Universal Definition and Standardisation of Net Zero released by the United Nation’s High Level Expert Group

Introduction

The United Nations’ (UN) High Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities (UN Expert Group), established by the UN’s Secretary General Antonio Guterres in March 2022, has released its first report, ‘Integrity Matters: Net Zero Commitments By Businesses, Financial Institutions, Cities and Regions’ (Net Zero Report) at the UN climate summit in Egypt.

The Net Zero Report sets out five principles and ten recommendations, which together, create a universal definition for net zero and standardise net zero pledges and commitments (Net Zero Claims). The Net Zero Report defines ‘net zero’ as a state by which the greenhouse gases (GHG) going into the atmosphere are reduced as close to zero as possible and any residual emissions are balanced by permanent removals from the atmosphere by 2050.¹ The principles and recommendations aim to guide the future of the net zero process and the role of offsets, and prevent greenwashing, ambiguity and false Net Zero Claims.

In this client alert, we provide an overview of the actions that need to be undertaken by regulators, corporations, states and cities to comply with the principles and recommendations set out in the Net Zero Report.

Background

The Net Zero Report cites more than 29 disasters that have cost over $1 billion each so far this year, creating a significant toll for communities and the environment.² It also refers to global wildlife populations that have decreased by 70 percent as a result of climate change and human activities.³ Urgent calls to limit global warming to 1.5 degrees, peak emissions by 2025, and cut emissions in half by 2030 are failing. Current policies and Nationally Determined Contributions are not on track to achieve these targets, according to the most recent UN Environment Program’s Emissions Gap Report.⁴

Since the adoption of the Paris Agreement in 2015, an increasingly growing number of Net Zero Claims have been made by non-state actors. Varying guidelines and sets of criteria that are intended to provide clarity, standardisation, regulation and transparency for both the supply and demand sides of the market have been released. However, the varying guidelines and sets of criteria have created a lack of trust within the market as to what a credible and accepted standard for the development, measurement, assessment and accountability of non-state Net Zero Claims included or involved. The Net Zero Claims are negatively affected by the lack of trust in the market, as it has led some people to question the credibility of the Net Zero Claims process.

With a purpose of addressing Net Zero Claims by non-state actors including corporations, financial institutions, and local and regional governments, the UN Expert Group has built upon and endorsed existing credible frameworks such as the efforts by the Integrity Council for the Voluntary Carbon Market (ICVCM ), the Voluntary Carbon Markets Integrity Initiative , and the Science-Based Targets Initiative.

Principles

Plans for net zero must be ambitious, have integrity and transparency, and be credible and fair. The below five principles provide guidance for setting and achieving Net Zero Claims: 

1. “Ambition which delivers significant near and medium term emissions reductions on a path to global net zero by 2050.
2. Demonstrated integrity by aligning commitments with actions and investments.
3. Radical transparency in sharing relevant, non-competitive, comparable data on plans and progress.
4. Established credibility through plans based in science and third-party accountability.
5. Demonstrable commitment to both equity and justice in all actions.”⁵

Recommendations

The Net Zero Report states that voluntary purchases of carbon credits have a role to play, however a system to define and ensure standards is not in place yet. The ICVCM is currently working to deliver a transparent, high integrity standard for measuring GHG emissions credits that can be claimed. You can read our client alert regarding the release of the ICVCM’s draft 10 Core Carbon Principles, Assessment Procedure and Assessment Framework for context here.

Each recommendation in the Net Zero Report contains a main recommendation, with further detailed recommendations.

1. Announcing a Net Zero Pledge

A Net Zero Pledge should be made publicly by the leadership of the non-state actor, represent a fair share of the needed global climate mitigation effort, and contain interim targets and associated plans to reach the targets for 2025, 2030 and 2035. The plans should be in line with the Intergovernmental Panel on Climate Change (IPCC) or the International Energy Agency’s (IEA) net zero GHG emissions modelled pathways.

2. Setting Net Zero Targets

In setting net zero targets, non-state actors must have short, medium and long term absolute emissions reduction targets. Where appropriate, relative emissions reduction targets across the value chain should be at least consistent with the IPCC modelled pathways.

Initial short term targets should be made within a year of making the pledge with the first target set for 2025. Targets must account for all GHG emissions and include separate targets for material non-CO2 GHG emissions.

Targets must include:

• scope 1, 2 and 3 emissions. Explanations need to be provided for any missing data for scope 3 emissions;
• all emissions facilitated by financial entities;
• all territorial emissions for cities;
• embedded emissions within fossil fuel reserves; and
• a concerted effort to speed the creation of datasets needed to produce plans to reduce GHG emissions generated by scope 3 emissions.

