21 October 2020
Five years on from the signing of the Paris Agreement, there is growing pressure for firms to align their strategies with global net zero emission goals.
The UN’s ‘Race to Zero’ campaign alone includes more than a thousand firms that have set ambitions to achieve net zero emissions by 2050. And in a recent review, we found that around 50% of FTSE 100 companies disclosed some form of Paris-alignment or net zero target in their annual reporting last year.
The fact that companies are committing to climate targets is a good thing. But the strategies they are developing to reach them often fall short. Recently, a Transition Pathways Initiative report found that despite such commitments, none of the world’s biggest oil and gas companies are on track to meet climate goals.
There is a clear gap between ambition and action. To address this, we’ve developed a set of key principles for companies and investors to ensure that bold commitments are aligned with Paris on the path to net zero.
ClientEarth lawyers have developed a principles-based approach that should underpin all Paris-aligned strategies. They must be:
Each principle is strengthened by several non-negotiable ‘red lines’, which provide detail on what satisfying these principles requires in practice.
For example, under the reasonable principle, one red line requirement is that a firm must adopt a strategy setting out short, medium and long term targets to achieve its net zero objective – which must include both 2025 and 2030 targets.
This means that a company which only sets out long term targets for reaching net zero emissions by 2050 has not gone far enough.
“Businesses and investors are finally setting Paris-alignment and net-zero targets – which is crucially needed,” said our lawyer Daniel Wiseman.
He added: “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.”
While companies are developing new climate strategies, investors and shareholders now also expect it. Earlier this year, Barclays announced its commitment to Paris-alignment after shareholder pressure. BP set out the details of its net zero strategy at its capital markets day last month. Large investors, like the BT Pension Scheme, are also setting their own net zero goals.
Daniel continued: “As businesses release details of their climate strategies, they must combine ambition with credibility.
“These principles can help guide firms to develop and implement meaningful net zero strategies. This is in their best interests, and the best interests of all of their stakeholders in addressing systemic climate change risks.
“They can also help us to identify greenwashing and hold firms that are not going far enough to account.”