Could ‘carbon neutral’ claims land food & beverage brands in legal hot water, even where they are certified by a third party such as the Carbon Trust? FoodNavigator-USA asked attorneys to weigh in after Danone Waters America found itself at the receiving end of a lawsuit.
I received an email from a marketer touting the latest announcement from a well-known baking-goods company. She informed me that the company was committed to sustainability and mitigating their carbon footprint. To become more sustainable, the company pledged to source all of its wheat from farmers using regenerative production methods. Now to be fair, this was only one of several promises, but obviously it was the one that caught my attention.
So I did something absolutely crazy. I asked her how they define regenerative agriculture.
I anticipated her response. She said the company has a “fluid definition” without set standards and practices. But generally it meant more carbon in the soil and better soil health.
I agreed with her that farms shouldn’t have a one-size-fits-all approach — and I really meant it. What works for a farm in southern California won’t work for one near the beaches of Lake Michigan. The best production practices involve a calculation on a farm-to-farm basis that keeps in mind weather, soil type, seasons, and the crop involved. And most farmers are focusing more and more on healthy soils and the things they can do to promote them.
She gave me the right answer. But doesn’t that make the company’s pledge a bit wishy-washy?
If reports are to be believed, Chinese fast-fashion behemoth Shein is trying to make amends, shifting its image to justify a steadily dropping $100 billion valuation ahead of an ambitious IPO in 2024. It’s got a lot of work to do. While the company controls most of the category at 28 percent, racking in $15.7 billion in sales 2021, it’s also among the worst in environmental sustainability, social justice and corporate governance (ESG). To keep prices low, and to stay relatively free of regulation, it relies on suppliers in China, where the Uyghur populations suffer forced labor and dangerous working conditions. Also, with wasteful environmental practices ingrained in its model, fast fashion is so harmful that most regulators believe it is irredeemable. As the king of fast fashion, Shein has a lot to answer for.
Still, as the company hires new sustainability-focused leaders and promises a new conscious approach, its efforts to market an enthusiastic ambition to jump on the ESG bandwagon should put it on the path to redemption, right? Not quite.
Abstract: Recent explosive growth in environmental and climate-related marketing claims by business firms has raised concerns about their truthfulness. Critics argue (or at least question whether) such claims constitute greenwashing, which refers to a set of deceptive marketing practices in which an entity publicly misrepresents or exaggerates the positive environmental impact of a product, service, or the entity itself. The extent to which greenwashing can be regulated consistent with the First Amendment raises thorny doctrinal questions that have bedeviled both courts and scholars, the answers to which have implications far beyond environmental marketing claims. This essay is the first to offer both doctrinal clarity and a normative approach to understanding how the First Amendment should tackle issues at the nexus of science, politics, and markets. It contends that the analysis should be driven by the normative values underlying the protection of speech under the First Amendment in the disparate doctrines that govern these three arenas. When listeners are epistemically dependent for information on commercial speakers, regulation of such speech for truthfulness is consistent with the First Amendment and subject to the laxer review of the commercial speech doctrine. This is because citizens must have accurate information not only to knowledgably participate at the ballot box but also to have meaningful freedom in economic life itself.
Several major oil companies, including BP and Shell, periodically publish scenarios forecasting the future of the energy sector. In recent years, they have added visions for how climate change might be addressed, including scenarios that they claim are consistent with the international Paris climate agreement.
These scenarios are hugely influential. They are used by companies making investment decisions and, importantly, by policymakers as a basis for their decisions.
Many of the future scenarios show continued reliance on fossil fuels. But data gaps and a lack of transparency can make it difficult to compare them with independent scientific assessments, such as the global reviews by the Intergovernmental Panel on Climate Change.
In a study published Aug. 16, 2022, in Nature Communications, our international team analyzed four of these scenarios and two others by the International Energy Agency using a new method we developed for comparing such energy scenarios head-to-head. We determined that five of them – including frequently cited scenarios from BP, Shell and Equinor – were not consistent with the Paris goals.
