UNFCCC Tightens the Screw on Net Zero

The proposed solution for net zero targets and progress aims to improve transparency and accountability, but will need to consider existing guidance. 

As negotiations unfolded at the Bonn Climate Change Conference earlier this month, the politicisation of an existential and global threat was clear to see.   

What made negotiators’ incremental progress even more frustrating was that the squabbling was underpinned by the realities of a rapidly warming planet. Wildfires raged in Canada, shrouding parts of North America in heavy clouds of smoke. In Europe, the Rhine River is already drying up, thanks to an early heatwave, and scientists have warned that record-breaking temperatures across large parts of south and southeast Asia are 30 times more likely due to climate change.  

Governments’ ability to put aside the politics to come together and achieve a 1.5°C pathway seems increasingly out of reach. 

“The problem with climate change is that we have a macro problem with micro actors,” says Jakob Thomae, Project Director at the Inevitable Policy Response (IPR). 

But there is still room for hope that net zero commitments – and subsequent progress on decarbonisation – can be transparent, aligned and ambitious.  

The Recognition and Accountability Framework for non-state actors and a draft implementation plan were unveiled at Bonn by UN Climate Change (UNFCCC). The framework aims to improve transparency around firms’ net zero pledges, plans and transition progress, while the implementation plan will establish a new process to monitor and analyse net zero commitments. 

“This proposal from the UNFCCC is important in being the first to directly address the question of who in the official sphere will keep firms accountable for the quality of their transition plans [and net zero commitments],” says Kate Levick, Associate Director of Sustainable Finance at climate change think tank E3G, although she does question whether the UNFCCC has the legal powers to make any requirement of firms. 

“I will be watching to see what the countermove is from Parties and their financial regulators, who ultimately are the ones who have power to compel firms to disclose this information and to ensure its quality,” she says. 

With rising concerns that the landscape of net zero pledges and transition guidance is becoming overcrowded, the UNFCCC will be expected to prove the validity and need for its proposed framework over the coming months. But it does have credit in the bank. 

“The UN does a good job of accounting for different governmental interests through a structured forum and ultimately producing joint agreements,” Thomae says. 

Leila Pourarkin, Research Director at consultancy firm Kaya Partners, tells ESG Investor “the devil will be in the detail”.  

“The UNFCCC will need to talk with stakeholders, find out their existing commitments and disclosure requirements, and make sure the development of the implementation framework is as collaborative as possible, avoiding duplication and maximising efficiency.” 

Clarity and guidance  

The UNFCCC framework will build on the ‘Integrity Matters’ report, which was published by a High-Level Expert Group last year at COP27 as a guide for credible net zero pledges and what non-state actors need to be considering at each stage of their decarbonisation progress.  

The report’s ten recommendations cover phasing out fossil fuels and scaling up renewable energy, aligning lobbying and advocacy, and investing in the just transition.  

The draft implementation plan will outline specific objectives, deliverables and timelines to enhance the integrity of voluntary commitments and their contributions to the Paris Agreement, identify systemic barriers faced by non-Party stakeholders, and improve transparency regarding the systemic impact of those who have not made or are failing to deliver on their voluntary climate commitments.  

Amir Sokolowski, Global Director for Climate Change at environmental disclosure platform CDP, says that it aims to “work around the implementation plan to ensure that it conveys true credibility while being true to the principles of the framework, including use of existing data points and ensuring transparent presentation”. 

The UNFCCC also plans to develop and finalise the Global Climate Action Portal (GCAP), through which net zero-focused coalitions, initiatives and individual entities will be invited to register their net zero pledges through a standardised format – reflecting the credibility criteria outlined in Integrity Matters – to submit their transition plans, and to report annually on decarbonisation progress.

“A major challenge will be upgrading the GCAP portal to allow the data to be useful, easily interpreted, and comparable,” notes John Lang, Lead at Net Zero Tracker.  

Over the course of this year, the UNFCCC Secretariat will work with relevant stakeholders to determine how GCAP can increase the robustness of the whole accountability system.  

The UNFCCC will also be consulting with multiple stakeholders over the next few months as it develops the framework and implementation plan, providing an update on overall progress prior to or at COP28 in December, with annual updates thereafter.  

“There is a balance to be kept between providing a platform that is convenient to use and understand, enhancing the impact and effectiveness of financial streams, and ensuring it is thorough and consistent, potentially raising ambition,” says Sokolowski. 

It’s also important that the UNFCCC accounts for current efforts from individual governments to provide clarity and guidance on firms’ net zero transition strategies. 

Levick, also Co-Head of the UK’s Transition Plan Taskforce (TPT) Secretariat, says the TPT is “actively working with the UNFCCC to find ways to support them by encouraging firms to provide their transition plans to GCAP”. 

Setting the tone 

Corporate net zero commitments and transition plans remain disjointed and, in many cases, unambitious. 

“Companies have been able to make endless promises without the requirement to prove they are following through,” says Kaya Partners’ Pourarkin.  

“The UNFCCC has now set the tone: If you have made a net zero pledge, the world needs to see how you are doing.”  

Net Zero Tracker’s 2023 Stocktake assessed the net zero commitments of the 2,000 largest publicly-listed companies in the world, noting that none of the 114 fossil fuel companies with net zero targets have committed to phasing out fossil fuels.  

The tracker further highlighted that many companies are “strategically vague” on Scope 3 emissions and the use of offsets, says Lang.  

