Enough targets – time for action, or else…
In July 2022 the UK Government’s much vaunted Net-Zero Strategy, published in October 2021 just before COP26 in Glasgow, was ruled by the UK High Court as unlawful: lacking any explanation or quantification of how the Government’s plans would achieve the emissions target. The upshot of this ruling was that the Department for Business, Energy and Industrial Strategy (BEIS) was ordered to prepare a report explaining how the policies outlined in the net zero strategy would contribute towards emissions reductions, and to present it to parliament by April 2023. Since the resignation of Boris Johnson as UK Prime Minister, there has been a policy vacuum at the heart of UK Government. The energy price crisis continues to dominate attention, meanwhile previous commitments for example to update the Green Finance Strategy, may be significantly changed by the new leadership.
One of the parties that brought the lawsuit against the UK Government, Client Earth, is building a track record of success, not just with Governments but also with companies. In March 2022 it announced it was taking legal action against the Board of Directors of Shell, arguing that the Board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement, thereby breaching its duties under sections 172 and 174 of the UK Companies Act. This follows the landmark court ruling in March 2021 in the Netherlands, which ordered Royal Dutch Shell to cut its global carbon emissions by 45% by the end of 2030 compared with 2019 levels, in a case brought by Friends of the Earth.
According to a recent report by LSE, the cumulative number of climate change-related litigation cases has more than doubled since 2015, bringing the total number of cases to over 2,000. Around one-quarter of these were filed between 2020 and 2022. The report highlights five areas to watch in the coming year:
Whilst both Governments and companies may try to use legalese to position net zero strategies as plans which will be subject to forces outside of their control (to some extent), such tactics may provide little protection in the ‘court’ of public reputation. Russia’s invasion of Ukraine, and the resulting explosion in natural gas prices and availability, is placing huge pressure on European companies in energy intensive sectors to use other fuel sources, potentially at the expense of climate targets. At the same time, the extremes of temperature and changes in rainfall patterns in Europe and Asia over the summer of 2022, have provided another clear example of the global failure to limit greenhouse gas emissions. How long will it be before companies can no longer credibly use a 1.5 degrees warming scenario in their climate risk analysis?
TCFD reporting has successfully started to integrate climate risk and strategy into mainstream corporate disclosures. There is still a long way to go on that journey, as illustrated by a recent report from the UK Financial Conduct Authority, which found instances where companies indicated that they had made disclosures consistent with the recommended disclosures, but the disclosures themselves appeared to be very limited in content.
Yet perhaps by 2030 we will look back on this early period of TCFD reporting as the start of a period where companies, and their assurance providers, can really be held to account for what they publish. It is patently inadequate for companies to drone on in their annual report and accounts about how risk management processes have been adapted to include climate risk, and to bury any financial quantification in the depths of a CDP return.
Equally, it is beholden on a company’s assurance provider to check that the claims being made about progress towards climate strategy and targets, can be substantiated. 2030 seems to be a popular choice of ‘interim target’ for those claiming either formal SBTi-approved or merely ‘science-based’ targets. In the coming years it will become increasingly important for companies to make an accurate assessment of progress towards these targets, and assurance providers must form their own opinion on whether these claims are supported by evidence. Accurate analysis is now needed of the impact that companies’ actions are having on progress towards climate strategy and targets, and assurance providers need to be up to the challenge of assessing this analysis.
No-one wants to end up in court, yet this threat seems to be needed to ensure Governments, companies and assurance providers stay focussed on real action and progress, and not on the smoke and mirrors of target setting.