Recommendations and current realities

Last week saw the UN publish its high-level expert report on ensuring the credibility and accountability of net zero pledges by non-state entities. The Net Zero Tracker already collects data relevant to the majority of the report’s 10 recommendations. Here, we restate the recommendations and evaluate how regions, cities and large companies are tracking against them.

Net zero targets not only cover 90% of the global economy, they are everywhere: in governments’ economic development plans, corporate strategies, investors’ portfolio targets, public-sector roadmaps, and the manifestos of regional governments and city councils.

COP27 — the ‘implementation COP’ — is shining a spotlight on how robust existing pledges are, and is also putting pressure on those cities, regions, and companies that have yet to align with net zero. While there has been a proliferation of standard-setting and accountability mechanisms, many entities have yet to align their net zero commitments to robust criteria.

This problem was the rationale for the UN Secretary General António Guterres to establish a High-Level Expert Group on Net-Zero Emissions Commitments of Non-State Entities (HLEG). National governments have the lion’s share of responsibility, he explained, but “we also urgently need every business, investor, city, state and region to walk the talk on their net-zero promises.”

The net zero pledges made by these ‘non-state entities’ suffer from an overall deficit of credibility. In our Net Zero Stocktake 2022 analysis, we found that fewer than one-fifth of net zero targets set by national and subnational governments, and only one-third of the world’s largest publicly-listed companies with net zero targets, meet minimum standards of integrity. Not all net zero pledges have to be created equal, but most still lack the most basic of details necessary for delivery, including:

1. How they are defined, for example what greenhouse gases or scope they cover

2. A detailed plan for achieving them

3. Reporting and reviewing progress

4. How they intend to use carbon credits (offsets).

The recent HLEG recommendations lay out explicitly the minimum criteria for net-zero targets that companies, cities and regions should meet. In this analysis we focus on individual HLEG recommendations, and provide a global snapshot from the Net Zero Tracker of the current state of play against six of them.

HLEG recommendation

A net-zero pledge should be made publicly by the leadership of the non-state actor and represent a fair share of the needed global climate mitigation effort. The pledge should contain interim targets (including targets for 2025, 2030 and 2035) and plans to reach net zero in line with IPCC or IEA net-zero greenhouse gas emissions modelled pathways that limit warming to 1.5°C with no or limited overshoot, and with global emissions declining by at least 50% by 2030, reaching net zero by 2050 or sooner. Net zero must be sustained thereafter.

Net Zero Tracker stats

Net zero pledges have now been made by 116 of 713 assessed regions, 241 of 1,177 assessed cities, and 799 of 2,000 assessed publicly listed companies. These are up from 110, 180, and 617 respectively just 12 months ago. A substantial fraction of these remain as mere pledges or proposals, and have not yet been firmed up in published documents or laws. Net zero pledges alone are not a sign of climate leadership - they must be accompanied by a deep emission reductions commitment to be meaningful.

Of those with non-state entities with net zero targets, the end target year breakdown. The vast majority of entities have net zero targets by 2050. A small, but worrying, proportion of companies do not specify when their net zero targets are to be achieved by.

HLEG recommendation

Non-state actors must have short-, medium- and long-term absolute emissions reduction targets and, where appropriate, relative emissions reduction targets across their value chain that are at least consistent with the latest IPCC net-zero greenhouse gas emissions modelled pathways that limit warming to 1.5°C with no or limited overshoot, and where global emissions decline at least 50% below 2020 levels by 2030, reaching net zero by 2050 or sooner.

Net Zero Tracker stats

Interim targets are important because they are a signal of intent to act immediately, which, if delivered on, can help shrink the total amount of emissions that flow into the atmosphere over time. Of the entities with net zero targets, most — but not all — regions have set interim targets, while only around half of cities and companies have done so. Looking at all entities, the portion of those with targets has increased for cities (from 8% to 10%) and companies (from 16% to 20%) while remaining unchanged for regions at 11% compared with 12 months ago.

When it comes to coverage across the value chain, only a minority of companies include the full scope of their emissions within their net zero targets. Coverage is usually divided into scopes: scopes 1 & 2 cover direct emissions and emissions from energy use respectively, while scope 3 covers emissions from all other aspects of a companies’ existence. Scope 3 emissions are the key emissions source for many companies, often accounting for over 90% of their emissions footprint. However, only a minority of companies with net zero targets explicitly cover scope 1, 2 and 3 emissions in their targets. Around a quarter of companies with net zero targets don’t currently specify the coverage at all - a worrying feature which recurs in other aspects of disclosure, too.

HLEG recommendation

• Non-state actors must prioritise urgent and deep reduction of emissions across their value chain. High integrity carbon credits in voluntary markets should be used for beyond value chain mitigation but cannot be counted toward a non-state actor’s interim emissions reductions required by its net zero pathway.

• High-integrity carbon credits are one mechanism to facilitate much-needed financial support towards decarbonizing developing country economies. As best-practice guidelines develop, non-state actors meeting their interim targets on their net zero pathway are strongly encouraged to balance out the rest of their annual unabated emissions by purchasing high-integrity carbon credits.

