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Companies around the globe are becoming more aware of the climate emergency and are being asked by a wider range of stakeholders to accept responsibility for their environmental impacts. It is now more difficult than ever for companies to distinguish between true climate leadership and unsubstantiated Greenwashing due to the rapid increase in corporate climate pledges.
This blogpost is by the lead authors of the Corporate Climate Responsibility Monitor – Thomas Day, Silke Mooldijk, Sybrig Smit – shared their perspectives on questions related to the analysis, and its implications.
What is the Corporate Climate Responsibility Monitor?
The Corporate Climate Responsibility Monitor evaluates the transparency and integrity of companies’ climate pledges. It provides a structured methodology for others to replicate an evaluation on integrity and transparency of companies’ climate leadership. We will focus on four major areas of corporate climate action: tracking, disclosure, setting emission reduction targets, and reducing your own emissions. We also discuss how to take responsibility for unabated carbon emissions through climate contributions and offsetting.
What motivated you to conduct this analysis?
Companies are under immense pressure to demonstrate their climate ambition. The pace of pledge and target setting is unprecedented. Companies are scrambling for new and innovative ways to show their ambition. It has become difficult to distinguish true climate leadership from greenwashing. We wanted to clarify what good practice means and whether companies are on the right track.
The objectives of the Corporate Climate Responsibility Monitor are threefold: First and foremost, we want to identify and highlight good practice approaches that can be replicated by other companies; Secondly, we want to reveal the extent to which major companies’ climate leadership claims have integrity and are transparent. Thirdly, we aim to scrutinise the credibility of companies’ plans for offsetting their emissions through carbon dioxide removals or emission reduction credits, recognising that voluntary carbon markets are highly fragmented and there remains a lot of uncertainty on credible good practice.
What are the main findings?
The key finding is that companies’ net zero pledges are not what they may seem. We found that the headline pledges of 25 of the world’s largest companies in reality only commit to reduce emissions by 40% on average, not 100% as suggested by the terms “net-zero” and “carbon neutral”.
We see that companies’ headline climate pledges require detailed evaluation and in the majority of cases today cannot be taken at face value.
How did you come up with the criteria for your assessment?
These principles are applicable to issues where scientific knowledge is rapidly changing. With the adoption of the Paris Agreement, and the increasing scientific evidence supporting its urgency, the goalpost for what constitutes good climate action has changed. The Paris Agreement requires that global emissions be reduced to nearly zero. Companies can only claim to be leaders by reducing their emissions quickly and deeply. In the era before the Kyoto Protocol, helping others to reduce was considered feasible. However, this is no longer the case. It is imperative that corporate climate action and guiding principles evolve accordingly.
How did you decide which companies to check out?
We wanted to get insights from major companies with climate promises, across a broad range sectors. We did not intend to collect statistically representative samples, but we wanted to get a broad overview about the different approaches used across different sectors.
We evaluated the top 25 global corporations based on their annual revenues in 2020. The following criteria were used: 1) We excluded companies that had pledged high-profile mitigation efforts under one of the main corporate climate initiatives and networks. 2) We limited the number of companies that could be drawn from a variety of sectors and geographies to five per country (of their headquarters), and two per economic sector. This was to allow us to draw insights from a wide range of geographies. Due to their unique circumstances and challenges, we excluded companies involved in investment management.
Why did you choose to focus on these large corporates and not smaller or mid-sized businesses?
These companies’ climate pledges are very important at this time of climate crisis. Companies that make bold climate pledges have a lot of influence. Their market share and market activity make these companies role models and linchpins of transformation in their respective sectors. These companies have the potential and the responsibility to lead in a clear and unambiguous manner. The integrity of their commitments could make the difference between achieving global decarbonisation targets or failing to do so.
Did you discover any good practices that could be replicated and used by other actors?
Maersk, Deutsche Telekom, and Vodafone all made the same pledge to net zero. They committed to significantly reducing their carbon emissions by between 90-95%. Maersk’s commitment to reduce emissions across its value chain by at least 90-95% by 2040, appears to be an ambitious target for a sector where deep decarbonisation technologies are not yet sufficiently matured.
