During COP27, the 2022 international climate change conference, the United Nations (UN) High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities released ‘Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions’.
This report provides a valuable roadmap to ensure that businesses set and follow a robust net zero strategy, highlighting the importance of backing up net zero commitments with meaningful action. The report sets out five key themes (referred to as ‘principles’), and ten recommendations for organisations to establish and implement credible and comprehensive net zero commitments.
Key takeaways for board directors:
- This UN report, written by qualified experts, provides recommended actions for organisations to avoid their net zero pledges being deemed as greenwashing.
- Board directors should consider following these recommendations which constitute best practice guidance for organisations to commit to, and achieve, net zero emissions.
- Following the recommended actions will help ensure that board directors are complying with their duties around care and diligence.
In 2015, at COP21 in Paris, 195 nations made commitments to address climate change under a binding treaty, the Paris Agreement. One year later at COP22, the Marrakech Partnership for Global Climate Action was created to engage non-state entities; including businesses, financial institutions, cities and regions; to accelerate and recognise their commitments to reducing their own climate impacts via a net zero pathway.
There are currently no official standards in place to verify compliance of these commitments with a net zero pathway and, without credible net zero action, your business could be exposed to greenwashing claims with potential legal ramifications. Greenwashing involves organisations participating in activities that, intentionally or unintentionally, mislead the public into believing that the products or services they offer, or the organisations themselves, are environmentally friendly or sustainable when they are not, or when they are less sustainable than they claim to be.
The report’s key themes
The recommendations in the Integrity Matters report are based on the following key themes:
- Ambition which delivers significant short and medium-term emissions reductions on a path to global net zero by 2050.
- Demonstrated integrity by aligning commitments with actions and investments.
- Total transparency in sharing relevant, non-competitive, comparable data on plans and progress.
- Established credibility through plans based on science and third-party accountability.
- Demonstrable commitment to both equity and justice in all actions.
The report’s recommendations and corresponding questions for board directors
There are ten recommendations for non-state entities released in the Integrity Matters report. Corresponding questions directors can ask in the boardroom and further resources to help answer them are listed in the following sections.
- Announce a net zero pledge. Net zero commitments must (i) be public and disclosed, (ii) contain short and medium-term targets, and (iii) apply a methodology consistent with limiting global warming to 1.5°C.
- Does your organisation have an official net zero pledge aligned with the Paris Agreement?
- Where and how does your organisation share its net zero commitments?
- Set net zero targets. The objective to reduce all greenhouse gas (GHG) emissions must apply across the entire value chain and all organisational activity.
- Has your organisation set reasonable and achievable net zero targets that apply across its whole value chain?
- Are your organisation’s net zero targets science-based, time-bound, and aligned with the Paris Agreement?
- Are methodologies for identifying and reporting emissions reasonable, robust and transparent?
- Are these methodologies and disclosed targets externally verified? If not, can you advocate for setting targets based on the Science-based Targets initiative’s framework?
- How are you engaging and educating your supply chain partners to reduce their emissions?
- Limited use of voluntary credits. Emissions must be reduced throughout the entire value chain. Voluntary use of carbon credits should be limited to credits with proven high integrity and quality that reduce emissions beyond the value chain. You should only consider carbon credits once your organisation has decarbonised its emissions as far as current technology allows.
- Is your organisation and board prioritising emissions avoidance and reduction in its net zero strategy?
- Should you need to explore carbon credits, are these credits of high integrity and quality?
- Are carbon transactions transparently reported, verified and shared with the board and external stakeholders?
- Create a transition plan. Net zero transition plans must include (i) short, medium and long-term GHG emission reduction targets, (ii) third party verification and auditing methods, (iii) references to trajectories of other organisations from the same sector that have implemented adequate actions, (iv) adjustments to budgets, capital expenditures, research and development investments, and (v) objectives to align all areas of the business to such plans.
- Does your organisation have a transition plan? If not, what board-level steps are needed to develop one?
- If there is a transition plan, who is responsible for it? Is it embedded across the organisation?
- Are there accountability strategies at CEO level as well as operational levels to comply with the transition plan?
- Is your board linking C-suite and executive compensation to progress on its transition plan? How effectively does this incentivization support your organisation in meeting its climate targets?
- Phase out fossil fuels and scale up renewable energy. Implement action that considerably reduces, or phases out, consumption of fossil fuels and replaces this with clean energy alternatives.
- Is your organisation taking action to phase out fossil fuels use, both in its operations and across the value chain?
- Does your organisation include renewable energy procurement targets as part of its net zero transition plan?
- How are these ambitions and activities scrutinised at board-level?
- Align lobbying and advocacy. Organisations must disclose how they will achieve net zero targets and should align their policies and participation in industry associations with the goal of reducing global emissions by, at least, 50% by 2030 and reaching net zero emissions by 2050. They must advocate in line with their emissions reduction targets and refrain from taking part in any actions contrary to these goals.
- Does your organisation disclose its industry association affiliations? Are these associations related to any negative climate lobbying?
