More and more companies are racing to outdo one another with eco-friendly promises to achieve net-zero emissions. But what lies behind these efforts to reduce their contribution to climate change? Both journalists and consumers are often unable to distinguish ambition from 'greenwashing'. Evaluating net-zero targets is a complex task prone to many pitfalls. Based on the methodology of the renowned NewClimate Institute, Clean Energy Wire has prepared a step-by-step guide to understanding the essence of corporate climate claims.
Setting net-zero targets is spreading like wildfire through the corporate world. Facing growing pressure to act on climate, company after company is announcing plans to eliminate the impact of their carbon dioxide emissions. The key question is this: Do these corporate 'net-zero' pledges prove that companies have finally woken up and realised their urgent duty to help stop global temperature rises?
Upon closer inspection, countless ambitious-sounding promises are empty. Many commitments are merely vague declarations of intent. Others conceal huge volumes of corporate CO2 pollution or rely on questionable promises to offset continuous emissions, rather than attempting to reduce fossil fuel usage.
This is why concerns about unsubstantiated net-zero claims have become widespread. 'We must have zero tolerance for net-zero greenwashing,' said UN Secretary-General António Guterres at the Climate Conference (COP27) in Sharm el-Sheikh, as he presented an expert report on net-zero targets.
However, for the uninitiated, it is difficult to distinguish 'greenwashing' from serious commitments, as the careful examination of corporate climate pledges is complex. For example, advertised 'net-zero' targets are meaningless if they refer only to a small fraction of a company’s total emissions or if they are not backed by a serious strategy to reduce greenhouse gas emissions.
Net-zero targets only contribute to the fight against climate change if they meet a range of conditions, and only a full assessment will reveal whether they meet these criteria. Furthermore, it is important to keep in mind that a company can be ambitious regarding climate change without setting a net-zero target at all. A convincing plan for significant emissions reductions in the near future is far more commendable than a distant net-zero goal that lacks a credible strategy for how to achieve it.
To make determining net-zero targets as easy as possible, Clean Energy Wire has created a list of seven key criteria based on the method used by the NewClimate Institute in its Corporate Climate Responsibility Monitor and other publications. Only if the answer to all seven of the questions below is 'yes' can a net-zero target be called truly robust:
Does the company publish complete data on emissions?
Does the company's net-zero target cover all of its emissions?
Does the company have concrete plans to quickly reduce its emissions without relying on carbon offsets?
Does the company have interim targets in place that demonstrate its intention to act quickly?
Does the company's net-zero target align with the Paris Agreement?
Does the company have a plan for phasing out oil, coal and fossil gas?
Does the company promote renewable energy in its procurement of energy resources?
These questions cover three general themes that must be addressed before a judgement can be made on a net-zero commitment: Emission disclosure and coverage (questions 1–2); emission reductions and interim targets (questions 3–5); and measures for achieving the targets (questions 6–7).
All seven criteria include tips, recommendations and examples from the NewClimate Institute Corporate Climate Responsibility Monitor or other publications.
1. Does the company publish comprehensive data on emissions?
Companies should provide complete and transparent data on all greenhouse gas emissions every year, including emissions arising from their value chains and the use of their products or services.
Before a company can set a credible net-zero target, it must have a detailed overview of all the emissions it generates. This includes accounting for not only direct greenhouse gas emissions but also those that the company generates indirectly, such as through the use of electricity, raw materials, transport, as well as the use and disposal of its products and services.
The emission categories of 'Scope 1, 2 and 3' are commonly used to describe these different types of emissions. Scope 1 emissions are direct greenhouse gas emissions from sources that the company owns or controls. Scope 2 refers to indirect emissions generated by the consumption of purchased electricity, heat and cooling in the company's operations. Scope 3 emissions occur as a result of the company's operations but are not directly controlled by the company. They occur in the company’s value chain, for example during raw material extraction, packaging production, product transport, as well as during the use of the company’s products, services or investment portfolios. Scope 3 emissions are the most difficult to track, yet they are often larger than the company's direct emissions. In the case of Volkswagen, Scope 3 emissions account for 98% of the group's total emissions – primarily through the use of the company's cars.
2. Does the company's net-zero target cover all of its emissions?
Companies must clearly state that their net-zero target covers all their emissions, including the entire value chain and the end-use of products and services.
A net-zero target is only meaningful if it covers all of a company's emissions. Many companies do not include Scope 3 emissions in their net-zero target, even though they often account for the vast majority of their climate impact. For example, a fossil fuel producer might say its goal is to achieve net-zero emissions in the production and supply of oil, gas and coal. This does not include the emissions, which are significantly higher, that result from their products being burned in cars, factories and power plants around the world. The UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities is also very clear on this issue. It states that a net-zero target must include end-use, covering 'all scope emissions and all activities in the value chain across all jurisdictions […] If data on Scope 3 emissions are missing, companies must explain how they are working to obtain data, or what estimates they are using'. Some products are inherently incompatible with net-zero targets.