Google is the clear leader in renewable energy procurement structures. Google is the leader in renewable energy procurement structures, with 80% of its renewable electricity consumption coming from high quality PPAs and its own generation. By 2030, the company aims to have a 100% hourly matching between local RE generation and consumption. Google recognizes the mismatches and problems that can arise in renewable energy procurement and shows ambition and innovation to address them. Others are following suit.
Sony is a leader in setting interim targets. Although Sony’s commitment to a 100% emission reduction by 2050 includes an undefined role for offsetting, the company uses this longer-term vision to guide the formulation of much more specific short- and mid-term targets. These include emission reduction targets for specific emission ranges, as well as non-GHG targets to activity-specific indicators. Sony’s short-term targets provide a far clearer signal for the implementation of emission reduction measures, than the 2050 target alone would do.
There are companies that set the standard for transparency and disclosure. Sony and Vodafone, for example, compile relevant data in a downloadable format. This allows you to see if the company is reporting on the full scope of its emissions and where the major sources of emission are. Some companies go further and report historical and current emissions for specific emission sources. They also provide a list of activity indicators for specific geographic locations.
It seems that suppliers are becoming more engaged in addressing the often large scope 3 emissions. Many companies, including Walmart and IKEA have established supplier guidelines. They actively encourage their suppliers to set ambitious climate goals or to find innovative ways to reduce greenhouse gas emissions. Most of the supplier engagement programs we identified in this analysis were created within the last one or two years.
Maersk is the only company that made it to the “reasonable integrity” category. What is the company doing right that others are not?
Maersk does exceptionally well in three key areas compared to other companies. Maersk first does what is expected for a headline net zero pledge: it commits to deep emission reductions. The company pledges to reduce its emissions across its value chains by at least 90% by 2040. This seems ambitious for a sector in which deep decarbonization technologies are still not sufficiently mature. Deutsche Telekom and Vodafone are the only other companies to make such deep reductions. Both of these companies rely primarily on decarbonization of the electricity sector. Most of the technologies are becoming mainstream. Maersk has made significant investments in emerging technologies to reduce many of its major sources of emissions, including scope 3. The company is pioneering alternative fuels to replace conventional marine fuels, which currently account for approximately 60% of Maersk’s GHG footprint. Third, Maersk’s integrity has not been undermined by contentious carbon neutrality claims delivered through offsetting, and the company is making climate contributions to support carbon dioxide removals. Maersk could still make improvements to other aspects of its climate strategy. We could only find very limited information on renewable electricity procurement. Renewable electricity will play an increasingly important role in Maersk’s climate strategy, as the company transitions toward electric and hydrogen-based technologies for shipping and land-based operations.
What are “quick fixes” for better corporate climate responsibility?
For the next 5-10 year, companies need to make clearer and more ambitious emissions reduction commitments. Longer-term net-zero pledges have become the focus of corporate climate commitments, possibly because “net zero” as a concept is in trend, but possibly in some cases also because the accountability associated with targets set far in the future is limited. While long-term visions are useful, they should be accompanied by ambitious interim targets that require immediate action. Priority should be given to specific targets that require immediate action and accountability over short-term and medium-term time frames.
Transparency is also important. Public climate pledges by companies are required to disclose all relevant information. The current state of disclosure is poor. Information is often incomplete, inconsistent or misplaced. Even companies doing well sometimes exaggerate their ambitions.
It is possible to be more transparent about offsetting and target setting. Companies could change the headline pledges to include specific, unambiguous emission reduction targets. These targets would not be dependent on neutralisation or offsetsetting of emissions. Current developments increasingly give companies the impression that “net zero” target terminology represents the gold standard for ambition. However, companies may feel pressured to commit to net-zero targets if they are forced to deal with creative emissions accounting or create ambiguity. Encourage companies to set emission targets that are close to zero, without implicitly relying upon offsetting, and encourage transparency and accountability by encouraging companies to make climate contributions to reduce their emissions without claiming neutralisation.
