The following document was submitted on August 31 in response to a consultation survey advising the High-Level Expert Group (HLEG) of the United Nations Race to Zero greenhouse gas emissions campaign. The subtitles correspond to the survey topics. The HLEG will consider the survey inputs for its draft report to the U.N. Secretary General on updated criteria that companies, cities and other non-state entities must follow to continue their participation in the Race to Zero campaign. The Secretary General will present the final report to the United Nations Framework Convention on Climate Change Conference of the Parties (COP) in November in Egypt. IATP will participate in side events to the intergovernmental COP 27.
Standards and Definitions of Net Zero: 1.5 C degrees alignment
This is the first time that the Institute for Agriculture and Trade Policy has engaged with the Race to Zero process and objectives. As a result, we first outline what we understand to be the broader institutional context of the categories of information elicited in this survey. Then, we comment on issues concerning standards and definitions of net zero.
In mid-June, the U.N. Race to Zero campaign released revised “starting line criteria” and “leadership practices” for non-state members and partners. The revisions are too numerous for IATP to comment on individually and fit each comment within the categories of information outlined in the survey. In general, the revisions represent improvements to the previous criteria and leadership practices, both in their specificity and emissions mitigation ambition. For example, the revision to “Targets must cover all material greenhouse gas emissions” (p. 8) are welcome, except as noted below regarding the use of the term “material.”
An Expert Peer Review Group (EPRG) will assess whether campaign members and partners have followed these criteria by the mid-June 2023 deadline. The EPRG assessments are conducted according to an “Interpretation Guide.” For example, regarding Scope 3 (supply chain) emissions: “Net Zero targets should cover on average 90% of emissions including scope 3 upstream and downstream, or the equivalent territorial scope [for cities and regions], where they are material to total emissions and where data availability allows them to be measured sufficiently. This includes land use emissions.” As the High Level Expert Group (HLEG) reviews responses to its survey, it should consider that Race to Zero members and partners will have different interpretations of what is or is not “material to total emissions.”
In financial disclosure reporting, there are established categories of what costs and risks are “material” to the viability of companies. As IATP wrote to the U.S. Securities and Exchange Commission, concerning its proposed rule on climate-related financial risk and opportunity disclosure, U.S. courts have ruled that in disputes about what is “material,” investors have the final say. However, the EPRG is not a regulator and the net-zero criteria do not constitute a rule. The HLEG should recommend a simple standard of relevance — not “materiality” — of Scope 3 emissions to the setting and realization of an interim net-zero target. For example, if 10% or more of a company’s total emissions are Scope 3, per the definitions and data collection and analysis methodology of the Greenhouse Gas Protocol, then a Race to Zero member or partner will report those emissions publicly as a condition of continued membership in the campaign.
The criteria include a commitment for Race to Zero campaign members to “phase down and out unabated fossil fuels” and to include Scope 3 emissions reductions in their net zero targets, including for Race to Zero campaign members financed emissions. (We understand “unabated” to mean not abated by permanent removals.) As a result, according to the Financial Times, the criteria have been opposed by most members of the Glasgow Financial Alliance for Net Zero (GFANZ), which is accredited as a partner by the Race to Zero campaign. This opposition may be representative of opposition to some of the new criteria by other economic sectors as the Global Stocktake at the U.N. Framework Convention on Climate Change Conference of Parties (COP) 27 in November approaches. IATP agrees with this statement by Nigel Topping, co-leader of both Race to Zero and GFANZ: “It’s insane to rely on underfunded NGOs to police capital markets . . . Governments have to step up.” And, we would add, the finance sector must cooperate with, rather than resist or evade, government oversight of corporate net-zero commitments.
