Net zero: the in-house opportunity

The world is gathering in Glasgow for COP26, and there is rapidly growing pressure on organisations, both public and private sector, to respond to the climate crisis and all its attendant risks. In-house counsel are ideally placed to help their organisations turn the good intentions of net zero pledges and sustainability commitments into rapid practical action.

General counsel (“GC”), and their teams, can proactively leverage their role at the centre of their organisations, with their fingers on the corporate pulse, to ensure risks of greenwashing and reputational damage are avoided and legitimate net zero is delivered. This is particularly pertinent as 90% of net zero plans made by business have been found to be not rigorous enough.

This article explores this critical area, featuring comments from two Lawyers for Net Zero champions, the GCs from Nestlé and E.ON. We seek to understand the wider context and how they have been interacting with the climate, net zero and the environmental, social and governance (ESG) agenda, the most meaningful indicators they see, and how they are proactively working to build a wave of action.

Accountability and urgency

“As a planet we’re facing an existential threat: it is incumbent on each one of us to do something about that,” asserts Mark Maurice-Jones, GC of Nestlé UK and Ireland. Kirin Kalsi, E.ON UK’s GC concurs: “It’s all of our responsibility to protect the planet for future generations.”

Taking action on climate is a collective responsibility, but some have more influence than others, and in-house counsel are one of those groups.

Debate over whether the climate crisis is real or not has disappeared into the rear view mirror. In its place are emissions targets from corporations, cities, regions and countries, represented by the surge of organisations committing to net zero and joining the UN’s “Race to Zero”.

What is net zero?

Net zero has considerable energy behind it, being the first environmental narrative to truly capture the attention of governments and businesses around the world. This is largely because it has an international law behind it (the Paris Accord from COP21), it is by nature a proactive target (achieve net zero by 2050 latest), and, unlike vague terms such as “being sustainable”, businesses love a good target.

There is a challenge with net zero, though. At the global level, there is a clear definition from the Intergovernmental Panel on Climate Change (“IPCC”), which is that net zero is achieved when human-caused emissions of greenhouse gases to the atmosphere are balanced by removals over a specified period.

However, as observed by the authoritative Science Based Targets Initiative: “Within the corporate context, the definition is not so clear, leading to significant confusion and inconsistent claims.” Furthermore, because certain countries, such as the UK, and many companies, have moved early we can’t expect everyone to get across the net zero line at the same time.

We could wait for a more suitable narrative to be developed, or a universally agreed standard to be adopted, but the climate crisis waits for no one. We are already at 1.1 degrees warming above the background rate, and as the wildfires and floods this summer demonstrate, going above the 1.5 degrees agreed at Paris will cause massively bigger issues.

The dangers to individual companies of inaction are clearly spelled out in a special report by The Economist from autumn 2020: “[Climate change] will hit every firm directly or indirectly. For different companies this will translate into different costs,” but the risks are clear to be seen.

Advanced solutions

While the environmental situation is much worse than most people realise, fortunately the solutions are much more advanced and available than most people think. This reality is highlighted by the huge CO₂ reduction opportunities of the top 100 solutions, which were calculated by the leading authority Project Drawdown.

Project Drawdown’s list emphasises there are many net zero solutions that must be acted on immediately, but not all climate solutions are created equal, and some less well known ones have massive potential. For example, refrigerant management and alternative refrigerants can cut more greenhouse gas emissions globally than all transportation solutions combined (electric cars, trains, bicycles, carpooling, efficient shipping and aviation, etc).

Lawyers shaping the narrative

Lawyers have a key role in both interpreting and shaping the rules that govern our approach to the environment and climate issues. They therefore have a considerable contribution to clearing up this confusion and helping their organisations avoid accusations of greenwashing and then aim for legitimate net zero, as Nestlé’s Maurice-Jones observes:

“I think historically lawyers have reacted to legislation, perhaps taking a little bit of a defensive approach. I think there’s a real opportunity going forward to be more on the front foot and proactive in trying to shape legislation. We’re supportive of good legislation because it creates a level playing field that all companies need to adhere to.”

