structures, capital expenditures, research and development, skills and human resource development, and public advocacy, while also supporting a just transition.
The impact on businesses
The Report clearly adds to growing demands for veracity in statements and commitments made as regards sustainability. This is no bad thing. Ensuring public statements, disclosures and product labels are properly vetted and subject to rigorous governance will be critical for many international businesses particularly those in climate sensitive sectors. Evolving frameworks such as taxonomies and classification regimes should help provided they can be readily applied to the real world. Even so, the current focus on ESG disclosures and public commitments is unlikely to abate in the coming years particularly in markets where the regulatory frameworks are slow to reform.