A large and growing number of cities, regions and companies have set targets to achieve net-zero greenhouse gas emissions by the middle of the century. However, it is not always clear what a net-zero target proclaimed by one of these actors actually amounts to. A survey last year found that while net-zero targets cover two thirds of the global economy, truly robust targets cover only 5%.
Increasing the percentage of meaningful targets – those linked to science-based emissions pathways, with clear interim targets and plans for action – will require more governance and oversight. Voluntary initiatives like the UN-backed Race to Zero campaign, on whose Expert Peer Review Group I serve, have begun to provide this oversight, setting robust criteria for credible net-zero targets and screening prospective members.
These initiatives are just the start. As a recent report convened by the UN High Level Climate Champions makes clear, credible voluntary standards must be bolstered through regulation and ultimately translated into ground rules for the global economy. Recognizing this, UN Secretary-General António Guterres announced the formation of the High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (HLEG) at last year’s UN climate change conference, COP26. The HLEG is tasked with making recommendations on setting clearer standards for net-zero pledges and identifying a roadmap to translate these standards into international and national regulations. In comments submitted to the HLEG in August 2022, I identified elements of such a roadmap for corporate voluntary targets.
Three options for regulating corporate net-zero claims
When it comes to policing corporate environmental claims, governments have typically employed three main regulatory approaches: sustainability-related disclosure requirements, truthful advertising regulations and government-led certification and recognition programs.
Disclosure requirements typically regulate what information publicly traded companies must disclose, in public reports and/or filings with regulators, related to their current and expected financial performance. These requirements are intended to provide investors and shareholders with fair access to information relevant for making investment decisions. Sustainability-related disclosure requirements stipulate what companies must disclose related to the environmental and social impacts of their operations, along with relevant corporate governance arrangements.
Truthful advertising regulations place legal constraints around what companies are allowed to claim with respect to the qualities, characteristics, or performance of their products and services. Typically, such regulations address product- or service-specific advertising claims, such as whether they are “environmentally friendly,” although they may extend to corporate-level sustainability claims in certain circumstances.
Environmental certification and recognition programs are government-led programs that formally recognize non-state actors (including companies) for exceptional environmental performance. They can take a variety of forms, but typically involve either ecolabelling programs, which are used to certify products that meet technical standards for environmental performance, or corporate recognition programs that provide technical guidance along with recognition for actors who demonstrate exemplary performance in setting and achieving voluntary environmental goals.
Near-term priorities include establishing regulatory disclosure requirements. Over the longer term, regulatory approaches should more explicitly connect voluntary net-zero commitments with larger policy-driven efforts to address climate change.
Regulating in the near- and long-term
Ideally, governments would pursue a combination of all three regulatory approaches, starting with near-term disclosure and advertising regulations. Near-term priorities should include establishing regulatory disclosure requirements for:
- Complete disclosure of information needed to assess corporate and financial sector net-zero targets
- Clear identification of near-term actions to which actors commit themselves
- Regular reporting and disclosure of progress on implementation of committed actions
- Auditing of reported information by accredited auditors with expertise in greenhouse gas accounting (not just financial auditors).
Over the longer term, it will be important to develop regulatory approaches that more explicitly connect voluntary net-zero commitments with larger policy-driven efforts to address climate change. Governments could promote such a connection through recognition and certification programs that incorporate criteria related to advancing national policy goals and “taxonomy”-style regulations that explicitly demarcate what types of actions and targets are aligned with national (and global) priorities for a just transition to net zero.
Developing a roadmap
In its work to develop a roadmap for translating net-zero standards and criteria into national and international level regulations, the HLEG should consider the following:
- National governments, especially in the Global North, should continue work to implement climate-related regulatory disclosure requirements that explicitly address information needed to assess corporate and finance sector net-zero targets, using criteria developed by independent net-zero standards.
- National governments should similarly consider supplementing disclosure requirements with consumer protection regulations that police against false or misleading advertising claims related to corporate net-zero targets.
- In parallel, national governments should begin work to translate broad net-zero standards and criteria for their own domestic contexts and identify explicitly how voluntary action by companies can contribute to mitigation action above and beyond actual and anticipated regulatory obligations and advance and accelerate a just transition to national and global net-zero goals.
- To more explicitly connect corporate net-zero commitments with national and global goals, national governments should also consider establishing regulator-led recognition and certification programs for voluntary actors that incorporate criteria and guidance related to national and international policy goals and establish “net-zero taxonomy” regulations that clarify expectations related to key elements of non-state net-zero targets, such as how quickly actors in different sectors are expected to reduce emissions, what level of emissions may qualify as “residual” for different sectors and what kinds of value-chain mitigation measures or external mitigation/offsetting should be targeted to help advance just transition goals.
To achieve the goals of the Paris Agreement, governments will need to do far more than provide better oversight of voluntary net-zero commitments. By taking these steps, they can directly leverage the ambition of voluntary actors to accelerate a comprehensive transition to net-zero emissions.