In July 2022:

(a) less than half of the ASX200 companies had adopted net zero pledges[1];

(b) about two thirds (133) of the ASX200 companies had at least one emissions reduction target with the majority of these (96) setting medium term emissions targets[2]; and

(c) 36 companies had a science-based emissions reduction pathway[3].

In 2021, 28 companies in the ASX200 disclosed Scope 3 targets and milestones.[4]

These statistics reveal several things. Pledges, plans and targets are not as widespread as thought. However, that may not be the case for much longer as the above figures have doubled between 2021 and 2022[5]. Pledges, plans and targets are voluntary and discretionary. That allows companies to choose without “hard” restrictions:

(a) whether to set a pledge, plan or target;

(b) the content of the pledge, plan or targets;

(c) whether to set a Scope 3 emissions target;

(d) whether to set short, medium or long term targets for Scope 1, 2 and 3 emissions; and

(e) what plan to adopt in the transition to net zero.

But despite being voluntary and discretionary, pledges, plans and targets are not unlimited and unrestricted. There must be compliance with the statutory misleading or deceptive conduct provisions[6]. This compliance represents the greenwashing risk. As we have seen in Australia, the pledges and plans of Santos Limited (gas) and Glencore (coal) have been the subject of greenwashing claims. Overseas, Shell plc has been pursued over its pledge and plan. There are other cases. These cases are testing the water, the ultimate resolution of which should provide some definitive guidance. In the meantime, there is still guidance available from the issues raised in these cases.

Therefore, in this ever-expanding area, greenwashing of a company’s pledges, plans and targets can be added to a company’s products, services and business practices as areas of greenwashing risk.

Net-Zero Means?

When company A pledges it will reach net-zero by 2050, what does it mean? That is sometimes hard to discern. When company B makes a net-zero pledge, is it using the term “net-zero” in the same way as company A? Is there an agreed definition or methodology to achieve “net-zero”?

There are statutory definitions in Australia of the term “net zero greenhouse gas emissions”[7]. These definitions define the State’s obligation and only provide limited inferential guidance on how to avoid greenwashing. This is understandable as the statutes were not designed for that purpose.

So what guidance is available?

In November 2022, an Expert Group appointed by the United Nations[8] released a report[9] (the UN Report), which defined “net-zero”. The UN Report defined “net-zero” as a reference to “a state by which the greenhouse gases going into the atmosphere are reduced as close to zero as possible and any residual emissions are balanced by permanent removals from the atmosphere by 2050”.[10]

The UN’s definition suggests that a company should set a net-zero pledge that involves in the first instance, positive action to reduce the company’s carbon emissions to as close to zero as possible. Only after there has been this positive action can the “residual emissions” be off-set by permanent removals. Permanence[11] and additionality[12] are two issues that the UN Report^[13] highlighted as problematic with voluntary carbon credit offsets.

The UN definition highlights difficulties of proof (perhaps not insurmountable in the right case) in a pledge, plan or target greenwashing case. How does a company prove it has taken all steps to reach zero emissions and how does technological, social and economic restraints (for example) feed into that consideration? What role if any do technological, social and economic restraints excuse greenwashing? How does a company select voluntary off-sets? What liability will attach to a company that purchases voluntary off-sets where issues of permanence or additionality arise? How does a claimant prove that a company cannot achieve its pledge, target or plan before the target date arrives? Can a greenwashing case be established before a target date arrives? Can a greenwashing case be established over the choice of a historical emissions baseline date against which future emissions targets are set? If a company uses off-sets instead of first reducing its carbon emissions can this conduct amount to greenwashing? These are some of the difficult and interesting questions yet to be resolved definitively.

The UN Report helpfully provides recommendations to improve the “integrity, transparency and accountability” of net-zero pledges. These voluntary recommendations advocate a set of issues and standards to be addressed in the pledge, plan and target. The standards are obviously high and may not be suitable or achievable in all scenarios. But these issues and standards could assist in avoiding greenwashing by providing specific content and context to the statutory misleading or deceptive conduct provisions.

UN’S Recommendations on Pledges

So, what are the issues and standards recommended by the UN?