• A high-quality carbon credit should, at a minimum, fit the criteria of additionality (i.e. the mitigation activity would not have happened without the incentive created by the carbon credit revenues) and permanence.

Net Zero Tracker stats

As with coverage (Recommendation 2, above), our tracking shows a substantial number of entities that have not yet specified whether and how they intend to use credits, making it impossible to assess the real ambition level of their plans. Compared with 12 months ago, we see no significant improvements on either the transparency about the potential use of credits or the percentage of companies that have committed not to use any credits.

HLEG recommendation

Non-state actors must publicly disclose comprehensive and actionable net-zero transition plans which indicate 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.

Net Zero Tracker stats

Without a plan, a pledge is simply an aspiration without a means to achieve it. And if that plan is not published, citizens, customers, and investors cannot know how net zero will be achieved nor how they can contribute. Fairly uniformly across the entities we track, just under two thirds of those with a target have published their plan for achieving the target. We see a clear increase compared with 12 months ago for cities (from 7% to 12% of all cities) and companies (15% to 24% of all companies) while the share of regions with a transition plan remains at 9% of all regions.

HLEG recommendation

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 greenhouse gas 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 away from fossil fuels must be just for affected communities, workers and all consumers to ensure access to energy, and avoid transference of fossil fuel assets to new owners.

• The transition away from fossil fuels must be matched by a fully funded transition toward renewable energy.

Commentary

The Net Zero Tracker does not yet systematically track whether entities are committed to phasing out fossil fuels. However, a literature review presented in a recent study by IISD has shown that oil and gas sector companies have shown little, if any, progress towards transitioning their business models away from fossil fuels. We will aim to introduce this indicator for all companies before the end of 2022.

HLEG recommendation

Non-state actors must align their external policy and engagement efforts, including membership in trade associations, to the goal 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.

Commentary

The Net Zero Tracker has to date not provided an indication as to whether a net zero entities’ lobbying and advocacy align with net zero. Other established initiatives such as Influence Map provide excellent information on this topic.

HLEG recommendation

• As part of their net-zero plans, 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 – eliminating deforestation and peatland loss by 2025 at the latest, and the conversion of other remaining natural ecosystems by 2030.

• 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, as part of their net-zero plans.

Commentary

The Net Zero Tracker does not include systematic information on entities’ commitments to end deforestation or other targets related to nature and land use. We will seek to add these in the future.

HLEG recommendation

• Non-state actors must annually disclose their greenhouse gas data, net-zero targets and the plans for, and progress towards, meeting those targets, and other relevant information against their baseline along with comparable data to enable effective tracking of progress toward their net-zero targets.

• Non-state actors must report in a standardised, open format and via public platforms that feed into the UNFCCC Global Climate Action Portal to address data gaps, inconsistencies and inaccessibility that slow climate action.

• Non-state actors must have their reported emissions reductions verified by independent third parties. Special attention will be needed to build sufficient capacity in developing countries to verify emission reductions.

• Disclosures ought to be accurate and reliable. Large financial and non-financial businesses should seek independent evaluation of their annual progress reporting and disclosures, including opinion on climate governance, as well as independent evaluation of metrics and targets, internal controls evaluation and verification on their greenhouse gas emissions reporting and reductions.

This is an area in which cities and regions, in particular, have much further progress to make. Our tracking shows that over half of cities with net zero pledges currently have no form of reporting mechanism. Over three quarters of major companies do, but this still leaves a substantial fraction without any form of public transparency about progress.

HLEG recommendation

To achieve net zero globally, while also ensuring a just transition and sustainable development, there needs to be a new deal for development that includes financial institutions and multinational corporations working with governments, Multilateral Development Banks and Development Finance Institutions to consistently take more risk and set targets to greatly scale investments in the clean energy transition in developing countries.

Net Zero Tracker stats

The Net Zero Tracker does not systematically record entities’ investments in the just transition. However, we do register whether or not published net zero pledges and plans refer to justice in equity. Across cities, regions, and companies, just a small fraction do.

HLEG recommendation

• In order to ensure rigour, consistency and competitiveness, 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.

• The challenge of fragmented regulatory regimes should be tackled by launching a new Task Force on Net Zero Regulation that convenes a community of international regulators and experts to work together towards net zero.

Commentary

Our data shows that the vast majority of non-state entities do not yet meet the minimum criteria for net zero targets outlined by the HLEG. Perhaps even more worryingly, a large number of publicly-listed companies still lack net zero targets. Governments should urgently develop and implement robust regulation around corporate climate targets to level the playing field and ensure that companies can be held accountable. Regulatory measures should not just cover publicly-listed firms, but also private companies for reasons we expand on in our recent report Everybody’s Business: The net zero blind spot.

Governments also need to remove or reform existing regulations which hamper ambitious action at all levels of society. The Pivot Point report from the High-level Climate Champions and partner organisations outlines the ‘road to regulation’ in more detail.