Companies can and should reduce their emissions by committing to 100% renewable-based energy use, but only from high-quality materials. The majority of companies we reviewed already make specific commitments to renewable energy use. However, purchasing renewable energy certificates from old hydropower plants will not increase the system’s renewable electricity capacity. Only a few companies have the integrity to seek out better quality procurement constructs that can have a significant impact on emission reductions. We also identified companies that – in stark contrast to their climate leadership claims – did not currently procure any significant amount of renewable energy, nor declare plans to do so in the future. It is a simple and affordable way to achieve climate ambition.
You state that the companies’ headline targets commit to reduce emissions by only 40% on average, not 100% as suggested by the term “net-zero”. How did this find you?
The problem with net zero or carbon neutrality terminology is the ambiguity. What we are most interested in is whether the target company explicitly commits to reducing its own value chain emissions. Although most of them do, the extent of the commitment varies. Some companies pledge to reduce their entire value chain emissions by more then 90%. Others commit to a lower emission reduction target or only a fraction. Where specific targets were identified, we looked at the depth of those targets as well as the coverage of emission sources that they apply to, in order to establish the proportion of the company’s full value chain emissions that the company explicitly commits to reduce, by the target year. Although the sample size is small, the 40% average commitment to emission reductions is not representative of all companies. However, it is alarming and a clear indication that similar pledges by other companies should not be taken at face value. The reality could be even worse, as the 40% average doesn’t include 12 companies that we couldn’t identify as having committed to emission reductions in the target year. Collectively, 25 companies commit to reducing their 2.7 GtCO by no less than 20%2Emission footprint by the respective headline target years.
What were your findings on short- and medium-term climate commitments?
The 2030 targets are not ambitious enough. If you combine short-term action with long-term net zero goals, they are not meaningful. By 2030 global GHG emissions need to be cut approximately in half from 2019 emission levels to be in line with the goal to limit global temperature increase to 1.5°C1. These companies would be the frontrunners and have to reduce their emissions at the same rate. 15 of the 25 companies report interim targets. However, we believe their average emission reduction commitment to full value chain emissions between 2019- 2030 to be only 23%. This excludes 5 companies, for which we couldn’t find any commitments for emission reductions after 2019.
Is the terminology “net zero target” helpful?
The signal sent by the reference to “zero” is a helpful concept, but the “net” can be problematic. Companies need to consider how they can eliminate all their greenhouse gas emissions. Global emissions must be reduced to net zero. Here the concept of “zero” is helpful because it changes the mindset from “marginal reductions and optimisations here and there” to a “full transformation”. The “net” is not helpful if companies start creative accounting just to demonstrate a neutral balance.
Net-zero emission is fundamentally a social goal and not something that can be transposed onto every corporate entity. Not all sectors have the technology resources to fully decarbonise by 2025. Therefore, global net-zero emissions will require carbon dioxide removals. However, carbon dioxide removals have limited potential. To reduce residual emissions from difficult to abate sources of carbon dioxide, natural carbon sinks and carbon dioxide reduction technologies must be used. If any company is allowed to take ownership of these sinks in order to neutralize their unabated emissions and they are not available to balance out residual emission from hard-to-abate sources, then net zero at the global level will be technically impossible.
What extent are companies responsible to emit emissions upstream or downstream of their value chain? Why did these “scope 3” emissions play such a big role in your assessment?
Here are some examples to illustrate the responsibility of companies for these emissions.
- Only if the emissions of fossil fuel exploration companies are taken into account can they be climate leaders. Their entire business model is dependent on it.
- Only if they consider the emissions from their cars during the use phase, can car companies be climate leaders. They can only reduce them.
- Electricity suppliers are only considered climate leaders if all of the electricity they sell can be produced from renewable sources.
- Only food companies can be called climate leaders if all emissions from food production are included, even if they purchase raw materials from other companies.
Is there any difference between neutralisation and offsetting?
