Greenwashing, Net Zero and Carbon Credits
Navigating the Climate Integrity Landscape
As the world begins to truly grapple with the implications of a warming planet, and momentum to respond both in Australia and the world over has (finally) picked up, the mechanisms we have at our disposal to respond to climate change and climate integrity in action, are facing increasing scrutiny.
In Australia, this scrutiny has manifested as vigorous criticism of existing and proposed changes to policy mechanisms, such as the Emissions Reduction Fund and the Safeguard Mechanism. In more recent developments, the federal government’s Climate Active program, which was established to support voluntary climate action, has also come under fire as a supposed enabler of greenwashing.
Criticisms of those mechanisms are nestled amongst broader distrust of the legitimacy of existing climate action by industry and business.
Net Zero Strategies are criticised for their lack of transparency and rigour and carbon credits are viewed as a tool to legitimise a lack of decarbonisation.
Discourse on these issues is absolutely critical for its potential to accelerate credible climate action; after all we have no time to waste.
So what are the main themes emerging from these criticisms and how can business respond to combat greenwashing and drive climate integrity?
Greenwashing and net zero – what are the criticisms?
In a nutshell the criticism of net zero strategies is that, at worst, they are used as a means to justify business as usual. We know greenwashing exists and there may be some companies without authentic targets, but in this shape, the criticism does little to enunciate the challenge with net zero strategies that requires fixing.
A more balanced view is that net zero strategies often lack the ambition required to actually keep the world within our climate target of 1.5 degrees, and are often poorly defined in terms of strategies to achieve the emission reductions pledged. Some add the lack of any assurance and enforcement mechanism as a further downfall of the net zero movement.
As a starting point, we should remember that until recently, outside of the Science Based Target initiative, clear principles on what a credible emissions reductions and net zero strategy looks like, have been lacking internationally. It is within this policy vacuum that many organisations have shown at a minimum their commitment to starting on a journey of climate action.
However, it is also true that this landscape is rapidly shifting.
What reputable net zero guidance is available
Actionable guidance, developed by the UN High-Level Expert Group on the Net Zero Commitments as well as aligned guidance on Net Zero developed by the International Standards Organisation (ISO), is now available. These guidelines provide a roadmap for developing net zero strategies that demonstrate climate integrity.
The single most important thing for business to do right now in Australia is to review their net zero targets and strategies for alignment with the principles and recommendations provided by the UN and ISO.
Additionally, organisations are encouraged to seek guidance on whether adoption of a Science-based target is a feasible option; targets adopted through this initiative have the added benefit of third-party validation, which provides a level of assurance on the integrity of the strategy.
Climate integrity and carbon credits – are the criticisms valid?
Carbon markets and the credits produced through international registries or the Australian legislative framework (the Emissions Reduction Fund) have come under intense scrutiny. So too, has the use of carbon credits to offset emissions within the context of net zero strategies or towards carbon neutrality. Again, the criticism is varied in its breadth and sophistication, with some labelling carbon credits as worthless and their use as worse than doing nothing at all.
More constructive criticisms focus on the challenges around the integrity of carbon credits and how to use them in a credible way.
Responding to the latter challenge on the use of credits takes us squarely back to Net Zero guidance.
Carbon credits should be used judiciously. They must be an addition to emissions reduction activities, not an alternative that delays real efforts to decarbonise. Climate integrity for organisations means that they must prioritise emission reductions over counterbalancing activities.
The integrity criticism is more complex as it spans across a series of inter-related concerns, which are themselves intricate in nature. These include concerns around the permanence of sequestration credits (i.e., those that remove carbon from the atmosphere), leakage and the ability of carbon projects to deliver genuine abatement that is additional (i.e. would not have occurred in any event).
Added concerns have arisen around the failure of the projects that deliver carbon credits to provide protection against adverse social and environmental impacts, never mind delivering on a promise of added social and environmental benefits.
The governance frameworks under which carbon credits are generated have also not escaped the firing line, with concerns centring in on lack of oversight and assurance standards, as well structural challenges creating at least a perception of bias.
What work is being done to improve the integrity of carbon credit markets?
These concerns deserve attention. And attention is being paid, both by regulatory agencies and the carbon industry itself. A phenomenal amount of work is underway that will herald real reforms in the carbon market.
To mention a few.
- In Australia the Carbon Market Institute has developed an Industry Code of Conduct that sets clear best practice expectations for carbon project owners around how to develop and implement projects with integrity.
- The ERF, while already advanced compared to some of the voluntary international frameworks, is also undergoing reform that will make improvements around governance, equity and credibility of credits.
- Finally, in the international sphere, voluntary frameworks are introducing changes to their methodologies in response to criticisms and
- global governance systems, including core carbon principles are in development and due to be finalised later this year.
In light of these compound challenges, the most critical steps for organisations to take in relation to carbon credits themselves is to
- Commit to purchasing high-quality carbon credits that also deliver verified co-benefits.
- Due diligence on the projects that generate the credits is a must to back up that commitment.
Greenwashing and transparency in reporting
Finally, allegations of, and the practice of greenwashing, where it does in fact occur, are a real and valid concern.
Litigation against companies around the world is increasing with areas being contested including emissions reduction commitments, greenwashing, and attribution of responsibility for adverse climate impacts. Baker McKenzie’s The Year Ahead report for 2022 highlighted climate change disputes in particular have seen an unprecedented rise, with over 2,000 ongoing or concluded climate change cases around the world (more than double the number in 2015). Locally, the Australian Securities & Investment Commission (ASIC) has just launched its first court action for greenwashing.
Addressing greenwashing as a phenomenon requires action on two fronts:
- Transparent reporting and disclosure around net zero targets, carbon neutral claims and strategies to achieving climate targets by organisations.
- Building awareness amongst the public around the meaning of different climate concepts. Net zero and carbon neutral do not mean the same thing, and unless consumers are informed about the differences and the claims associated with those concepts, greenwashing remains an all-to-easy option for the unscrupulous.
Is mandatory climate reporting on the horizon?
Transparency in reporting of climate action by organisations is likely to be an evolving topic for government regulation. In fact, the UN High-Level Expert Group on the Net Zero Commitments expressly calls for mandatory annual reporting.
In the meantime, the Expert Group and ISO provide detailed guidance on reporting and disclosure. Aligning their reporting and disclosure practices with this guidance is a practical step organisations can take to support climate integrity.
Need advice on your Corporate Net-Zero Strategy?
For more detailed and technical guidance and advice on carbon markets, avoiding greenwashing, or building a robust emissions reduction, or net-zero strategy, or please get in touch. Our experts would love to help. Contact us via email or, give us a Call +61 3 7035 1740 As an Australian business founded in 2010, over the last decade we’ve helped hundreds of clients play a part in the transition to a decarbonised and more sustainable future.