Aligning Net Zero Certifications With Regulatory Frameworks
There are new political headwinds around the globe, from the inauguration of President Trump to the resignation of Canadian Prime Minister Justin Trudeau. These changes have left many in the industry wondering about the fate of climate disclosure rules and regulatory frameworks. Looking at the U.S. in particular, there is uncertainty around the SEC’s proposed climate disclosure rule, a growing wave of backlash against ESG investing principles, and major moves from banks in preparation for this new political reality.
However, regardless of changing political power players, many organizations, cities, and state governments remain committed to disclosing where they stand on climate initiatives, independent of mandates. It is more important than ever before that in the face of regulations from around the globe, companies utilize net zero certification programs that are aligned with regulatory frameworks like California’s upcoming Climate Disclosure Rule (SB253 and SB 261), the International Sustainability Standards Board, and the European Union’s Corporate Sustainability Reporting Directive (CSRD).
Net zero regulatory frameworks refer to a set of rules and targets that require companies to report their greenhouse gas emissions, as well as back up any claims about being carbon neutral. Despite the headlines, these regulatory frameworks are alive and well. From U.S. regulations like the EPA greenhouse gas (GHG) reporting program (GHGRP) to the European Union, companies can expect they will need to disclose information about their carbon emissions.
There are several reasons states and federal bodies are adopting these regulations. First, they help combat greenwashing by setting clear standards for environmental actions, requiring companies to back up sustainability claims with verified and transparent data, and in some cases, issuing penalties for companies that purposefully mislead stakeholders. For informed investment and purchasing decisions, stakeholders deserve transparent and comparable data reflecting the true leaders and laggards addressing the climate crisis. Finally, these frameworks impact the carbon markets by providing guidelines and rules for trading and general market operations.
While many large firms have begun the inventory process, some companies are starting from square one. Small and mid-size enterprises arguably face the largest learning curve. They may not have the internal systems or staff in place to support a complex emissions inventory process, or the institutional knowledge to understand complex climate regulations. Reasons these companies slow roll climate action include a lack of skills and knowledge (63%), funding (48%), and time (40%). Without a certification that can track Scope 1, 2, and 3 emissions, companies won’t succeed in complying with regulations. Scope 3 emissions refer to GHG emissions that an organization does not directly produce but are a result of its activities. They account for nearly 70% of emissions and present an acute challenge for smaller organizations that don’t usually have the data or coordination necessary to track and report on this data.
The proliferation of sustainability and net zero certification programs on the market may leave companies confused about choosing the best program to suit their needs and regulatory requirements. Some certifications focus on just one element of the net zero journey while others try to be as holistic as possible. Some are grounded in established global standards while others offer custom solutions they advertise as reliable. However, almost universally global regulatory frameworks require clear and data-driven emissions reporting for Scope 1, 2, and 3 emissions; choosing partners and programs committed to achieving that objective will undoubtedly help those firms prepare for the new regulatory world.
A truly global certification should accept a variety of regulatory frameworks, align with Paris Agreement targets, and provide a path to calculate and eliminate emissions. Total flexibility is crucial, and organizations should be able to leverage the standard or framework that meets regulatory requirements to decarbonize and achieve certification. At Global Network for Zero, our certification is based on the GHG Protocol — a global framework used by most of the Fortune 500 for measuring, managing, and reducing emissions from private and public sector operations, value chains, products, cities, and policies. Therefore, embracing this approach allows organizations of all shapes and sizes to chart a path to net zero that sets them up for compliance success.
Despite the naysayers, the clean energy transition is well underway and too far along for uncertain political noise to slow the trajectory. Just look at SBTi’s recent decision to delist 200 global brands for failing to meet net zero targets. It indicates a clear warning that even if regulatory requirements change in individual countries, the push for net zero will not end. It is up to us, the business leaders and stakeholders driving our world forward, to ensure that the efforts aimed at helping our planet reach net zero can succeed. Can we count you as part of the solution?
Dr. Spenser Robinson is a Campbell Endowed Professor and Director of Real Estate at Central Michigan University and a Global Network for Zero Advisor.
Mahesh Ramanujam is President and CEO of Global Network for Zero.