As COP27 concluded at Sharm el-Sheikh, the U.N. Secretary General noted that it was fitting to be in the shadow of Mount Sinai given the biblical proportions of the climate crisis. Indeed, if the droughts, fires, and flooding over the past year didn’t make the point, Mr. Guterres made clear, we are not doing enough to limit global warming to avoid future climate catastrophe.
In the face of this future threat, there were some notable accomplishments at the meeting, including the decision to establish a loss and damage fund, and separately, making good on the long-delayed promise of $100 billion a year in climate finance for developing countries.
A less discussed accomplishment of COP27, but one critically important to investors, was the release of the report from the United Nations High‑level Expert Group on the Net Zero Emissions Commitments of Non‑State Entities entitled Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions. A long title to be sure, but this report importantly lays out five key principles to guide the setting of and progress toward net-zero targets for companies and other non-state actors.
The principles provide the framework and guidance to help avoid such things as companies claiming to be net zero while continuing to build or invest in new fossil fuel supply or entities simply buying cheap credits lacking integrity rather than immediately cutting their own emissions across the value chain.
Detailed guidance includes for example, that an entity only be considered net zero aligned when its pledge, targets, and pathway to net zero are generated using a robust methodology that is verified by a recognized third party such as the Science Based Targets Initiative (SBTi) or the Partnership for Carbon Accounting Financials (PCAF), or others named in the report. Also, its pledge and progress should cover all scope emissions and all operations along its value chain in all jurisdictions and be publicly reported and independently verified.
We would encourage all investors to use these principles as a standard by which to evaluate companies’ net zero pledges. We will not reach our collective targets if permissive investors allow for fuzzy targets and accounting and aspirational-only goals. The guidance provided by the U.N. is one of a growing number of tools by which investors can identify greenwashing and hold non-state actors to account.
[The image shows a forest path with tall evergreen trees lining each side, with blue sky and clouds in the background on a sunny day]