One is to ensure the global average temperature increase stays well below 2 degrees Celsius (3.6 F) compared to pre-industrial era levels, and to pursue efforts to keep warming under 1.5°C (2.7 F). The agreement also states that global emissions should peak as soon as possible and reach at least net zero greenhouse gas emissions in the second half of the century. Pathways that meet these objectives show that carbon dioxide emissions should fall even faster, reaching net zero by about 2050.
Scientific evidence shows that overshooting 1.5°C of warming, even temporarily, would have harmful consequences for the global climate. Those consequences are not necessarily reversible, and it’s unclear how well people, ecosystems and economies would be able to adapt.
How the scenarios perform
We have been working with the nonprofit science and policy research institute Climate Analytics to better understand the implications of the Paris Agreement for global and national decarbonization pathways – the paths countries can take to cut their greenhouse gas emissions. In particular, we have explored the roles that coal and natural gas can play as the world transitions away from fossil fuels.
When we analyzed the energy companies’ decarbonization scenarios, we found that BP’s, Shell’s and Equinor’s scenarios overshoot the 1.5°C limit of the Paris Agreement by a significant margin, with only BP’s having a greater than 50% chance of subsequently drawing temperatures down to 1.5°C by 2100.
These scenarios also showed higher near-term use of coal and long-term use of gas for electricity production than Paris-compatible scenarios, such as those assessed by the IPCC. Overall, the energy company scenarios also feature higher levels of carbon dioxide emissions than Paris-compatible scenarios.
Of the six scenarios, we determined that only the International Energy Agency’s Net Zero by 2050 scenario sketches out an energy future that is compatible with the 1.5°C Paris Agreement goal.
We found this scenario has a greater than 33% chance of keeping warming from ever exceeding 1.5°C, a 50% chance of having temperatures 1.5°C warmer or less in 2100, and a nearly 90% chance of keeping warming always below 2°C. This is in line with the criteria we use to assess Paris Agreement consistency, and also in line with the approach taken in the IPCC’s Special Report on 1.5°C, which highlights pathways with no or limited overshoot to be 1.5°C compatible.
Getting the right picture of decarbonization
When any group publishes future energy scenarios, it’s useful to have a transparent way to make an apples-to-apples comparison and evaluate the temperature implications. Most of the corporate scenarios, with the exception of Shell’s Sky 1.5 scenario, don’t extend beyond midcentury and focus on carbon dioxide without assessing other greenhouse gases.
Our method uses a transparent procedure to extend each pathway to 2100 and estimate emissions of other gases, which allows us to calculate the temperature outcomes of these scenarios using simple climate models.
Without a consistent basis for comparison, there is a risk that policymakers and businesses will have an inaccurate picture about the pathways available for decarbonizing economies.
Meeting the 1.5°C goal will be challenging. The planet has already warmed about 1.1°C since pre-industrial times, and people are suffering through deadly heat waves, droughts, wildfires and extreme storms linked to climate change. There is little room for false starts and dead-ends as countries transform their energy, agricultural and industrial systems on the way to net-zero greenhouse gas emissions.
New research shows that when companies overcommit and/or do not deliver on promised socially responsible initiatives they damage their relationships with their customers. However, a company’s reputation for product quality or innovation may partially mitigate such a negative impact on customer satisfaction.
I’m a professor of economics and public policy, and my research shows that while carbon disclosure encourages some improvement, it is not enough by itself to ensure that companies’ greenhouse gas emissions fall. Worse still, some companies use it to obfuscate and enable greenwashing – false or misleading advertising claiming a company is more environmentally or socially responsible than it really is.
I believe the SEC has an unprecedented opportunity to design a program that is greenwashing-resistant.
Disclosure doesn’t always mean less carbon
Although carbon disclosure is often held up as an indicator of corporate social responsibility, the data tells a more nuanced story.
I investigated the carbon disclosures made by nearly 600 companies that were listed in the S&P 500 index at least once between 2011 and 2016. The disclosures were made to CDP, formerly the Carbon Disclosure Project, a nonprofit organization that surveys companies and governments about their carbon emissions and management. More than half of all S&P 500 firms respond to its requests for information.
