Standards Setting at COP27: Enabling Corporate Compliance with Net-Zero Targets
By Lily Hartzell
The 26th Conference of Parties (COP26) of the UN Framework Convention on Climate Change (UNFCCC) held in Glasgow last year was chock-full of show-stopping announcements: USD130 trillion in managed assets aligned for net zero under the Glasgow Financial Alliance for Net Zero; a Global Methane Pledge with over one hundred countries committing to cut methane emissions 30 percent by 2030; and another hundred countries pledging to halt deforestation by 2030 under the Glasgow Leaders’ Declaration of Forests and Land Use.
This year’s COP27, hosted in Sharm el-Sheikh, Egypt, was less clear-cut. The conference’s tagline was “together for implementation,” but as it turns out, implementing the Paris Agreement is a messy process. During the first week of the conference—which attracts thousands of country delegates, civil society, and media from all over the world—it was difficult to know where to look. Negotiators were tasked with making progress on a range of issues from financing for loss and damage to detailed rules on Article 6 carbon markets, to the budget of the UNFCCC itself. Country announcements were just as mixed and it was difficult to determine a broader narrative.
Meaningful progress has been made, however. In particular, the international community is increasingly focused on setting standards to ensure that headline-grabbing announcements translate to climate action. According to Net Zero Tracker, by June this year, 700 of the world’s largest publicly-traded companies had made net-zero pledges. However, two-thirds of these commitments did not meet basic reporting requirements. These loosely defined commitments can potentially allow companies to continue to emit for years before purchasing carbon offsets in the form of planted trees or yet-to-be-developed carbon capture technology. Net zero does not mean an immediate decrease in emissions, even though the science is clear that is what the earth needs.
In response to concerns of greenwashing, UN Secretary-General António Guterres convened a High-Level Expert Group on Net-Zero (HLEG) to make recommendations on standards private companies should be held to after they commit to net-zero targets. The HLEG issued its report at COP27, laying out ten clear recommendations that ensure integrity in non-state entities’ pledges and “draw a red line around greenwashing.” It states that pledges should include emissions from the entire supply chain (scope one, two, and three emissions) and interim targets every five years with full transparency on progress made. Furthermore, non-state actors should not make any further investments in fossil fuels and only use carbon credits purchased on voluntary markets for mitigation outside their value chain. While these recommendations might feel like common sense, they represent a major milestone in regulating non-state actor pledges.
The Secretary-General is not alone in his effort to establish standards. The Science-Based Target Initiative(SBTi), established by a group of NGOs in coordination with the UN, has issued industry-specific guidance for setting credible emissions reduction targets. The Voluntary Carbon Markets Integrity Initiative (VCMI) has issued a draft Code of Practice for ensuring integrity in the largely unregulated voluntary carbon market. It also aims to ensure that companies are not able to purchase cheap, unverified carbon credits and claim these emissions reductions as their own. Other initiatives, such as the International Sustainability Standards Board, are undertaking similar efforts to ensure integrity in sustainability pledges.
The importance of these efforts was made clear early on at COP27. The United States announced the Energy Transition Accelerator (ETA) program, which would use cash from carbon offset purchases to finance the phaseout of coal in developing countries. While it is yet to be fully fleshed out, the idea was met with concern from civil society due to the potential for double-counting and the risk of flooding the offset market with cheap, unverified credits. Luckily, there has been a proliferation of ways to conduct the verification needed to make the ETA work.
However, the question remains: how far can voluntary standards take us? Certainly, they are a useful tool against which companies can measure themselves and with which civil society can hold companies accountable to their word. But there are no firm consequences for non-complying companies s, or those that go back on their pledges. Acknowledging this, the HLEG concludes its report by calling for coordinated government regulation on net-zero pledges and transparency.
There has been some movement for legally binding standards for emissions pledges. At g COP27 l, the United States announced that federal suppliers will be required to disclose carbon emissions and set science-based reduction targets that meet SBTi standards. Derik Broekhoff, an advisor to the UN’s Race to Zero campaign, laid out three options for expanding regulations. First is disclosure requirements that build transparency around actors’ greenhouse gas emissions to expose climate risk. Several countries are already taking steps in this direction. The U.S. Securities and Exchange Commission, for instance, published a draft rule in March requiring registered companies to disclose climate-related risks, including emissions. The EU, too, will be implementing its own set of ESG standards in 2023. The second area for regulation is truthful advertising, or rules that penalize companies for making false claims about their emissions targets. Finally, governments could establish formal certifications for companies’ emissions reduction claims.
Voluntary standards have built significant momentum at COP27, a crucial step forward in implementation. In the year before COP28, governments must take up the mantle and work together to create coordinated rules governing emissions disclosure and net-zero pledges. Without them, we are left with empty promises in an increasingly warm world.
Lily Hartzell is Editor-in-Chief of The Fletcher Forum. She is a second-year MALD student at the Fletcher school, where she studies multilateral climate diplomacy. Lily attended the first week of COP27 this year in Sharm el Sheikh.
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