Environmental, social, and governance risks and opportunities

Net Zero Pledges by Businesses are Fraught with Risk

Calculating net zero is ill defined, unregulated and complex
ESG law

I am excited to be presenting a one hour virtual program, “ESG an Emergent and Fast Growing Area of the Law” Not just for lawyers, this Tuesday, December 14 at noon. Register today for the live virtual program.

Calculating net zero is ill defined, unregulated and complex. Businesses making a net zero claim like, “we will be net zero by 2030” risk a charge that they are misleading consumers.

It is one thing when a political leaders in a government make an ESG claim. In 2009 the King of Bhutan proclaimed his Himalayan country was ‘carbon negative’ because all of its power was hydroelectric or solar buttressed with large forested areas. In 2017 Sweden became the first nation to enshrine a ‘net zero by 2045’ target into law, but the law actually only requires 5 year reports on progress. Just weeks ago, Saudi Arabia pledged to reach ‘net zero carbon emissions within its borders’ by 2060, but that calculation will not include oil exports (.. really?).

But it is another thing for a business to make ESG claims about net zero or otherwise that mislead customers. We caution companies not to make unqualified general environmental claims because ‘‘it is highly unlikely that marketers can substantiate all reasonable interpretations of these claims,’’ the Federal Trade Commission standard for environmental claims. Federal courts have held it is deceptive to misrepresent, directly or by implication, that a product, package, or service offers a general environmental benefit and ESG claims including of net zero can fall within that purview.

And that concern is real without delving into the science of whether net zero is actually possible? There would have to be some agreement, that does not exist today of what it means to be net zero (e.g., carbon dioxide, greenhouse gases, all emissions?). And while very low carbon emissions is possible, at some dollar cost, the absence of all quantity is not so easily if ever achieved (.. and such may be more philosophy than physics). And maybe that includes an agreement that zero is more like the historical  absence in the number of columns counted by Sumerian scribes 4,000 years ago than a modern laboratory measure of non-detect?

quote-left

We view our role as articulating and then mitigating for a business what is now termed “carbon asset risk” which includes a business claim of net zero.

There has been little litigation to date, but as far back as 2016 we wrote a blog post about “net zero energy” in California, False Advertising Claims over Net Zero and LEED Certified Homes. And we wrote in a blog post in 2019 about a claim some 3,000 miles away on the opposite coast in Maryland, Net Zero Lawsuit filed Against Home Builder.

The more likely and larger risk is certainly to reputation. Where in the past there might have been a single print story about a charge of greenwashing seen by Wall Street Journal subscribers alone, today, viral social media can attack a company with millions of views in hours if not minutes. 

For years, in our sustainability law practice, we have assisted businesses manage carbon asset risk. Today, we are particularly cognizant of the fast evolving and changing dynamic between legal and technological factors that drive companies’ decision making processes. And it is not lost on us that calculating net zero emissions is ill defined, unregulated and complex. Done correctly our work for a client is also a defense of capitalism by limiting the need for future government regulation.

We assist businesses avoid making net zero and other ESG claims that mislead consumers, including that we often do that relying on third party verifications of claims being made. One good example of a third party verified standard for net zero is the USGBC LEED Zero program and its 4 segregated components:  LEED Zero Carbon recognizes net zero carbon emissions from energy consumption; LEED Zero Energy recognizes a source energy use balance of zero; LEED Zero Water recognizes a potable water use balance of zero; and LEED Zero Waste recognizes buildings that achieve GBCI’s TRUE certification at the Platinum level.

Hundreds of companies have made net zero pledges this year, the majority of which expose those companies to unnecessary risk.

Again, we appreciate the fast evolving and changing dynamic between legal and technological factors in this space where calculating net zero is ill defined, unregulated and complex. We help businesses avoid making ESG, including net zero claims that mislead consumers.

About the Author

Nancy Hudes and Stuart Kaplow, two Maryland attorneys who are among the principals at ESG Legal Solutions have combined forces, joining together to publish this blog leveraging their focused experience and legal knowledge for business interests in the ESG space.

Subscribe
Subscribe to ESG Legal Solutions, LLC via Email or RSS
Please enter a valid email address and click the button.
Recent Posts
More content can be found in the Search section.