Being proactive is a theme that resonates with E.ON’s Kalsi: “I think we’ve got to be proactive in the context of promoting legitimate net zero, and support our purpose of leading the energy transition by offering our customers smart, sustainable and personalised energy solutions. So we are engaging positively with our board and our colleagues in a number of teams, such as our strategy, supply chain and marketing teams, which are also focusing on achieving net zero.”

Pressures to act

Businesses must now guard against greenwashing, with regulators starting to flex their muscles. The Competition & Markets Authority (CMA) recently published the Green Claims Code, and will carry out a full review of misleading green claims, both on and offline, at the start of 2022. Furthermore, climate risk reporting is becoming mandatory by 2025 in the UK, but the significant players in the market, and many customers, are expecting it before then.

While the environmental imperative is in itself a clear driver for organisations, there are numerous other indicators all pointing in the same direction: that business must act, and act fast.

“We’re seeing increasing societal pressure in this area. Whenever I speak to people who are looking to join the company, the first thing they will ask me is what is Nestlé doing in this area,” Maurice-Jones observes.

Managing reputation is becoming increasingly important. For example, according to the influential report The State of Corporate Reputation in 2020, global executives attribute 63% of their company’s market value to the company’s overall reputation.

This links directly to the escalating importance of the ESG agenda in business, as it becomes increasingly recognised that failures can collapse business value: an average of $100 billion per year was wiped off the value of US large businesses due to ESG issues in the five years to 2020.

The ESG agenda

The increasing importance of ESG to businesses is being reflected in an increase in legal work for in-house lawyers.

Maurice-Jones has been increasingly involved in ESG initiatives: “Here at Nestlé we’ve been involved in a number of different initiatives, such as negotiating contracts to enable the UK business to be 100% sourced from renewable energy and supporting the business in a very significant regenerative agriculture programme: agriculture is the biggest source of carbon emissions that impact Nestlé.”

Kalsi states: “At E.ON we’ve been working to ensure we can provide 100% renewable electricity to our customers, building on our 30-year legacy in the development of UK renewables and helping customers who are actively looking for help on their net zero journey.”

Maurice-Jones adds: “There is increasing expectation from society that companies have a clear plan as to how they will address climate change. This is being reflected in a huge increase in environmental regulation. In the UK, for example, we face legislation such as the plastic tax starting next April, and the CMA has recently announced its guidance on greenwashing. As in-house lawyers we need to stay on top of these developments.”

Legal sector desire

There is a clear desire in the legal sector, with a growing number of initiatives, such as the recently launched World Lawyers’ Pledge on Climate Action, the Net Zero Lawyers Alliance (aimed at city law firms), and The Chancery Lane Project, along with Lawyers for Net Zero.

As David Attenborough said in September 2020: “Profound change can happen in a short period of time. This is starting to happen with fossil fuels. We may yet pull off a miracle and move to a clean energy world by the middle of this century.”

Net zero is a complex jigsaw, and nobody knows what the end picture looks like, but we have most of the pieces we need, so we must use our imagination and intelligence to start piecing together the puzzle in our businesses. In-house lawyers are ideally placed to help their organisation with this.  

Lawyers for Net Zero is working with one of the most influential sectors in UK society, the in-house legal community, to deliver significant climate action. We help in-house counsel via three linked stages: convening a community of likeminded individuals, providing focus via our Net Zero Action Principles, and generating momentum via Action Learning Groups.

The Action Learning Groups are the core of our process, with counsel meeting online regularly in small groups to share challenges, best practice and create peer-to-peer learning and accountability. This is a coaching-led practice which supports individuals to focus on the meaningful actions they can take. We are delighted to have grown so rapidly. From a standing start in April, and with no funding, we now have approaching 100 individuals acting as champions, with GCs and senior counsel from organisations such as Sky, E.ON, Amazon, Nestlé, Deutsche Bank, GSK, NHS and Standard Chartered Bank. We have lawyers joining every week, and welcome inquiries from interested in-house counsel.

Lawyers for Net Zero has a stand in the Green Zone at COP26 on the Finance Day, 3 November.

Find out more on www.lawyersfornetzero.com and join our LinkedIn page.