- Does your organisation have a clear framework in place for addressing misalignments with its industry associations, including escalating steps?
- Does your organisation’s climate disclosure contain detail on positions and policy engagement activities with regulation and legislation?
- People and nature in the just transition. Business operations and value chains must preserve natural ecosystems by avoiding deforestation and refraining from investment in such activities, or organisations linked to these activities. Organisations should also seek to protect and restore ecosystems beyond their own operations and value chains to achieve global net zero.
- Has your organisation, including the board, considered nature risks and dependency across all elements of its net zero transition plan?
- Does your organisation’s transition plan include refraining from land-use change to perform its operations and value chain activities?
- Is your organisation investing in ecosystem conservation or restoration as part of its transition plan?
- Increase transparency and accountability. Organisations should publish annual reports disclosing actual, accessible, and comparable data on both implemented and planned activity that supports the organisation’s net zero ambitions. Such publications should detail progress on implementation of the Integrity Matters report recommendations.
- How is your organisation communicating its progress towards net zero targets to all stakeholders including its board, employees, investors, and consumers?
- How does your board hold management accountable for implementing the regulatory requirements for climate-relevant disclosure?
- Invest in just transitions. Net zero transition plans in developing countries must contribute towards economic development in the regions in which they operate.
- If your organisation operates in a developing county, can you demonstrate that your net zero transition plan contributes to the region’s socio-economic development?
- Do you have a stakeholder engagement plan in place to ensure a just transition?
- Does your organisation’s transition plan consider Indigenous Peoples and Local Communities (IPLCs) perspectives?
- Is this activity, including the associated risks and opportunities, reviewed at board-level?
- Accelerate the road to regulation. Proactive engagement is needed to ensure that governments establish policies and regulation that implement unbiased standards and criteria to meet net zero targets.
- Does your organisation’s voluntary action demonstrate leadership in the net zero transition?
- Could such leadership inform, foster, or inspire emerging regulation?
- How are you, and other board members, engaging with policymakers and other businesses to inform and support the creation of the relevant policies for net zero pathways?
How do these recommendations affect board directors?
The Integrity Matters report highlights key recommendations for businesses to take climate action that aligns with a net zero future as set out in the Paris Agreement. As stewards of the organisation, board directors play a crucial role in ensuring that the organisations they represent are taking appropriate and effective action to implement these recommendations.
Furthermore, board directors may expose themselves to litigation risk should they be seen to not be taking credible action to deliver against the net zero pledges of their organisations. For instance, in Mexico non-binding precedents suggest that directors, in their duties of diligence and care, are liable for damages caused to the company by their actions or omissions. The Integrity Matters report recommendations constitute best practice, and failing to comply with this may be seen as a director’s omission.
Resources, tools and initiatives
Resources, tools and initiatives supporting board directors to comply with the UN’s Integrity Matters recommendations are listed below:
- Navigating the Disclosure Landscape, an explainer and interactive microsite produced by the Climate Governance Initiative – supports recommendations 1 (Announce a net-zero pledge), 4 (Create a transition plan), 6 (Align lobbying and advocacy) and 8 (Increase transparency and accountability).
- Guidance on setting reliable, science-based, and time-bound net-zero targets is given by the Science-Based Targets initiative (SBTi) – supports recommendations 2 (Set net-zero targets), 4 and 5 (Phase-out fossil fuels and scale up renewable energy).
- Guidance for carbon market trading is being developed by the Voluntary Carbon Markets Integrity Initiative (VCMI); and the Commonwealth Climate and Law Initiative (CCLI) and CGI have created materials to better understand climate risks in value chains – related to recommendation 3.
- Climate Change and ESG-related risks in Value Chains: What Board Directors Need to Know, an update by the Climate Governance Initiative and the Commonwealth Climate and Law Initiative, helps businesses better understand potential risks in their value chains – supports recommendation 3 (Limited use of voluntary credits).
- Guidance for carbon market trading is being developed by the Voluntary Carbon Markets Initiative (VCMI) – supports recommendation 3.
- Climate Change Litigation – What Board Directors Need to Know, an update by the Climate Governance Initiative and the Commonwealth Climate and Law Initiative,
- The CCLI and CGI also have learning materials on climate change litigation; and InfluenceMap provides guidance on industry association lobbying disclosures – related to recommendation 6.
- Guidance on nature considerations can be found in The Chairperson’s Guide to Valuing Nature by the World Economic Forum (WEF); and guidance for nature-related disclosure is being developed by the Taskforce on Nature-related Financial Disclosures (TNFD) – related to recommendation 7.
- The Chairperson’s Guide to a Just Transition by the WEF and the societal dimensions discussion paper of the TNFD can support a just transition plan – related to recommendation 9.
- A Taskforce on Net Zero Regulation is under consideration by the expert group that prepared the Integrity Matters report – related to recommendation 10.
This briefing was adapted for a global audience by the Climate Governance Initiative from a briefing by Chapter Zero México and Nader, Hayaux & Goebel.