3. Using Voluntary Credits

High integrity carbon credits in voluntary markets should be used for beyond value chain mitigation. However, the credits cannot be counted towards a non-state actor’s interim emissions reductions required by its net zero pathway. Non-state actors are encouraged to balance out any annual unabated emissions by purchasing high integrity carbon credits. A high‐quality carbon credit should, at a minimum, fit the criteria of additionality and any credit transactions must be transparently reported.

4. Creating a Transition Plan

Non-state actors must publicly disclose comprehensive and actionable net zero transition plans which indicate the actions that will be undertaken to meet all targets, as well as align governance and incentive structures, capital expenditures, research and development, skills and human resource development, and public advocacy, while also supporting a just transition. Transition plans should be updated every five years and progress should be reported annually.

5. Phasing out of Fossil Fuels and Scaling Up Renewable Energy

All net zero pledges should include specific targets aimed at ending the use of and/or support for fossil fuels in line with IPCC and IEA net zero GHG emissions modelled pathways that limit warming to 1.5°C with no or limited overshoot, with global emissions declining by at least 50% by 2030, reaching net zero by 2050. The transition must be just and be matched by a fully funded transition towards renewable energy.

6. Aligning Lobbying and Advocacy

Non-state actors must align their external policy and engagement efforts, including membership in trade associations, with the goals of reducing global emissions by at least 50% by 2030 and reaching net zero by 2050. This means lobbying for positive climate action and not lobbying against it. Trade affiliations should be publicly disclosed.

7. People and Nature in the Just Transition

Businesses, cities and regions with material land use emissions must achieve and maintain operations and supply chains that avoid the conversion of remaining natural ecosystems. Financial institutions should have a policy of not investing or financing businesses linked to deforestation and should eliminate agricultural commodity driven deforestation from their investment and credit portfolios by 2025.

8. Increasing Transparency and Accountability

GHG emissions data, net zero targets and the plans for progress towards meeting the targets must be disclosed annually. Reporting must be completed through public platforms that feed into the UN Framework Convention on Climate Change’s Climate Action Portal to address data gaps, inconsistencies and inaccessibility that slow climate action.

9. Investing in Just Transitions

Financial institutions and multinational corporations should participate in developing country led initiatives to decarbonise and provide renewable energy access, such as Just Energy Transition Partnerships or other country level just transition frameworks. The Net Zero Report highlights the importance of sustained investment in the capacity of developing countries and local developers to prepare projects as key to unlocking the just energy transition pipeline.

All businesses, including state owned enterprises, with operations in developing countries should demonstrate how their net zero transition plans contribute to the economic development of regions where they are operating, including integrating just transition elements, resilience and other developmental concerns, such as inequality, gender and energy access issues. The Net Zero Report provides an example of developing skills for vulnerable communities dependent on high emitting industries.

10. Accelerating the Road to Regulation

Regulators should develop regulation and standards in areas including net zero pledges, transition plans and disclosure, starting with high impact corporate emitters, including private and state owned enterprises and financial institutions. It is suggested that a new Task Force should be launched on Net Zero Regulation.

Pathways for action

Crucial next steps of potential pathways for regulators, initiatives and standard setters are identified within the Net Zero Report. Three key pathways for action are:

• “Non‐state actors should review their net zero commitments against these recommendations to see how they stack up with a focus on their interim targets, how they set targets and how they report progress.”
• “Policymakers and regulators should integrate these recommendations in key existing policies that guide non‐state actors working on net zero. This will make the minimum requirements clearer and more transparent.”
• “There is a need for a Task Force on net zero Regulation to convene a community of international regulators covering all industries to work together towards net zero. Using the Task Force on Climate Related Disclosures process as a useful precedent, this community would be broader, and could include members from all regions and bodies such as the Financial Stability Board, International Organization of Securities Commissions, International Suitability Standards Board and other experts.”⁶

How we can assist you

In order to maintain the legitimacy of Net Zero Claims, it is critical that integrity, credibility and transparency is front and centre. Increasingly, there is a greater focus from regulators, investors and broader civil society around the world on the accountability of Net Zero Claims. The Australian Securities and Investment Commission, Australian Prudential Regulation Authority and Australian Competition and Consumer Commission have all clearly indicated their focus on regulating greenwashing and climate risks and disclosure.

If low quality Net Zero Claims are made, it will undermine genuine efforts and reputation, create confusion, and fail to deliver the urgent climate change action that is required to achieve a 1.5 degrees goal. Our carbon markets practice has a deep understanding of how best to approach your Net Zero Claims, having been tracking developments such as the release of the Net Zero Report for many years. Please contact a member of our team to see how we can assist you further.

This article was written by Elisa de Wit and Elyssia Gasparotto.