Sixty-three percent of assessed corporate net zero targets don’t fully cover Scope 3 emissions and just 13% have specified when carbon offsets will be used to fulfil their decarbonisation goals.  

“Reinforcement [from the UNFCCC] that corporate net zero strategies require full coverage of emissions and disclosures on the intended use of carbon credits is particularly important,” Lang adds. 

Levick of E3G points out that the UNFCCC is “not providing the ‘push’ factor for transition plans” from companies, but that this is already “being provided by pressure from shareholders, regulators and other stakeholders, such as NGOs”.

Coalitions of investors have been (mostly) successful in pushing investee companies to adopt net zero targets.  

In 2021, efforts made by investor-led climate engagement initiative Climate Action 100+ (CA100+) prompted American agribusiness and food company Bunge adopting science-based targets to reduce its greenhouse gas (GHG) emissions.  

The following year, Duke Energy expanded on its net zero by 2050 target, committing to exiting coal by 2035 and reducing the amount of power the company produces from coal to 5% of generation by 2030. Duke Energy also incorporated indirect emissions into its net zero target.  

However, efforts to raise corporate ambition or secure commitments to disclose decarbonisation progress in line with those net zero commitments has been more challenging.  

“The UNFCCC is providing an important ‘pull’ factor and, provided that the platform’s format is aligned with emerging international disclosure norms, it should help support the creation of consistent and comparable transition plans,” says Levick.  

The big question is around capacity, says Pourarkin from Kaya Partners, noting that companies globally already have a growing disclosure burden, such as annual reporting in line with the Taskforce on Climate-related Financial Disclosures Framework (TCFD), and the anticipated reporting standards coming from Europe under the Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB).  

“To succeed, we need to streamline disclosure requirements,” she notes. 

Accountability and integrity 

Financial institutions will also be held accountable on their net zero commitments and transition plans. 

“As we move into the implementation phase of the net zero transition, the Glasgow Financial Alliance for Net Zero (GFANZ) welcomes the opportunity to engage with the UNFCCC’s consultation on the Recognition and Accountability framework,” Alex Michie, Head of the GFANZ Central Secretariat, tells ESG Investor.  

GFANZ was launched in April 2021 to unite financial institutions and accelerate net zero transition progress. It has more than 500 members across its sub-sector net zero alliances. As of the end of 2021, GFANZ member net zero commitments exceeded US$130 trillion in private capital.  

Improving the availability of comparable data and information is needed to recognise success and effectively allocate capital in support of the transition,” Michie adds. 

“GFANZ is focused on helping financial institutions implement their net zero strategies while continuing to work with partners to remove barriers to decarbonisation.”  

One future challenge is the question of how GFANZ frameworks for financial institutions and corporates – and other net zero guidance for investors – will align with the UNFCCC.

The GFANZ guidance for financial institutions includes ten core transition plan components, such as ‘engagement with clients and portfolio companies’, which involves providing feedback and supporting clients and portfolio companies with their net zero-aligned transition strategies, as well as an escalation framework with consequences when engagement is ineffective. 

However, despite the voluntary commitments from firms operating under the GFANZ umbrella to transition to net zero, last year a significant number of these entities had yet to implement oil and gas exclusion policies, suggesting the need for a body to hold them accountable. 

Also in 2022, GFANZ published its progress report, which appeared to confirm that the body would be allowing member groups to set their own path to net zero, rather than aligning with updated criteria published by the UN-backed global emissions reduction campaign Race to Zero (RtZ). 

GFANZ now permits members to “take note of the advice and guidance” of RtZ, whereas its 2021 progress report said that, to ensure credibility and consistency across the alliance, “all GFANZ members must align with the RtZ criteria”. 

The UNFCCC’s proposed framework is expected to take over some of RtZ’s responsibilities, but RtZ is expected to continue to mobilise best-in-class non-state actor leaders globally, identifying and addressing barriers to action, and supporting the identification of policies needed to transition the global economy to net zero.  

GFANZ’s ‘quiet quitting’ of RtZ followed increasing pressure on US members due to the anti-ESG movement, often alleging breaches of anti-trust rules, which has only gathered momentum over the course of 2023.  

“The global direction of travel is towards net zero and competition authorities in the UK and Europe have made it clear that setting net zero commitments alongside competitors is not a competition or ‘anti-trust’ issue,” Levick says. 

“After stepping into this space, UNFCCC – as well as RtZ, which was already involved – will have to deal with this issue, too.” 

A UNEP FI spokesperson confirmed that UNEP FI-convened net zero alliances “will contribute to the further development of the framework through the UNFCCC stakeholder engagement process”.

Mahesh Roy, Investor Practices Programme Director at the Institutional Investors Group on Climate Change (IIGCC), tells ESG Investor that, for investors who have made public net zero commitments via the Net Zero Asset Managers initiative (NZAM) or the Paris Aligned Asset Owners initiative (IIGCC is a founding convener of both groups), “nothing will be changing”.  

“IIGCC welcomes the opportunity to work on enhancing the transparency of non-state actors’ commitments and highlighting the ambition and progress of these first movers, so that others, including policymakers, might further act,” says Roy, adding that the IIGCC will play an active and supporting role in the design of the UNFCCC framework to ensure it best reflects the needs of IIGCC members and signatories of supported sector alliances.  

For now, the shape the UNFCCC’s framework will take remains uncertain, but more clarity is expected as discussions unfold. 

“This is further testament to the screws tightening on accountability and integrity,” says Lang from Net Zero Tracker.  

“Hiding places are already becoming few and far between for non-party entities.” 

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