Spotlight on net zero pledges: greenwashing advice released

While the recommendations in the report target organisations, cities and regions, rather than central government, it is not clear at this stage how the guidance around net zero in the report intersects with the concept of net zero at the national level under the Climate Change Response Act 2002. To the extent that future regulatory reform occurs in response to the report, this interaction would need to be considered to ensure alignment with NZ's overarching emissions reduction goals.

Background to the report and key recommendations

In the past few years, there has been significant growth in voluntary net zero pledges by organisations. There is now widespread recognition that central governments cannot combat climate change without accompanying action by organisations, cities and regions (in NZ, this multi-party responsibility is reflected in the Government's approach to emissions reduction, outlined in the first emissions reduction plan). There has, however, also been a corresponding rise in concerns about whether voluntary climate pledges are credible and backed up by action. These concerns have been exacerbated by recent press reports that some large organisations were preparing to back away from net zero commitments (specifically, US banks with continuing involvement in oil and gas).³

The UN's High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (HLEG) was accordingly established earlier this year to develop stronger and clearer standards for net zero pledges and to speed up their implementation. Dr Rod Carr, the Chair of NZ's Climate Change Commission, is a member of the HLEG and contributed to the advice – this suggests that the report could inform the Commission's future work programme (for example, future advice on NZ's 2050 target).

Five principles for net zero pledges

The report's five high-level "key principles" for net zero pledges (which are informed by the more detailed recommendations) are:

1. Ambition which delivers significant near and medium-term emissions reductions on a path to global net zero by 2050.

2. Demonstrated integrity by aligning commitments with actions and investments.

3. Radical transparency in sharing relevant, non-competitive, comparable data on plans and progress.

4. Established credibility through plans based in science and third-party accountability.

5. Demonstrable commitment to both equity and justice in all actions.

Ten recommendations for net zero pledges

At a high level, the report's ten key recommendations include:

1. Announcing a net zero pledge: Where an organisation announces a net zero pledge, this must be a public commitment by the entire entity, and reflective of the organisation's fair share of global climate action. Related to this recommendation:

   • An organisation should only be considered "net zero aligned" where it has set its pathway to net zero using a robust methodology, its pledge and progress includes the full value chain and all scope emissions (including financed emissions), and it is demonstrating progress by achieving or exceeding interim targets (see recommendations 2 and 8 below).

   • An organisation should only be considered net zero or to have "achieved its net zero pledge" when it has done the above and it has achieved its long-term net zero target with any residual emissions neutralised by high-quality, verified offsets (see recommendation 3 below).

2. Setting net zero targets: A net zero pledge must include five-year "stepping stone" targets and set out concrete ways to reach net zero in line with the science around limiting warming to 1.5°C, including reducing emissions by at least 50% below 2020 levels by 2030, and reaching net zero by 2050 or sooner. The plan must cover the entire value chain, including end-use emissions. In relation to the last point, the report recognises that there needs to be a concerted effort to speed up the creation of datasets needed for organisations to produce plans to measure and reduce scope 3 emissions. This has already been a particular point of concern for NZ businesses in working towards compliance with the NZ climate-related disclosures regime, which require "climate reporting entities" (generally, listed issuers, large financial institutions and managers of registered schemes) to make disclosures in line with climate standards issued by the External Reporting Board for reporting periods commencing 1 January 2013. It is helpful to see the UN recognising the need for high quality data to enable measurement and management of scope 3 emissions.

3. Using voluntary credits: The priority should be "urgent and deep" emissions reductions across the value chain, rather than reliance on voluntary offsets. While formal voluntary carbon markets are being developed, high integrity carbon credits should be used for mitigation beyond an organisation's value chain, but cannot be counted toward an organisation's interim reductions in accordance with its net zero pathway. While "high integrity" is not defined in the report, organisations looking to use voluntary credits in the NZ market should do so in line with published guidance from the Ministry for the Environment.

4. Creating a transition plan: Organisations must report publicly on their net zero transition plans. This disclosure should detail what the organisation will do to meet targets, as well as align governance and incentive structures, capital expenditures, research and development, skills and human resource development, public advocacy, and support a just transition. The report includes specific and detailed requirements for transition plans by companies, financial institutions and cities/regions respectively. This sort of exercise will soon be required of many NZ organisations under the mandatory climate-related disclosures regime discussed above under recommendation 

5. Phasing out of fossil fuels and scaling up renewable energy: Organisations cannot claim to be net zero while continuing to build or invest in new fossil fuels supply. NZ has previously broadly banned new exploration, although not all political parties agree with this ban, and therefore there is scope for reform should there be change of government at the next election.

6. Aligning lobbying and advocacy: Organisations making net zero claims must lobby for positive climate action and not against it. Organisations should work with governments to create an "ambition loop" to ensure a level playing field for ambitious pledges and de-risk the transition.

7. People and nature in the just transition: By 2025, organisations with significant land-use emissions must ensure their operations don't contribute to deforestation or other environmental destruction. Financial institutions should have a policy of not investing or financing businesses linked to deforestation and should eliminate agricultural commodity-driven deforestation from their portfolios by 2025. While some NZ organisations have already taken steps to reduce support for deforestation, organisations may wish to consider whether those commitments go far enough in light of this recommendation.

8. Increasing transparency and accountability: Organisations must produce annual public reports on their progress, including greenhouse gas data, and these should be independently verified. Again, NZ's mandatory climate-related disclosures regime will require disclosure of some information relevant to this recommendation for organisations covered by that scheme.

9. Investing in just transitions: Financial institutions and multinational corporations should work with governments, Multilateral Development Banks, and Development Finance Institutions, to agree a new deal for developing countries to resource a just transition and which involves those organisations consistently taking on more risk and setting more ambitious targets that help to maximise investments in clean energy.

10. Accelerating the road to regulation: While voluntary efforts by organisations and standardisation bodies are fostering best practices, this can only take things so far and regulators should develop regulation and standards starting with corporate emitters and financial institutions. The report recommends that countries launch a new international task force on net zero regulation to convene regulators across borders. If a specific regime for net zero claims emerges in NZ, we think it will be important to ensure close alignment with the existing mandatory climate-related disclosures regime and other climate-related regulation to avoid unduly adding to the compliance burden for organisations.