Exploring the UN’s expert advice on stamping out corporate net-zero greenwash

The outcomes of the COP27 climate summit in Egypt in late 2022 were mixed, with many commentators arguing that nations failed to show enough ambition to accelerate efforts to deliver net-zero, despite welcome progress on loss and damage. However, a landmark report released by the UN at the summit may well shape the future of corporate climate strategies moving forward.

The High Level Expert Group on Net Zero Emissions Commitments of Non-State Entities was set up by UN Secretary-General António Guterres in March 2022 in order to develop stronger standards and scrutiny of net-zero pledges from non-state entities such as businesses, investors, cities and regions.

At COP27, the High Level Expert Group outlined a new set of key recommendations to help these entities develop and deliver net-zero targets credibly, avoiding common greenwashing pitfalls.

The new report aims to build on the Race to Zero and Science Based Targets initiative by providing corporates and investors with time-based frameworks to deliver net-zero, based on short, medium and long-term targets.

The report offers steps to avoid greenwashing and recommends that non-state actors should no longer claim to be net-zero if they continuously build or invest in new fossil fuel supply, support deforestation and other environmentally destructive activities that should be branded as “disqualifying”.

Additionally, firms should avoid purchasing cheap carbon credits instead of reducing emissions. The report does state that “high-quality” carbon credits can be used, but only to balance out remaining emissions once short and medium-term science-based targets have been met.

Organisations should stop focusing on reducing the intensity of emissions, rather than absolute measurements across the value chain.

Finally, entities should stop lobbying or associating with groups that attempt to undermine government climate policies, namely through trade associations. Instead, the report calls that organisations align their advocacy and governance with their climate commitments. This would include linking executive compensation to climate action and proven results.

While the UN report is focused specifically on net-zero strategies and the potential of greenwash around decarbonisation claims, the main recommendations can be broadly applied to other areas of the ESG spectrum, especially in relation to resources, time-bound targets and association groups and links to investors.

Transparency and accountability

We may only be one month into 2023, but already greenwashing – and its many-headed variants – are dominating discussions on corporate sustainability. The term “greenhushing” is rising in prominence – read edie’s explainer here – while a recent report from Planet Tracker has listed six different types of “sophisticated” greenwashing that corporates could fall foul of.

Fortunately, the High Level Group’s report offers some great insight into how corporates can navigate the various types of greenwash. Unsurprisingly, transparency, accountability and data are key.

One of the key recommendations listed in the new report is that of “increasing transparency and accountability”, a section that can be used by corporates to help shape approaches to disclosure, engagement and communications.

The UN report notes that businesses that are able to generate “clear, accessible, comparable data” on their sustainability claims and targets can deliver “enormous benefits”. Benefits include better trust and interactions with consumers and investors as well as highlighting where faster progress on the delivery of sustainability targets can be delivered for other businesses, enabling firms to share best practice, forge new partnerships and drive change across entire sectors. The UN also notes that improving transparency and accountability on sustainability targets will help create “ambition loops” with regulators to help identify what solutions are still needed.

Generating clear, accessible, comparable data can bring enormous benefits. Leading entities will be able to credibly demonstrate their progress to net-zero. Citizens, consumers and investors will be able to reward them accordingly. Barriers to faster progress will also be identified more quickly, creating a shared understanding of what solutions are needed and creating an “ambition loop” with regulators.

There are specific recommendations listed in the UN report to improve transparency and accountability, these include annually disclosing relevant data based on targets and plans to progress toward said targets. The UN also recommends including comparable data to enable effective tracking of progress towards net-zero targets.

The report also calls for corporates to report in a “standardised, open format and via public platforms” that are verified by third parties.

The report also notes that businesses should “seek independent evaluation of their annual progress reporting and disclosures” as well as evaluating the metrics and types of targets being used, as well as what internal controls have been set up to help achieve them.

One final recommendation listed in the accountability section of the report is for businesses to work with policymakers and standard-setters to align and implement schemes for standardised reporting to ensure comparability. If this can be achieved, stakeholders will have access to standardised and comparable data across businesses, making it easier to spot cases of greenwash also to identify the best-performing organisations across sectors.

Regulatory response

As cases of greenwashing increase, so does the likelihood that investors and regulators attempt to stamp it out.

In the UK, certain businesses are now mandated to report in alignment with the Task Force on Climate-related Financial Disclosures (TCFD) requirements. The aim of the mandate is to increase climate-related engagement between investors and the companies they invest in. Until now, non-unified climate disclosures have made it challenging for investors to truly measure their exposure to climate risk. Another benefit is that, in measuring their climate impact, risks and opportunities, businesses may well be compelled to increase their environmental ambitions and accelerate actions. For businesses, this may come with operational cost savings and cost savings in terms of avoided risks.

More recently, the European Union’s Corporate Sustainability Reporting Directive (CSRD) floated the idea of “double materiality”, whereby organisations not only report the material impacts they have on environment and society, but also the material impacts of sustainability and accompanying requirements and regulations on that organisation. Then there are the draft proposals from the US Securities and Exchange Commission (SEC), and the UK Transition Plan Taskforce that, in the words of CDP, are “catalysing climate-related disclosures”.

Additionally, the Competition and Markets Authority (CMA) announced in 2022 that it will undertake its first official investigation into greenwashing, with an initial focus on fashion. Brands found to be flouting its Green Claims Code could face fines and other penalties.

The CMA will assess claims made online and in-store, including on-pack labelling and other marketing. Claims will be assessed against the Authority’s ‘Green Claims Code’ – a set of 13 guidelines for businesses and brands with consumer-facing products and services. Issues covered by the code include ensuring the accuracy and clarity of claims; not omitting important information and enabling ‘fair and meaningful’ comparison.

As well as exploring and understanding the various regulatory frameworks around communications for net-zero targets and sustainability claims, it would serve businesses well to remind themselves of the recommendations of the UN’s landmark report, using them as a collective North Star to ensure targets are backed by credibility.

Sustainability Communications and Disclosure Handbook

This feature forms part of edie’s new Sustainability Communications and Disclosure Handbook.

In partnership with UL Solutions, edie has published a new downloadable handbook on sustainability communications and disclosures, appropriate for organisations of all sizes and sectors.

The handbook is free to download and has been published as part of edie’s Engagement Week 2023 (23 – 27 January) – a week of exclusive articles, interviews, reports and events all dedicated to the theme of sustainability communications and combatting greenwash.

CLICK HERE TO ACCESS THE HANDBOOK