The coming crackdown on corporate greenwashing

Richard Black May 03, 2023 09:11

Judging by the growing number of companies vowing to reduce their greenhouse-gas emissions to zero these days, it may seem like the corporate world is finally taking the climate crisis seriously. According to the Net Zero Tracker, more than one-third of the world’s largest publicly traded companies have announced such targets, up from one-fifth in late 2020.

While some of these corporate pledges appear to be genuine, others are clearly a fig leaf to obscure pollution as usual. One can easily imagine an oil executive telling an airline boss: “A net-zero target, some ads featuring trees, and everyone will love us.”

If that was the plan, it is rapidly falling apart, owing to a slew of regulatory decisions and court actions that signal a crackdown on corporate greenwashing. And last year’s report by the United Nations High-Level Expert Group on Net-Zero Emissions Commitments, which provided detailed recommendations for maintaining the integrity of such pledges, heralds limits on companies’ ability to make promises they have no intention of keeping.

New regulations in France and the United Kingdom, for example, aim to prevent advertisers from making extravagant claims about the carbon neutrality of their products. Research commissioned by the UK’s Advertising Standards Authority found that when people hear such a claim, they assume that an absolute reduction in emissions has occurred. So, the ASA’s updated guidelines instruct companies to avoid claiming carbon neutrality if the emissions associated with the advertised product were merely offset.

The French climate law, passed in 2021 and amended last year, goes further. To claim carbon neutrality, the product must be neutral across its entire life cycle. Companies must disclose how emissions were avoided, reduced, and offset (the order is important). They must also show how these offsets qualify as measurable, verifiable, permanent, and additional. Companies that get it wrong could face a €100,000 ($110,000) fine for misleading consumers.

Underlying this trend is the obvious mismatch between what some companies say and what they do. After all, one does not need to be a sleuth to figure out that when a company can claim that a barrel of oil, a cargo of liquefied natural gas, or some tar sands bitumen is carbon-neutral, something has gone wrong.

A spate of recent lawsuits promises to draw a line in the (tar) sand. Over the past year, companies such as food giant Danone Waters, cement maker Holcim, oil companies TotalEnergies, BP, and Shell, cosmetics manufacturer Beiersdorf (Nivea), and KLM have been sued in various countries for making misleading sustainability claims. The Australia Institute, a nonpartisan think tank, has filed a complaint with the Australian Competition and Consumer Commission claiming that the government’s own certification scheme, Climate Active, is misleading under national consumer law, because it assures people that products are carbon-neutral when they are not.

Companies’ net-zero pledges look just as flimsy under scrutiny. For example, a recent report by the Corporate Climate Responsibility Monitor examined the net-zero plans of 24 major corporations purporting to be “climate leaders” and found numerous flaws, loopholes, and omissions. On average, according to the report, these companies will cut just 36% of their emissions by their net-zero target year. Moreover, their plans imply a median reduction of 15% by the end of the decade, rather than halving emissions, as the current science says is necessary. Similarly, an earlier report by CDP found that fewer than one in 200 companies that submitted climate data to its environmental-disclosure platform have devised credible transition plans.

The UN group’s recommendations, commissioned and endorsed by Secretary-General António Guterres, are a potential game changer. As they become mainstreamed, companies will no longer be able to claim that they have a credible net-zero plan unless they have set a decarbonization pathway compatible with the 2015 Paris climate agreement’s targets. Such plans must include measures to reduce emissions along the entire value chain, phase out fossil fuels, invest in renewable energy, abstain from lobbying for high-carbon industries, disclose emissions annually, have reductions data independently verified, and so on. An ad campaign, a cheery speech, and some tree-planting will no longer do.

Companies without detailed transition plans in place can expect regulatory as well as legal action, as more and more countries require corporations to disclose climate-related risks. The European Union, India, New Zealand, and Switzerland are expected to join the UK and China by introducing such measures this year, followed by Canada and South Korea in 2025. The International Organization for Standardization has also recently published its own set of net-zero guidelines, providing regulators with clear rules and criteria for credible climate strategies.

But if the world is to achieve net-zero emissions by 2050, regulators must insist on independent verification of corporate claims, interim targets, and binding commitments to phase out fossil fuels. In countries where national net-zero plans rely on offsets and wishful thinking, citizens must use all the legal tools at their disposal possible to force their governments to do the hard work that a credible decarbonization path demands.

While there is still much work to be done, a carbon-neutral future is within reach. Net-zero targets now cover 91% of global GDP, compared with 16% just four years ago. But to have any hope of meeting the Paris agreement’s targets, the first step is to ensure that governments and companies are setting realistic goals that they can back up with credible data. We can see the right path ahead, but the right decisions are still needed to ensure it is taken.

Copyright: Project Syndicate
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Richard Black

Senior Associate at the Energy & Climate Intelligence Unit