Climate-washing risks on the road to ‘Net Zero’

Companies are increasingly taking positive action on climate change, including setting “Net Zero” targets.

At the same time, some dismiss such corporate commitments as mere greenwashing, or even, in some cases, use them as grounds to commence litigation for deceptive marketing.

How can companies communicate their climate targets, strategies, and performance metrics to customers, investors, and other stakeholders while mitigating the risk of consumer protection investigations, public enforcement of greenwashing claims and private enforcement through class action litigation or other proceedings?

Understanding Corporate “Net Zero” Commitments

In the run-up to COP26 in 2021, it became increasingly popular for companies to issue “Net Zero” climate commitments.  When a company adopts a “Net Zero” commitment, it declares to the world that it will take actions by a particular date, usually 2050, to reduce GHG emissions attributable to its operations and to balance its remaining emissions, such that the net GHG emissions it is responsible for no longer contribute to climate change.

So far, so good. But issues arise almost immediately; almost every aspect of the “Net Zero” concept is open to debate:

·  How do we draw the line around GHG emissions covered by a company’s “Net Zero” commitment?  Is the scope limited to direct emissions from its operations, indirect emissions from purchased power, or all emissions upstream and downstream in its supply chain?

·  How can a company’s progress toward such a long-term target be assessed? Is a step-by-step action plan needed from now to 2050 before a “Net Zero” target is announced?

· What assumptions are companies allowed to make about the emergence of lower-carbon technologies and processes when charting a path to “Net Zero”?

·  How can companies use carbon offsets to compensate for their internal emissions? Must companies make progress on internal GHG emissions reductions first, only using carbon offsets as a last resort?  And what kind of offsets are acceptable?

Deceptive Marketing Practices:  Where is the Line? 

A key step to reduce greenwashing risks associated with corporate “Net Zero” commitments is to recognize that such climate targets, and the associated climate disclosures, are environmental claims or representations and may be subject to consumer protection or deceptive marketing law.  While that presents risk, it also means there are established legal principles that can help navigate the line between legitimate environmental claims and greenwashing.

While there are no bright lines, questions that can assist in this assessment are:

· What scientific evidence is being used to substantiate the “Net Zero” target or other climate-related representation.  Is that evidence widely accepted and causally connected to the disclosure ?

·  Are corporate climate-related claims balanced, or do they accentuate the positive by ignoring information that is negative or trending in the wrong direction?

·  Do the climate-related representations make absolute and unqualified claims, or are they appropriately qualified by clearly communicating their scope and/or limitations?

Mitigating Greenwashing Risk for “Net Zero” Commitments

Specifically, companies can take steps to reduce greenwashing risks when adopting “Net Zero” targets and making climate-related disclosures:

·   “Net Zero” claims are future-oriented and intrinsically difficult to substantiate, so it is important to set interim goals that are clear, tangible and readily understandable.

·   “Show your work” when  communicating climate-related targets and progress toward meeting those targets.  Subject to the need to protect commercially sensitive information, be transparent about the data and scenarios used to develop climate targets and plans.

·  Communicate climate targets in a balanced way. Be transparent about the challenges, risks and limitations; don’t just tout ambitions.

·  Remember that you are communicating your “Net Zero” targets and climate-related performance metrics to multiple audiences. Materials prepared for one stakeholder group could be interpreted as misleading by others.

·  Describe climate targets in commercial terms, rather than as an expression of your social responsibilities.  Broad, aspirational language associated with corporate climate targets is a significant source of risk when it comes to allegations of greenwashing.

Conclusion

While more and more companies recognize climate change as a significant business challenge, corporate leaders can feel like they are driving on a mountain road, with sheer rock to one side and a sharp drop-off to the other: say too little on climate, and risk being accused of inaction; say too much, and risk being accused of “climate-washing”.

Fortunately, companies can take concrete steps to mitigate the risks of making “Net Zero” and other climate-related claims to the market, making it easier to stay on the road.

Good thing, too, because the days of saying nothing at all are in the rear-view mirror!