Written by Elly Pattison, Senior Sustainability Consultant
In recent years, there has been a proliferation of cities, corporates, and nations pledging to achieve net zero emissions sometime before 2050. 91% of global GDP is now captured by national government net-zero targets. This is also reflected in the corporate space, with over one-third of the world’s largest publicly traded companies having net-zero targets, doubling since 2020.
The mainstreaming of net-zero targets and associated climate-related disclosures has triggered increased scrutiny of the credibility of corporates and nations’ decarbonisation ambitions. The concept of ‘greenwashing’ in this context is getting greater attention from regulators, investors and the broader community. At this year’s COP27 conference, the UN released a report cracking down on the integrity of net-zero commitments. In Australia, the Australian Securities and Investment Commission (ASIC) has been increasing its oversight on climate-related reporting and issued its first fine for corporate ‘greenwashing’ in October this year.
A trend is emerging where some companies are choosing not to disclose their climate targets and strategies for fear of being accused of greenwashing or failing to do their ‘fair share.’ The next decade will be decisive for climate action and there is no room for inaction or low-quality net-zero pledges. So how can businesses reduce and disclose their climate impact whilst avoiding the common pitfalls that can threaten the credibility of their climate ambitions?
Understand your organisation’s complete impact
To contribute to net-zero goals, companies must deeply reduce their operational and supply chain emissions and counterbalance the remaining emissions through carbon removals or storage. Companies must understand the emissions impact across their entire supply chain to identify where their operations are exposed to climate-related risks. Net-zero credibility has been scrutinised when companies have not been inclusive (e.g. accounting for their relevant supply chain emissions) or consistent (e.g. reducing emissions in one part of their supply chain but generating emissions in another).
Supply chains are the largest source of emissions for most companies and therefore present the most significant climate risks. However, this can often be overlooked in emissions assessments as it is outside a company’s direct control. Being inclusive improves your credibility as well as building the resilience of your operations to the impacts of climate change. It drives more effective decision-making without unintended consequences.
Set science-based targets supported by a detailed strategy
A common mistake made by companies is announcing a net-zero target without a detailed strategy on how they will achieve the target. A goal alone does not guarantee success. A strategy is fundamental to realising the benefits that come with reducing emissions and it is a critical piece that investors and stakeholders will be looking for in assessing a company’s sustainability credentials.
Credible net-zero strategies prioritise emissions reductions over purchased reductions (e.g. carbon offsets) and set time-bound targets to drive significant and continued emissions reductions. It is an opportunity to unify efforts across the company and provide certainty as to how the company will manage climate risk, take advantage of climate-related opportunities and ultimately achieve net-zero emissions.
Like financial reporting, it is best practice for companies to publicly report their climate strategy and progress towards targets. This can be a daunting prospect for many companies; however, it is critical to build trust, showcase successful strategies to the industry and encourage other players to make ambitious commitments. Several international reporting standards exist to help companies credibly disclose their sustainability impact, including the Taskforce for Climate-related Financial Disclosures (TCFD), CDP, and the Global Reporting Initiative (GRI).
There is growing expectation from consumers and investors on companies to demonstrate how they are reducing their climate impact. Transparent reporting supported by accurate data is critical to meeting this expectation. Companies that do this authentically will safeguard their reputation and gain competitive advantage.
Like any organisational change, strong governance is critical to the success of a company’s transition to net-zero. The Taskforce for Climate-related Financial Disclosures’ (TCFD) latest Status Report highlights Governance disclosures as the least reported of the TCFD’s 11 recommended disclosures, suggesting companies may be facing difficulties in gaining support from their board and senior management. Going from a net-zero target to an achievable strategy is not simple; everyone in the company is accountable and this is driven throughout the organisation starting at the top level.
It is clear that we must work to reduce emissions as fast as possible to achieve global net zero emissions and prevent the worst effects of climate change. Rather than retreating away from action, it is critical that governments and corporates commit to credible and immediate action to enable us to achieve this net-zero goal.