UK Companies being pressured to publish net zero plans in 2021
What just happened?
It has been announced by Rishi Sunak that every company listed on the UK stock exchange will be legally obliged to produce annual plans for becoming greener or risk financial penalties. (1)
What does this mean?
The policy will not require companies to commit to zero net emissions on their credit or transaction books but is intended to encourage more funding for low carbon projects and technologies and align with the overall goal of the UK achieving a net-zero economy by 2050. UK Chancellor Rishi Sunak at COP26 said the UK would become the "first global financial centre with zero net income" and stressed the importance of climate data, green bonds and mandatory climate-related disclosures to restructure the global financial system to support the net-zero agenda. (2)
The move to introduce new requirements for what the government has termed "plans for the transition to zero targets" will be supported by new standards for what the transition plan should look like and related indicators. By applying a standard set of requirements aligned with TCFD guidelines, UK companies will have a unified way to assess how a changing climate might affect their business model and strategy and ensure they are in the ideal position. (3)
How does this impact the legal sector?
In April 2021, the UK government announced plans to reduce carbon emissions by 78% by 2035 as part of a long-term program to reach the zero-line benchmark of 1990 by 2050. To "set the most ambitious climate change target" to reduce emissions by 78% by 2035 from 1990 levels under its sixth carbon budget. The UK's carbon budgets place a cap on the total greenhouse gas emissions the UK can emit over five years. (4) Subsequently, the UK government introduced carbon budgets to set a legal five-year cap on total greenhouse gas emissions that the UK must meet to meet its overall emission reduction commitments by 2050. The 2008 Climate Change Act requires the UK government to achieve zero greenhouse gas emissions by 2050, which will necessarily mean replacing gas boilers, switching to electric vehicles, improving insulation and reducing the consumption of high-carbon substances such as flights and meat consumption. (5)
The lack of a zero-zero plan this year has led to strong criticism from ministers: The Climate Change Committee (CCC), an independent statutory body advising ministers on how to reach a zero balance, warned that action is urgently needed due to the delay. Green activists questioned the speed, scope and funding of these plans. They highlighted ongoing efforts by governments to expand fossil fuel production, including new oil and gas licenses, that they said were contrary to promises. (6)
The CCC concludes that it is necessary to publish a new "clean zero" strategy before the COP26 climate summit, with clear political plans fully supported by the Treasury. In its net - Zero - Report, the CCC stated that while it does not entirely bridge the political gap with existing UK carbon budgets, it represents a significant step forward in the UK's approach. The UK will reduce emissions "and cover" most areas where the action is needed to reach the zero target. (7) This has traditionally been taken as a basis for the UK climate targets, including the zero aim under its legally binding Climate Change Act and international obligations under the Paris Agreement. (8)
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3 https://www.pinsentmasons.com/out-law/news/uk-impose-net-zero-transition-plan-requirements and https://www.gov.uk/government/news/uk-to-enshrine-mandatory-climate-disclosures-for-largest-companies-in-law
4 https://lordslibrary.parliament.uk/climate-change-targets-the-road-to-net-zero/ and https://www.mayerbrown.com/en/perspectives-events/publications/2021/07/bidders-for-large-uk-public-procurement-contracts-must-commit-to-net-zero-by-2050
5 https://www.theguardian.com/environment/2021/oct/19/uk-government-reveals-net-zero-plan-create-jobs, https://www.jonesday.com/en/insights/2021/07/uk-government-adopts-ambitious-sixth-carbon-budget and https://www.jdsupra.com/legalnews/q-a-on-challenges-facing-the-uk-7215600/
6 https://www.theguardian.com/environment/2021/oct/19/uk-government-reveals-net-zero-plan-create-jobs and https://www.natlawreview.com/article/uk-budget-2021-meaningful-step-towards-net-zero
7 https://lordslibrary.parliament.uk/climate-change-targets-the-road-to-net-zero/, https://iclg.com/practice-areas/environment-and-climate-change-laws-and-regulations/3-the-impact-of-a-uk-legislative-commitment-to-net-zero-by-2050 and https://www.jonesday.com/en/insights/2021/07/uk-government-adopts-ambitious-sixth-carbon-budget