3. Does the company have concrete plans to quickly reduce its emissions without relying on offsets?
Alongside a net-zero target, companies must have a concrete greenhouse gas emission reduction target that is not based on capturing or offsetting CO2.
When setting a net-zero target, a company must take action on its own emissions rather than leaving the hard work for others to do through offset schemes. Reaching the goals of the Paris Agreement – for example, the goal of limiting global temperature rises to 1.5 °C – means that total CO2 emissions must be reduced by more than 90% by 2050 (compared to 2010 levels), according to the IPCC.
Companies must do their part and rapidly reduce their own emissions without relying on carbon offsets. Several institutions, such as the Science Based Targets initiative (SBTi) and NewClimate Institute, argue that companies must reduce their emissions by at least 90 percent by the target year compared to 2019 levels to justify the use of the net-zero label.
The UN expert group also warns that too many companies 'are currently engaging in the voluntary [carbon offset] market, where low prices and a lack of clear guidelines threaten to delay the urgent emission reductions needed in the near term'. To avoid the troubles associated with many carbon offsets, companies can fund climate action elsewhere on the planet, but without claiming that it neutralises the emissions they produce (so-called climate contributions).
If a company's commitment depends on the company emitting CO2 and then removing it from the atmosphere, then this removal must be permanent. If a company relies on biological carbon storage, such as planting trees, to reach its net-zero target, this creates a risk that forest fires, land-use violations and other processes could cause CO2 to be re-emitted – thus, this absorption cannot be considered permanent.
4. Does the company have interim targets in place that demonstrate its intention to act promptly?
Companies must clearly indicate that their commitment to achieve net-zero emissions is not just a long-term vision, but that they are starting to act now. Interim targets that foresee immediate action to rapidly reduce emissions in the short and medium term in line with the Paris Agreement are necessary for their commitments to be credible.
Companies must not delay the start of emission reductions to the distant future in order to reach a net-zero target. If they do not start with ambitious and rapid efforts to reduce their climate impact, they are responsible for higher cumulative emissions in the long run and also increase uncertainty regarding their climate actions. 'Net-zero emission reduction commitments must include interim targets every five years,' the UN expert group states, adding that a company with a net-zero target 'must start rapidly and not defer action to the last minute'. Interim targets should only relate to the company's own emission reductions, without relying on offsets. The UN group emphasised that carbon credits 'cannot be counted towards [the interim emission reductions] required to achieve net-zero emission reductions'.
5. Does the company have a net-zero target in line with the Paris Agreement?
Companies must demonstrate in a transparent and verifiable manner whether and why their net-zero target and any interim targets are compatible with the Paris Agreement. This means the target must be in line with the 1.5 °C emission pathways for the specific sectors in which the companies operate.
A precisely defined net-zero target is not automatically aligned with 1.5 °C emission pathways for a specific sector. For example: A net-zero target set by a European car manufacturer for 2050 is not compatible with the Paris Agreement, as this sector needs to decarbonise much faster to meet the 1.5 °C goal. Although this point can be difficult and time-consuming to research – due to various standards and assessments –, it is an essential step in evaluating a company’s climate targets. The UN High-Level Expert Group states that a company's 'net-zero' commitment must reflect its 'fair share of the needed global climate mitigation' and should also align with or exceed national targets.
6. Does the company have a plan for how to end the use of oil, coal and gas?
Companies must have a plan for phasing out fossil fuels and products that cause high emissions.
To reach a net-zero target, companies must urgently stop the use of oil, coal and gas, as well as emission-intensive products. Many companies stress that they are investing heavily in clean technologies. However, these investments can only be considered significant emission reduction measures if, at the same time, the main sources of emissions are being phased out. For example, large oil and gas companies might advertise that they are building wind and solar parks while continuing their fossil fuel operations. Likewise, simply selling off high-emission fossil energy assets to subcontractors does not help with climate change. The UN expert group also warned that net-zero plans must not support new investments in fossil fuels, but should instead 'phase out and cancel existing assets'.
7. Does the company promote the use of renewable energy sources in its energy procurement?
Companies should use energy procurement to promote the implementation of renewable energy sources, and this should be done transparently.
Where and how a company sources its energy is critical for emissions. Companies should not only ensure they use the highest possible share of renewable energy sources, but they should also maximise their climate impact when doing so. Simply purchasing renewable energy on the wholesale market does not always reduce the total volume of emissions, as it does not directly influence the country’s total energy mix – it simply means there is less green energy left for other users. It is best if a company implements its own renewable electricity generation – this is the best guarantee for reducing emissions. In the second-best scenario, its procurement stimulates the installation of new and additional renewable energy capacity – projects that would not have been implemented without the company’s financial support.
Image used from the original article CLEW / Mwelwa Musonko
https://www.cleanenergywire.org/factsheets/how-unpick-company-net-zero-target-7-steps