Take care when talking about emissions targets

New Zealand has committed to the Paris Agreement and made its ’Nationally Determined Contribution’ to reduce our greenhouse gas emissions by 50% below 2005 levels by 2030. These sorts of big and ambitious goals are what the Paris Agreement was all about – countries coming together and setting challenging targets that will cumulatively result in a significant reduction in global emissions.

It follows that New Zealand businesses are feeling that they should follow suit and set their own ambitious targets for reducing emissions. After all, New Zealand will only achieve its Nationally Determined Contribution if emissions are reduced by the various players within the New Zealand economy.

However, boards are generally cautious about publicly articulating targets. Setting emissions targets involves projecting a long time into the future – to 2030 or 2050, for example – and making some relatively large assumptions about things like developments in technology. In contrast, financial forecasts are generally discussed in the short term, like the next financial year, and the underlying assumptions are heavily vetted and disclosed.

It is no surprise then that some directors are finding the process of setting emissions reduction goals difficult. Stakeholders like customers, investors and employees are saying that they want to hear about the business’ emissions targets, so how can targets be articulated in a responsible way?

Largely the same rules apply to statements about emissions reductions targets as other types of statements. The Financial Markets Conduct Act and Fair Trading Act both prohibit misleading and deceptive statements and unsubstantiated representations. This means that statements about climate targets must be accurate and able to be substantiated.

Various regulators in New Zealand and overseas have commented on the need to take care when making claims about carbon neutrality targets, or when describing activities as ‘net zero’ (particularly where emissions claims are based on carbon-offsetting instead of the business taking positive steps to reduce its own emissions).