Are major corporates failing on climate? A report out this week appears to suggest so, accusing some of the world's highest profile businesses of pursuing deeply flawed and partial net zero strategies that amount to little more than "greenwash."
In an intervention seemingly designed to spark some serious soul-searching amongst the world's top corporate sustainability teams and green business groups, researchers at the New Climate Institute looked into the climate plans of 25 large multinationals, including many that see themselves as climate leaders, such as Ikea, Unilever and Amazon. It concluded that despite these companies rushing to adopt net zero targets in recent years, none of their decarbonization plans had a "high degree of integrity." Out of the corporate strategies surveyed, 22 were scored as having "low" or "very low" integrity, with the research concluding that just 40 percent of the emissions associated with the companies have been accounted for by their decarbonization plans.
The inaugural edition of the Corporate Climate Responsibility Monitor has also argued that the world's leading climate target-setting bodies — the Science Based Targets initiative (SBTi) and CDP — are open to manipulation by corporates and in some instances even provide a "platform for greenwash." The analysis argues these standard-setting initiatives have lent credibility to "low quality and misleading targets" because they leave various loopholes for companies to exploit.
The report states that most SBTi ratings secured by the companies covered by the report are "either contentious or inaccurate" and claims companies are given too much leeway to rely on offsets, selectively pick their "base year" for emissions reduction goals and ignore emissions generated in their value chain. It also states that standard-setting initiatives should not be responsible for evaluating companies' claims, arguing their ability to do so independently is compromised by the desire to demonstrate positive momentum behind their venture.
Unsurprisingly, the assessment has elicited a sharp response from many companies surveyed, who were quick to push back against the report's conclusions and question the methodology used by the researchers. Nestle said the paper "lacks understanding" and "contains significant inaccuracies"; the BMW Group said it did not understand "where the statements relating to its sustainability strategy published in the study referred to came from"; and E.ON railed that the research was "not only methodologically incorrect, but its results are misleading." Many others pointed out that their plans had met the criteria set out by the the SBTi, which has long been recognized as the leading independent body for assessing corporates climate goals.
So, what exactly is going on? Why are interim targets that have been recognized by the SBTi as being in line with a 1.5 degrees Celsius or 2C warming scenario now been found to have "low" or "very low" integrity by a separate analysis, and what does it mean for progressive businesses looking to implement credible targets and guard accusations of greenwash? There is a broad agreement that independent scrutiny of emissions targets is required to ensure that corporates continually improve their decarbonization efforts, but how can businesses at the vanguard of climate action make sure their corporate climate plans are genuinely robust? And what does the report's damning assessment of existing standard setting bodies mean for the roughly 2,000 companies that have aligned their targets with the SBTi?
Alberto Carillo Pineda, managing director of the SBTi, told BusinessGreen the group welcomed the additional scrutiny of its criteria and noted that the findings would be assessed as part of the SBTi's annual criteria review. He reflected that the report was a valuable academic exercise, but added that its methodology was not as acutely sensitive to the operating environments and realities faced by multinational businesses as that pioneered by the SBTi.
"It's a valid view because it's an academic exercise," he said. "[But it's] certainly not the only view. What we do as SBTi is we try to balance a number of views on what constitutes best practice on climate target setting. ... Ultimately, the idea is to create multi-stakeholder standards that try to find a common view." The group's new Net Zero Standard, published in October, is the result of two years of discussions between scientists, academia, think tanks, NGOs, companies, financial institutions and more, he explained.
In Pineda's view, the key difference between the methodology used in the new report and that established by SBTi is around value chain emissions, otherwise known as Scope 3 emissions. "The report takes a more theoretical approach to these emissions, whereas the SBTi has more flexibility in its criteria, which is intended to try to balance scientific rigor with the circumstance in which companies operate," he said.
As such, the new Monitor report warns that companies are neglecting to count most of their supply chain emissions, noting that just three companies analyzed — Vodafone, Maersk and Deutsche Post — had committed to decarbonize 90 percent of their full value chain emissions. It argues E.ON could be excluding market segments that account for some 40 percent of its energy sales from its emissions accounts, while Carrefour could be neglecting to include locations that account for over 80 percent of Carrefour branded stores in its climate goals.
But Pineda noted that compiling emissions data from thousands of suppliers is an incredibly resource-intensive exercise and sometimes impossible for large companies, given that many small and medium-sized businesses do not yet collect this data. The SBTi is exploring new types of "target formulations", which would allow companies to drive emissions reduction across their supply chain without relying on Scope 3 greenhouse gas emissions reduction targets that are hard to practically deliver against, he said.
"There's a lot of actions companies can take [to tackle supply chain emissions]; it is just not easy to reflect that in a GHG emission target," he said. "You need to consider other types of target formations. That's the type of exercise we are planning to go through, to find ways to align value chains to net zero and to net zero transition and help eliminate emissions from a company's value chain. One that acknowledges some of the challenges that exist with scope three accounting."
There is also a wider question as to the extent to which companies are fully responsible for the emissions in their supply chains. The world's largest businesses can help curb emissions from their suppliers, primarily through green procurement policies, auditing processes and direct funding support for key suppliers' decarbonization projects. But there is a school of thought that responsibility for those emissions ultimately lies with the companies that produce them and attempts to accurately account for supply chain emissions will inevitably result in some double counting.
Beyond the debate over value chain emissions, Pineda also pushed back at the accusation that the SBTi's targets gave too much leeway to companies to pick years where they produced "extraordinarily high emissions" as their baseline. He said there could be "legitimate" reasons for a company to pick a base year with higher emissions, for instance due to mergers and acquisitions or it being the penultimate year before the pandemic led to a sharp one-off reduction in emissions.
