The drive for net zero is serious business. Sustainability is no longer the icing on the cake, it is the cake. Last week’s Net zero review underlines this. And companies are following. But policy and carbon accounting are at risk of turning genuine ambition into business risk.
Last week, Chris Skidmore, former science minister and MP published his review of net zero. Commissioned by then Prime Minister Liz Truss, there was concern among the climate policy community about the review being an option to dampen progress on net zero. The review did the opposite. As well as underscoring the falling costs of moving to net zero, it highlighted that net zero, just like other major technology revolutions, is a race. Quite simply, those that start early, and run hard, do better than those who amble along with a slower pack. The UK is in a great position because, despite the doom laden stories we often hear, we are still a climate leader. Net zero legislation, the carbon budgets and renewable power deployment are real areas of leadership.
As Mr Skidmore’s review highlights, we have accelerated ambition but, policy still lacks clarity. This is important because, when dealing with issues that are not reflected in market prices, such as the costs of climate change, policy interventions shape the market.
This shaping happens in two ways. One is discouraging investment, such as the ban on the sale of diesel and petrol cars and vans from 2030 or the cost of carbon in the emissions trading scheme. But often these policies are not enough. They signal what not to invest in, but they do not assure the investability of the alternative.
The lack of policy direction creates a stalemate. Companies, increasingly aware of the implications of net zero, resist high carbon investments due to the inherent risks. At the same time, they fail to invest in the low carbon transition because the economics don’t stack up. This is perhaps one of the biggest challenges for policy makers. Not only do high carbon investments have to be prevented or uneconomic, the right investments need to deliver a fair return. Returns analysis is the very heart of all companies. A lack of policy clarity creates stagnation, leading to underinvestment, where businesses maintain the status quo in the absence of a clear alternative.
The lack of investment opportunities can lead to greenwashing. Everything, from the law, customer sentiment and finance sustainability requirements put vital pressure on business to demonstrate their leadership on climate. But, if the transition options are not investible, they find themselves with commitments they struggle to meet. That can lead to accusations of greenwashing.
Making climate commitments contains risk. A risk of non-delivery, or, perhpaps of highlighting progress in a small area, while masking stagnation in the core activity (called greenlighting). A new report by Planet Tracker  has identified six ways companies fall foul of greenwashing. From changing targets when off track (greenrinsing), to blaming the supply chain (greenshifting) or even underreporting (greenhushing), companies can find themselves in a difficult position.
Greenwashing is a real issue and it is right that it has an increasing focus and accountability. If you’re reading this and asking if your organisation is at risk of greenwashing, the Competition and Markets Authority have published a great briefing to test what you are doing and if you’re being open and honest.
Greenwashing, as bad as it is, is, at least in part, a reflection of the challenge of delivering radical change set against the need for those businesses to make investments that deliver an acceptable return. Critical to that return is the ability to value the environmental benefits delivered. Some benefits, such as avoided costs of carbon in emissions trading are easily quantify in an investment case. Other benefits can also be impossible to value. For example, every time a recycler reprocesses one tonne of plastic the carbon emission is six times lower than the emission from new plastic material. That carbon saving does not accrue to the reprocessor. So any carbon assessment for recycling plastic shows an increase in the carbon emissions for every tonne recycled.
This is not just a waste problem. Likewise carbon accounting for carbon capture can be illogical. The rules effectively place no value on capturing carbon from biodegradable waste until all the emissions from fossil waste have first been captured. Under carbon accounting rules an energy from waste plant would have to capture only the CO2 molecules from fossil sources. Not only is this impossible it is different from what the UK Climate Change Committee has said should happen in waste. The Committee recommends energy from waste should be fitted with carbon capture to capture the fossil and renewable CO2 making those plant negative emissions facilities. Those negative emissions can then offset other carbon emissions in the sector. The wind sector, which is critical for displacing fossil fuels, still has emissions associated with the build, operation and maintenance of the turbines. Despite these turbines reducing emissions hugely, helping the entire economy decarbonise some investors are finding it impossible to set a Paris aligned net zero path for the company due to the residual emissions. This is because, under carbon accounting rules the emissions saved by a wind turbine benefit someone else, the power customer, though the reduction of fossil power in their energy supply.
The drive for net zero is now centre stage, an item on board agendas and a key metric for investors. But, unless we can get policy to support investment and the accounting for emissions to reflect actual societal good then we run the real risk of driving up greenwashing. Otherwise, business setting out on a net zero journey with the best intentions may find themselves with nowhere to go.
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 The Greenwashing Hydra, 2023, https://planet-tracker.org/wp-content/uploads/2023/01/Greenwashing-Hydra-3.pdf
 Competition and Markets Authority (CMA), 2021, https://www.gov.uk/government/news/green-claims-cma-sets-out-the-dos-and-don-ts-for-businesses