Broadly, a net-zero pledge should[14]:

(a) cover Scopes 1, 2 and 3 emissions and all operations along its value chain in all jurisdictions.[15] Where data is missing for Scope 3 emissions that should be explained;[16]

(b) include separate targets for material non-CO₂ greenhouse gas emissions (e.g. fossil methane and biogenic methane);

(c) be generated using robust methodology verified by a credible and independent third party, based on publicly available data;[17]

(d) contain an initial target for one year within making their pledge;[18]

(e) contain interim emissions targets for 2025, 2030 and 2035[19] and for every five years thereafter.[20] The 2030 target should be an emissions reduction of at least 50%.[21] Further, high integrity carbon credits cannot be counted towards interim emissions reductions; [22]

(f) contain a long term net zero emissions reduction target by 2050 or sooner; [23]

(g) include specific targets to end the use of and support for fossil fuels in line with the Intergovernmental Panel on Climate Change (IPCC) and the International Energy Agency (IEA) net zero greenhouse gas emissions modelled pathways that limit warming to 1.5 degrees Celsius with no or limited overshoot, with global emissions declining by at least 50% by 2030, reaching net zero by 2050;[24]

(h) come with a transition plan that sets out how the company will reach net zero in line with IPCC or IEA net zero greenhouse gas emissions modelled pathways that limit warming to 1.5 degrees Celsius with no or limited overshoot[25]. The transition plan should highlight uncertainties, assumptions and barriers[26].

Part 2 and following

In Part 2 and following there will be a discussion of the cases highlighting various aspects on the risks of greenwashing in pledges, plans and targets.

[1] 95 companies within the ASX200 have adopted a net zero commitment. This was almost double the number from March 2021. These 95 companies represent $1.59 trillion or 70% of the ASX200’s collective market capitalisation (Promises, pathways & performance. Climate change disclosure in the ASX200. Prepared by ACSI July 2022) at p.5). The corresponding figures for 2021 were $1 trillion and 50%Promises, pathways & performance. Climate change disclosure in the ASX200. Prepared by ACSI August 2021) at p.5.

[2] Promises, pathways & performance. Climate change disclosure in the ASX200. Prepared by ACSI July 2022) at p.5.

[3] ibid

[4] ibid

[5] See footnote 1.

[6] Sections 769C, 1041E, 1041F, 1041H of the Corporations Act 2001 (Cth). Sections 12BB, 12DA, 12DB, 12DC, 12DF and 12DG of the Australian Securities and Investments Commission Act 2001 (Cth). Regulatory Guides 65, 168 and 234 provide further guidance. In addition, the Commonwealth Government has proposed Safeguard Mechanism reforms that will come into effect on 1 July 2023. The Safeguard Mechanism applies to limit the emissions of certain large industrial facilities whose facilities exceed the safeguard thresholds.

[7] s.6(2) of the Climate Change Act 2017 (Vic) and s.5(1) of the Climate Change (State Action) Act 2018

[8] United Nations’ High-Level Expert Group on the net zero commitments of businesses and financial institutions (amongst other non-state actors).

[9] Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions by the United Nations” High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities dated November 2022

[10] ibid at p.15

[11] In essence, “permanence” refers to the maintenance of carbon offsets through proper stewardship long after purchase of the offset credit. If an area of forest is sold as an offset in 2023, it may be destroyed next year due to fire or neglect or the actions of the seller. As a result, the offset is not permanent. The risks and benefits for companies going net zero | World Economic Forum (weforum.org)

[12] In essence, “additionality” refers to the fact that the circumstance that if buying a carbon offset leads to a reduction of greenhouse gas emissions that would have happened independently, then the offset is not additive. The risks and benefits for companies going net zero | World Economic Forum (weforum.org)

[13] Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions by the United Nations” High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities dated November 2022 at p.19

[14] There is much detail in the UN Report, not all of which is intended to be captured in this synthesised summary. In preparing a net-zero pledge, regard should be had to the detail in the UN Report.

[15] Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions by the United Nations” High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities dated November 2022 at p.16

[16] ibid at p.17

[17] ibid at p.16

[18] ibid at p.17

[19] ibid at p.15

[20] ibid at p.17

[21] ibid at p.15

[22] ibid at p.19

[23] ibid at p.15

[24] ibid at p.23

[25] ibid at p.15

[26] ibid at p.21