The United Nations has released guidance on credible net zero transition plans, telling investors they must include commitments on voting, lobbying and ending deforestation.
The 17-strong High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities was appointed by UN secretary general Antonio Guterres earlier this year, and has spent seven months working on recommendations to “prevent net zero from being undermined by false claims, ambiguity and greenwash”.
It said that, of the hundreds of companies, investors, cities and regions (collectively known as non-state actors) to have committed to net zero, some “may never have intended” to meet the goal – “aiming only to benefit from the positive press abounding at the time”.
Others may have good intentions but be thwarted by a lack of resources or understanding.
“Many voluntary leadership initiatives have imperfect systems for tracking the progress of their own members and few have clear mechanisms for removing members who fail to meet their commitments,” the report added.
To address this, the body makes 10 recommendations that it hopes will be adopted by non-state actors and regulators.
Specifically on regulation, it calls for the creation of a ‘global taskforce on net zero regulation’, which could include players such as the Financial Stability Board and the International Organisation of Securities Commissions as well as national or regional regulators.
This group should “drive the reconfiguration of the ground rules of the global economy to align to the goals of the Paris agreement” and tackle the “emerging fragmentation and dissonance between often competing regulations”.
Speaking to IPE, Helena Viñes Fiestas, commissioner at the Spanish financial markets authority Comisión Nacional de Mercados y Valores, and a member of the expert group, said: “Almost all the regulation we’ve seen so far on sustainable finance has been about disclosure. One of our key messages in this report is that regulators need to start moving beyond reporting rules, which improve transparency in the market, towards behavioural regulation that encourages decisions to be made differently.”
The report suggests that investors’ climate transition plans should feature “engagement targets that include voting (especially proxy) strategies in line with decarbonisation, and escalation policies,” as well as rules for trade body membership, policy lobbying, and carbon credits and offsets.
On the latter, it said that while “high integrity” carbon credits had a role in decarbonisation and supporting developing countries with their net zero ambitions, they should not count towards interim emissions reduction pathways.
It insisted that investors cannot call themselves net zero if they continue to finance new fossil fuel supply or activities that contribute to environmental damage.
“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,” it said.
To prevent “dishonest climate accounting”, the report proposes that large investors and companies get third-party verification of their annual progress reports, “including opinion on climate governance, as well as independent evaluations of metrics and targets, internal controls, evaluation and verifications on their greenhouse gas emissions reporting and reductions”.
Specifically, it requests a review into whether the International Federation of Accountants existing standards for assuring ‘non-financial’ information and greenhouse gas statements are “fit for providing assurance on net zero pledges and annual progress reporting”.
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