Canada’s Carrot in the Face of Climate Change: The Federal Government Launches the Net-Zero Challenge – Corporate Governance

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Choosing the proverbial carrot over the stick, a new initiative launched by the federal government aims to encourage private sector companies across Canada to develop credible and accountable net zero plans.

On August 26, the Government of Canada announced the launch of the Net Zero Challengea voluntary initiative for Canadian businesses to commit to developing and implementing effective plans to achieve net zero emissions by 2050.

So far, 12 organizations across Canada – including companies from the construction, energy, transportation and financial services sectors – have joined the challenge, which complements the federal government’s initiative 2030 Emissions Reduction Plan.

How it works

For companies to take part in the challenge, they must commit to meeting the minimum requirementswhich includes:

  • Set a net zero goal for 2050 or earlier

  • Development of a preliminary net zero plan within 12 months and a full plan within 24 months of joining

  • Set at least two interim emission reduction targets

  • Make annual progress reports

  • Make attestations of the content of net zero plans and progress reports, with a strong encouragement to publicly disclose this information

  • Make climate-related financial information publicly available based on the recommendations of the task force on climate-related financial information (small and medium-sized enterprises are exempt from this requirement)

There are three Streams of participation: Stream 1 is for large industrial emitters, Stream 2 is for financial institutions, and Stream 3 is for all other companies. Each stream has different requirements for reporting Scope 3 emissions.

What is the Carrot?

Although there are no specific financial or other incentives offered, participants will be grouped according to their level of participation in several tiers, including: bronze, silver, gold, platinum and diamond. Companies that meet the minimum requirements belong to the Bronze level, while companies with the most ambitious projects belong to the Diamond level. Details on the technical requirements for each level can be found in the complete program (185 pages) Technical Guide.

Interaction with other Net-Zero initiatives

The Net-Zero Challenge recognizes the work of other global goal-setting and net-zero initiatives, such as the Science-Based Targets Initiative (SBTi), while “offering a made-in-Canada approach “. Similarities between to SBTi Net-Zero Standard include a phased approach to goal setting with timelines around company commitments and comprehensive net zero planning, public reporting expectations, and guidance for plan updates.

Unlike the SBTi, there is no validation of net-zero business plans under the Net-Zero Challenge with requirements limited to submission of participation checklists with attestation of preliminary and complete development of the net-zero plane. The technical guide notes that Environment and Climate Change Canada will assess the validation tools, but placement in a participation level is not “an endorsement of the net zero plan, nor an indication of the feasibility of the net zero plan.”

Another significant difference between the SBTi and the Net-Zero Challenge concerns the use of carbon offset credits to meet short- or long-term emissions targets. SBTi does not allow the use of carbon offset credits when companies set net-zero goals for their Scope 1, 2 and 3 emissions. Under the Net-Zero Challenge, companies will be allowed to use offset credits carbon offsets as part of net-zero business plans with guidance provided on their sourcing and use.

Challenge comes amid scrutiny

While the federal government’s initiative is voluntary and is intended to encourage the setting and action of net zero goals, it will also put additional pressure on companies scrambling for climate-related disclosures and recovery plans. reduction of GHG emissions before pending mandatory disclosure requirements come into effect. effect. As discussed in a previous article, these mandatory disclosure requirements will create significant legal risk for companies, particularly with respect to sustainability reporting and net zero commitments. Additionally, and from a practical perspective, companies that currently lack basic carbon footprint information will need additional internal attention and resources to participate in the Net-Zero Challenge.

Earlier this year Shell shareholders threatened legal action against the company’s directors over allegations that the energy giant’s net zero plan was “fundamentally flawed”. It was the first time shareholders had sought to hold directors personally accountable for perceived shortcomings in a company’s climate plan.

We have also seen the The United States Securities and Exchange Commission accuses a Brazilian mining company for allegedly making false and misleading statements in its sustainability reports, and German police raid Deutsche Bank offices to investigate allegations that the bank misled clients about green investments.

With increasing litigation and enforcement activity around climate-related disclosures, companies would be wise to take a methodical and structured approach when developing such plans or commitments.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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