According to Net Zero Tracker, as of 2022, 136 countries, 116 regions, 239 cities and 750 of the largest by revenue 2,001 companies had pledged to compensate for their emissions with emissions reductions and/or through buying emissions offset credits. Most of the net-zero target years are set for 2050, with interim targets often set for 2030. Most of the net-zero targets are set in North America, Europe and Asia, in part because of the resources required to set the targets, much less to achieve them. More than a decade ago, developed country governments pledged to donate by 2020 $100 billion annually to enable climate action in low-income countries. However, this pledge has fallen short by about at least $20 billion annually, with private finance accounting for small fraction of the total. (The projected annual costs of global mitigation and adaptation are much higher, but not an issue that we engage in this short response.) There is a lack of agreement about how to define what aid counts towards those financial pledges and how to account for how that aid is spent. For countries, regions and cities without adequate and timely resources to realize net-zero targets, setting such targets may seem to be a futile use of existing resources.
A major challenge for the HLEG is whether to develop net-zero standards and definitions that align with Race to Zero revised criteria or to develop standards that more closely align with industry-lead standards, such as those of the Science Based Targets Initiative (SBTi) Corporate Net Zero Standard and corresponding sectoral standards. The corporate sector does have the resources to set targets and realize net-zero commitments, at least within the operational limits of their facilities and supply chains. For example, Standard and Poor’s 500 indexed companies alone spent $5.3 trillion on equity share buybacks from 2010 to 2019 to boost company share prices that benefited, above all, corporate officers and shareholder insiders. The HLEG could, of course, try to construct standards criteria that would be a combination of SBTi like and Race to Zero like criteria. No matter what the HLEG recommends on net-zero standards for Race to Zero members and partners, the standards’ realization is very unlikely to occur absent a much larger and sustained contribution of climate finance by the private sector, including beyond their value chains to the communities and countries within which they operate.
Many companies still do not report emissions with common rules and metrics to claim transparent and credible progress towards net-zero achievement or even to reduce any emissions. According to a 2021 survey of 1,290 companies with 1,000 or more employees, “only 11% have cut their emissions in line with their ambitions over the past five years.” The poor rate of corporate emissions reductions reported in this survey and elsewhere has been an impetus for corporations to cooperate with SBTi, the Greenhouse Gas Protocol and other standard setting organizations to contractually commit to net-zero emissions targets and related reporting standards. However, SBTi had only 10 validators in 2021 to review and verify the compliance of more than 1,000 companies committed to the SBTi Corporate Net Zero standard. As a result, companies pledging net zero by a specific target date have thus far promised too much and performed too little, according to a recent review of 25 multinational companies: “Net zero targets commit to reduce the analysed companies’ aggregate emissions by only 40% on average, not 100% as suggested by the term ‘net zero.’” (p. 5)
Whatever the HLEG recommends concerning net-zero standards and definitions, it should not risk the credibility of the U.N. Secretary General and the Intergovernmental Panel on Climate Change by developing a standard or definitions that ensure low cost and easy compliance by corporations and other non-state entities. In IATP comments (p. 5) on SBTi’s draft net-zero standard for Forestry, Land and Agriculture Group (FLAG) of companies, we agreed with SBTi that net-zero commitments should be realized through direct mitigation investments in corporate operations, supply chains and the communities in which the corporations operated, rather than rely on offset trading and purchasing to achieve net-zero targets. We urge the HLEG to follow this SBTi recommendation to use offsets, if at all, only after companies document that all other means to achieve the targets have been exhausted.
IATP agrees with SBTi that use of avoided emissions offset credits must not be counted towards complying with a corporate net-zero commitment, even though avoided deforestation credits account for 32% of all offset credit types (Figure 2). There is far too much uncertainty and potential for accounting arbitrage in the establishment of emissions baselines and jurisdictional level crediting for avoided emissions credits to be considered science-aligned, much less “science-based.” Because use of avoidance credits is prevalent among companies that claimed their hydrocarbon cargos to be “carbon neutral,” the HLEG and the Secretary General’s office will be under pressure to include avoided emissions credits in the Race to Zero net-zero standard and definitions. Both should resist that pressure.
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