New 'Principles for Paris-alignment' published as corporates face growing criticism over toothless climate pledges
Environmental law firm ClientEarth has this week laid down a set of ground rules for corporate net zero pledges, in a bid to ensure the growing number of climate promises being touted by the private sector are effective in their stated aim of reducing real-world emissions and can stand up to accusations of 'greenwash'.
A set of principles published earlier this week by the law firm consists of seven non-negotiable 'red lines' that companies should adhere to if they want to prove that net zero pledges are reasonable, accountable, and transparent, from folding climate targets into articles of association to updating executive renumeration and performance incentives to reflect corporate sustainability goals.
As net zero pledges have snowballed across all sectors of the economy in recent months, corporates have faced growing pressure from campaigners to back up nominal commitments with targeted action, tangible investment, and short-term plans.
Just this month, a pledge from HSBC to achieve net zero financed emissions by mid-century was slammed by campaigners for having "zero ambition" due to a lack of phase out targets or plan to end near-term financing of carbon-intensive industries. Similarly several comprehensive reports published this year by the investor-backed Transition Pathways Initiative have revealed how despite some high profile net zero commitments, none of the world's biggest oil and gas companies are on track to meet climate goals.
But ClientEarth emphasised today that its new rules had been designed to remedy the gap between ambition and action at many firms while preventing company stakeholders from being misled.
The principles insist that financial institutions must set out how they intend to spur emissions reductions across their portfolios through investment, stewardship, financial, and underwriting decisions. Meanwhile, all types of companies should align all lobbying activity and trade association membership with their climate targets and strategies, it said.
"These principles can help guide firms to develop and implement meaningful net zero strategies," said ClientEarth lawyer Daniel Wiseman. "This is in their best interests, and the best interests of all of their stakeholders in addressing systemic climate change risks." He predicted the new rules would also help "identify greenwashing and hold firms that are not going far enough to account".
The document says credible climate targets must set out how companies can achieve net zero emissions "by the 2040s or earlier" - depending on the sector - and stresses that emissions reduction goals must encompass businesses' full value chains. Strategies must include short-, medium-, and long-term targets and should not "unreasonably rely" on unproven or uncosted negative greenhouse gas emissions, offsets or technologies, it adds.
Meanwhile, companies should "explicitly consider" 'just transition' imperatives that ensure that no workers are 'left behind' as the company pivots toward greener practices and operations, according to the document.
"Businesses and investors are finally setting Paris-alignment and net-zero targets - which is crucially needed," Wiseman said. "But unless these targets are supported by strategies that are reasonable, transparent and include strong accountability mechanisms, there is a significant risk that stakeholders will be misled."
The final plank of ClientEarth's new rules underlines the need for companies to complement their climate ambition with stringent disclosure regimes.
All companies must produce annual reports on progress toward their climate targets in their financial reporting that set out the firm's methodology, assumptions, uncertainties, and strategy in full, the document insists, with all disclosures verified by a third party. Meanwhile, all assumptions made in the company's financial accounts and in financial and capital expenditure decisions must be consistent with the firm's climate goals, it said.
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