Are companies quiet quitting their climate claims?
The most popular corporate climate-related activity in the last five years has been target-setting, especially “net zero emissions by 2050”. It sounds great, the deadline is far off, and how, exactly, the company is to achieve it could be glossed over, at least for a time.
That time has passed. ASIC’s latest greenwashing report reveals it has taken multiple companies to task for marketing net zero targets without being able to provide evidence for how they would be achieved. It turns out all kinds of stakeholders – regulators, activist groups, ratings agencies, financial analysts, are very interested in the details, and, crucially, the credibility of companies’ climate claims. Their motivations may be very different, as are their approaches, but their analysis has become more sophisticated and their access to data will only increase as disclosure requirements expand.
This has led to warnings of “green hushing”. That companies will avoid making any climate-related statements at all, so that they cannot be tested.
Saying nothing will not solve the problem
Companies cannot dodge the problem by green hushing. For a start, financial climate-related disclosure will probably become mandatory in Australia – it’s already prescribed in the UK, NZ, and in the US, and Treasury is considering how to do it here.
More importantly, companies will be scrutinised irrespective of their statements. New tools from industry stakeholder groups like RIAA’s Responsible Investment Certification Program and the Australian Sustainable Finance Institute Sustainable Finance Taxonomy will make this easier.
Some third parties are already doing it. Databases of companies’ facilities have been combined with location and other data to produce physical climate risk ratings and scores. These may be combined with other sustainability information to create the ESG metrics marketed by ratings agencies, but they are also used to determine prices for insurance and other products. Of course, the scores in these databases may be wrong. Among other weaknesses, they generally do not take into account any physical risk reduction measures that a company may have already implemented. But to avoid misinterpretation of its own risk profile, a company is going to have to put an explanation on the record.
Put your money where your mouth is
So what makes a credible climate claim? These are the fundamentals of a defensible net zero target:
An emissions trajectory transparently derived from the Paris Agreement temperature goals. Sectoral pathways for decarbonisation are available for an increasing range of business types. Rates of emissions reduction can be plotted against the emissions budgets for 1.5oC and <2oC warming. We have a proprietary tool to test your target to see whether it aligns with the 1.5oC global goal to limit warming.
A plan to achieve emissions reduction in line with this trajectory. Can you show how, where and when you will reduce emissions? Can you justify using carbon offsets and show you are managing the risks associated with them?
Capex allocations aligned with the plan. Obviously, it takes significant work – and therefore time – to get from target-setting to investing in decarbonisation. But unless and until money is flowing to emissions reduction, the target has no real-world basis.
Demonstrating climate resilience
A bigger challenge – and one that is only starting to get attention from stakeholders – is substantiating claims of resilience to actual climate change. Energetics has identified critical weaknesses in current market practice in our submission to Treasury. The fundamentals of a defensible claim to climate resilience are:
Understanding the triggers and thresholds for climate variables to affect your business activities and correctly applying appropriate projections to the locations of your business.
Expanding this analysis up- and downstream to understand your exposure to climate impacts on your supply chain and customer base.
Acknowledging the varying levels of confidence and uncertainty that characterise scientific understanding of each climate variable.
Taking actions to bring your residual climate risk within acceptable business parameters.
These are not easy tasks, but there is no short-cut.
We really want to help you do this well
We can ensure your claims are well-supported by defensible analysis and strong evidence. If you are starting from the beginning, we can set you up to succeed. If you want a constructive critique of your climate position, we can identify your weak spots and help you strengthen them. And while we recognise that this protects you from greenwashing charges or stakeholder criticism, we want to get it right for a more positive reason: because this is how we help your company contribute to the global decarbonisation we all need to achieve.