In our view, companies make an offsetting claim when they assert that unabated GHG emissions within their value chain are “neutralised”, “netted-out”, or “offset” through carbon dioxide removals or emission reduction activities outside of their value chain. The terminology for offsetting is complex and inconsistent. The practice of offset has been plagued by controversy and contention because of significant uncertainties in the real effect of offset credit use and the suitability of carbon dioxide removes for neutralising emissions. Many actors now avoid the term offsetting entirely; companies and initiatives more often refer to “neutralisation”, “netting-out”, “compensation”, “reducing the footprint”, while some actors use multiple terminologies to distinguish between offsetting in different circumstances and at different times. The Corporate Climate Responsibility Monitor reviews all claims that unabated emissions of GHGs within the value-chain are offset as offsetting claims. This includes all synonymous terminologies, project types, and all other terminologies.
Why is it so contentious for companies that they claim to offset their carbon dioxide emissions by carbon dioxide removals and storage of carbon dioxide in nature-based solutions, such as forests?
The removal and storage of carbon dioxide through nature-based solutions – such as in forests or soils – is extremely important for global climate change mitigation. But due to the scarcity and limited permanence of carbon dioxide removals through nature-based solutions, the provision of support for these measures is not equivalent to the reduction of a company’s own emissions, from a climate perspective.
The key issue is that carbon stored in nature-based solutions is not guaranteed and unlikely to be permanent. Natural weather events and anthropogenic influences could at any time cause the destruction or razing forests, mangroves or soils. This can lead to the re-release or destruction of carbon, which could negate any emission reduction impact that might have been caused by the restoration or protection of the land in the past.
Another problem is that there is not enough land available for nature-based carbon removals. This means that not all countries, companies, and individuals who want to achieve carbon neutrality in future years will be able to offset their carbon emissions. We will need limited natural resources to offset the residual carbon emissions from the hardest-to-absorb sectors in order to achieve global net zero emissions by midcentury. The existence of limited carbon sinks must not be considered a public good. If any company has a claim to these scarce resources, it could lead to residual emissions from sectors that do not have the technologies to fully decarbonize. It will be technically impossible to achieve net zero global emissions.
What are high-hanging fruit mitigation programs?
The high-hanging fruit of mitigation is the technology and measures to reduce emissions that are not easily accessible to governments of host countries in the near- or mid-term. The Paris Agreement’s global governance framework represents a new context, which is different from the Kyoto-era when most of the existing offset mechanisms and standards were developed. The possibility of offset credit revenue might be a perverse incentive for countries that want to limit their climate change mitigation ambitions. To overcome this potential ambition pitfall, offsetting projects should be sufficiently ambitious that they avoid presenting any conflict with the host country’s own ambition.
What are climate contributions? How are they different to offsets?
We define climate contributions as the financial support provided by a company to support climate change action beyond the company’s own value chain, without claiming to neutralise its own emissions. Companies can offset their emissions by purchasing carbon dioxide removal credits or emission reduction offset credits.
How do you expect companies to react to your analysis
We hope companies will take positive action to our findings, replicate the good practices we have identified, and address any unresolved issues. It seems difficult for companies at the moment to decide which approach is best for their climate responsibility, given the many options available and inconsistent advice being offered by consultants and standard-setting organizations. We hope to provide more guidance to ambitious companies by highlighting both good and bad practices and publishing our complete methodology. This will allow them to improve the transparency and integrity in their climate responsibility strategies.
How should regulators respond to your findings?
This was not a part of our analysis. However, this report shows that regulators shouldn’t rely on shareholder and consumer pressure to drive corporate action. To ensure that promises and claims are credible, companies must be examined closely. If they are not, they should be held accountable. It is possible to support truly ambitious corporate actors by introducing stronger regulation, which levels the playing field and ensures that they are not economically disadvantageous compared with their less ambitious peers.
To support ambitious actors who want to innovate and accelerate decarbonisation, regulators and standard-setting organizations must be able to distinguish between climate leadership and greenwashing.
What are your plans for the future?
The Corporate Climate Responsibility Monitor will be published annually. It is not realistic to evaluate the integrity of hundreds of thousands of corporate climate pledges. Instead, the objective is to survey a small number of companies to gain insights into the integrity of corporate climate actions and the quality of the guidance being provided to them.
140-50% in the period 2010-2013 (Rogelj, et al. 2018,).
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