Let's not make perfection the enemy of the good, because there's so much to be done.
Similarly, advocates of the SBTi argued that concerns raised by the new report over the use of offsets and the extent to which net zero targets drive near-term decarbonization efforts are already being addressed by updates to SBTi's standards.
Pineda pointed out that just one multinational listed in the report — CVS Health — had been accredited under the SBTi's new Net Zero Standard, which the SBTi has dubbed the "world's first framework for corporate net zero target setting in line with climate science." The standard notes that companies that want to claim they have a mid-century net zero target that aligns with the Paris Agreement must aim to halve their greenhouse gas emissions — across all scopes — by the end of this decade, before targeting a minimum 90-95 percent reduction by mid-century, with the exact percentage dependent on the sector. As such, the use of offsets to count towards net zero targets is set to be severely restricted, leading to an increased focus on direct emissions reductions.
Maria Mendiluce, CEO of the We Mean Business coalition, one of the groups behind the SBTi, similarly argued that she welcomed the publication of the Corporate Climate Responsibility Monitor in an interview with BusinessGreen. But she expressed concerns that a flurry of media headlines about corporate greenwashing in the wake of the report could have the unfortunate and inadvertent effect of slowing climate action among the many thousands of companies yet to establish any net zero targets.
"This is not about 25 companies. We need to bring thousands of companies on this journey," she said. "We would not want companies to be scared of doing something because of this huge scrutiny that is already in place for the leading companies. That might translate in some business not wanting to go public, because of the fear of being scrutinized at the beginning of the journey."
It is clear that while the companies assessed by the Monitor may have targets that could be strengthened and made more transparent, many of these firms have climate goals that are light years ahead of their competitors. For instance, Ikea has pledged to halve greenhouse gas emissions in absolute terms from its value chain by 2030, and reach net zero by 2050 "at the latest." Unilever has pledged to bring its value chain emissions in line with a Paris-aligned trajectory by 2030, with all residual emissions "balanced" by 2039, while Amazon is investing billions of dollars in support of its goal of delivering net zero emissions by 2040 and has launched the high profile Climate Pledge initiative to encourage more corporates to opt for 2040 net zero target dates.
Mendiluce added that it was unfair to accuse companies of greenwashing for failing to meet a standard set by a new methodology they were unaware of in the first place. "We are all supporting the SBTi as the standard setting organization," she said. "It is not fair that people come up with another methodology. It also fragments the space."
She urged stakeholders from across the corporate climate action landscape to work together to strengthen existing targets, noting that the creation of multiple methodologies could confuse businesses and slow progress. "My call for the NGO community is to be united," she said. "Let's not make perfection the enemy of the good, because there's so much to be done. Let's all support Science-Based Targets initiative and make it better and try to understand an evolving situation, instead of trying to be sold to perfection."
With corporate decarbonization still in its infancy, standards are inevitably a work in progress, she noted. "As a non-profit organization working with business, we are constantly redefining and refining best practices for setting targets and tracking progress and emission reductions," Mendiluce argued. "It is a steep learning curve; it's voluntary. Business would love to have a very clear guidance — but we are making it and improving it as we go."
In order to play their part in this rapidly evolving space, businesses should be open about communicating the challenges they face as they move ahead with their net zero plans over the coming years, she added. "They need to take [from the report] what they can and then communicate, communicate, communicate," she said. "Don't be shy of communicating, both what they're doing well and the areas that are a challenge. This way, it becomes very clear for everybody what the tough nuts to crack are, [for instance] Scope 3 [emissions], the inclusion of nature and development of some technologies."
Mendiluce also argued that better regulation is required to catalyze corporate climate action, commending the U.K. government for its plan to make climate action plans mandatory at large companies and urging policymakers in other countries to follow suit. We Mean Business has long argued that voluntary climate action initiatives from companies in recent years has encouraged policymakers to introduce more ambitious and robust climate policies — a phenomenon it has dubbed the "ambition loop." "We Mean Business has consistently been calling on policymakers to create a policy environment that enables and drives corporate climate action," she said.
The New Climate Institute report arrives at a similar conclusion, albeit for different reasons. It contends that a tougher policy framework is needed because today's voluntary system is simply not working. As Giles Dufrasne from the New Climate Institute said in a statement: "Misleading advertisements by companies have real impacts on consumers and policymakers. We're fooled into believing that these companies are taking sufficient action when the reality is far from it. Without more regulation, this will continue. We need governments and regulatory bodies to step up and put an end to this greenwashing trend."
Critiques of existing net zero strategies and standards bodies are clearly an important tool for driving individual businesses and the SBTi to constantly raise their ambition and ramp up their decarbonization efforts. But at the same time there is a risk that high profile attacks on existing standard bodies and the efforts of companies that have committed to meet those standards could prove a recipe for discord, confusion and potentially even inaction. Clearly, there is a fine line between constructive scrutiny and welcome pressure on companies to do better, and efforts to ensure the corporate climate movement remains inclusive and able to entice the many companies yet to introduce climate goals to develop effective decarbonization strategies.
The researchers behind the Corporate Climate Responsibility Monitor have said they intend to update their scorecard annually, and it remains to be seen whether companies that have been put under the microscope will fare better next year as the imperative for climate action grows, the SBTi's standards evolve, and more companies look to align with the new Net Zero Standard, which experts hope can quickly emerge as the gold standard for corporate climate action. But for all the talk of greenwash, many progressive companies, NGOs and standards bodies maintain they all share the same goal: to catalyze and accelerate corporate decarbonization, so as to ensure companies play a proactive role in delivering the products, technologies, and services that can build a net zero emission economy for everyone.