At first glance, one might think that a mandated, unified framework for reporting companies’ climate management and risk data and their greenhouse gas emissions, such as the one proposed by the SEC, is likely to lead to more efficient use of fossil fuels, lowering emissions as the economy grows.
I did find that companies that have proactively disclosed their emissions to CDP on average reduced their entitywide carbon emissions intensity by at least one measure: carbon emissions per capita of full-time employees. This means that as a company increases in size, it is estimated to reduce its carbon footprint on a per-employee basis. This does not, however, necessarily translate to a reduction in a company’s overall carbon emissions. Much of the decline involved large emissions-intensive companies, such as utilities, that were trying to get ahead of expected climate regulations.
Companies that received a “B” grade from CDP increased their entitywide carbon emissions on average over that time. Notably, those in the financial, health care and other consumer-oriented sectors that did not experience the same level of regulatory pressure as greenhouse gas-intensive firms led the increase.
About a quarter of the S&P 500 companies that completed CDP’s annual climate change survey undertook assessments of their business impacts on the environment and integrated climate risk management into their business strategy. Yet entitywide emissions still increased.
Earlier research found similar results in the first decade of the U.S. Department of Energy’s Voluntary Greenhouse Gas Registry. Overall, it found that participating in the registry had no significant effect on the companies’ carbon emissions intensity, but that many of the companies, by being selective in what they reported, reported emissions reductions.
Because CDP grades companies based on sustainability outputs rather than outcomes, an “A-list” company could be “carbon neutral” when it counts only the facilities it owns and not the factories that make its products. Moreover, a company that has earned an “A” could commit to removing all emitted carbon but maintain partnerships with oil and gas companies to “generate new exploration opportunities”.
Retail and apparel giants Walmart, Target and Nike – all in the “B” to “A-minus” range in recent years – offer an example of the challenge.
They regularly disclose their carbon management plans and emissions to CDP. But they are also part of the industry-led Sustainable Apparel Coalition, which has controversially portrayed petroleum-based synthetics as the most sustainable choice above natural fibers in the Higgs Index, a supply chain measurement tool that some clothing companies use to show a social and environmental footprint to consumers. Walmart has been sued by the Federal Trade Commission over products described as bamboo and “eco-friendly and sustainable” that were made from rayon, a semi-synthetic fiber made using toxic chemicals.
Designing a greenwashing-resistant disclosure program
I see three key ways for the SEC to design a climate disclosure program that is greenwashing-resistant.
First, misinformation or disinformation about ESG – environmental, social and governance factors – can be minimized if companies are given clear guidelines on what constitutes a low-carbon initiative.
Second, companies can be required to benchmark their emission targets based on historical emissions, undergo independent audits and report concrete changes.
It’s important to clearly define “carbon footprint” so these metrics are comparable among companies and over time. For example, there are different types of emissions: Scope 1 emissions are the direct emissions coming out of a firm’s chimneys and tailpipes. Scope 2 emissions are associated with the power a company consumes. Scope 3 is harder to measure – it includes emissions in a company’s supply chain and through the use of its products, such as gasoline used in cars. It reflects the complexity of the modern supply chain.
Ultimately, investors and financial markets need accurate and verifiable information to assess their investments’ future risk and determine for themselves whether net-zero pledges made by companies are credible.
There is now momentum across the globe to hold companies accountable for their emissions and climate pledges. Disclosure rules have been introduced in the United Kingdom, European Union and New Zealand, and in Asian business hubs like Singapore and Hong Kong. When countries have similar policies, allowing for consistency, comparability and verifiability, there will be fewer opportunities for loopholes and exploitation, and I believe our climate and economy will be better for it.
A new study argues that renewable energy certificates — a market-based tool that certifies the bearer owns one megawatt hour of electricity produced from renewable energy sources — generally do not reduce emissions and firms using them are overstating their climate mitigation claims. In one calculation, the researchers show how a sample of 115 companies between 2015 and 2019 reported a 31 per cent reduction in emissions. A closer analysis of that claim reveals that without including the purchase of ineffective RECs, the actual drop in emissions was roughly 10 per cent.