New Rules: How to Implement and Communicate Climate Strategy for Companies
2023 was a big year for climate action. We saw major announcements of new global governance and regulations across the world:
- In the US, California passed SB-253 Climate Corporate Data Accountability Act and AB-1305 Voluntary carbon market disclosures.
- In Europe, the European Commission released its Proposal for a Directive on Green Claims.
- Globally, new rules for the quality and use of carbon credits were issued ICVCM (The Integrity Council for the Voluntary Carbon Market) and VCMI (The Voluntary Carbon Markets Integrity Initiative), both receiving significant praise from global leaders at the most recent COP28.
At Terrapass, we’re excited by these developments. The world recognizes the need to significantly scale all climate solutions including voluntary carbon markets. For this we must have globally aligned standards. This came together on multiple fronts in 2023.
So, what does this mean for sustainability professionals and everyday consumers?
For everyday consumers this is great news. These regulations ensure that any climate accomplishments promoted by a business will be supported with details that clearly show how those claims were achieved. The rules also ensure that companies are actively working to reduce their own carbon emissions in addition to offsetting their remaining emissions. Please visit Terrapass for more information about your personal or small business carbon footprint.
For sustainability professionals the list of new rules and regulations might seem daunting, but it is also good news. This is a sign of a maturing industry. Policy and consumer experts are contributing their expertise to help make climate action impactful and understandable to both sustainability professionals and everyday customers.
Historically, professional sustainability terms like carbon neutral and net-zero often made their way into marketing and product messaging. Consumer advocates rightly recognized that everyday customers can’t evaluate these phrases on their own. Additionally, vague phrases like green, eco, and sustainable are often used to promote sustainability without any supporting information. Consumer advocates also recognized that customers must be able to see why a product is green. These new regulations in California and Europe ensure that climate communications are always factual and transparent. They ensure that companies can promote their sustainability accomplishments with confidence and that customers have information to evaluate those accomplishments.
New global governance, VCMI in particular, ensures that companies apply sustainability solutions in the most effective way. Terrapass has long promoted the principle of 1. Calculate, 2. Conserve, and 3. Offset in our sustainability guidance to customers. This approach prioritizes:
- First, understand where carbon emissions are in your business,
- Second, disclose your plan to reduce the carbon emissions of your business and regularly report progress, and
- Third, balance your remaining emissions with carbon credits that fund global emission reduction projects.
When companies describe their climate strategy, they sometimes combine these different elements into one term like “carbon neutral.” Phrases like this do reflect an important environmental achievement. However, they hide the distinction between your company’s emission reductions vs. global emission reductions funded through carbon credits. Emission reduction and offsetting must be separate elements of your sustainability strategy and they should also be separate elements of your climate communications. Key elements for your climate communications include:
Steps and priorities:
- Measure your carbon emissions, reduce emissions on a science-based trajectory, and disclose your progress publicly.
- Address your remaining emissions by funding high-quality carbon credits that help reduce greenhouse gases globally.
Tell two different stories in your climate communications:
- Business Emission Reduction: Our carbon footprint was 5,000 mT in 2023, a reduction of 500 mT vs. 2021 and 5% ahead of plan.
- Global Climate Contribution: We purchased 5,000 mT of carbon credits in 2023 to fund global carbon reductions equal to our remaining emissions.
Other considerations:
- Climate communications should be factual, specific and detailed; provide evidence of all environmental claims made.
- Talk about carbon credits as a way to balance your remaining emissions by funding global carbon reduction.
- Talk about carbon credits as a way to support other global sustainability goals (UN SDGs) when applicable.
- Avoid using vague, generic terms like green, eco, climate friendly, sustainable, etc. that are not substantiated.
- Avoid terms that combine your company’s emission reduction and carbon offsetting into one phrase like carbon neutral, climate neutral, etc.
Highlights from each of the new rules and regulations are provided below. Please contact a Terrapass sustainability advisor to help your company navigate its specific needs.
California SB-253 Climate Corporate Data Accountability Act
- For entities with total annual revenues in excess of $1,000,000,000 that do business in California:
- Starting in 2026: Report Scope 1 and Scope 2 greenhouse gas emissions
- Starting in 2027: Report Scope 3 greenhouse gas emissions
- Other requirements:
- For the reporting entity’s prior fiscal year
- Reporting is due annually on a date to be determined by the state board.
- Reporting follows the Greenhouse Gas Protocol
- Reporting entity must obtain an assurance engagement, performed by an independent third-party assurance provider, of the entity’s public disclosure as provided.
California AB-1305 Voluntary Carbon Market Disclosures
- Entities operating in California and making climate-related claims:
- Must publicly disclose information documenting how the claim was determined to be accurate or accomplished, and the measurement of interim progress.
- Applies to claims of net-zero emissions, carbon neutrality or similar, as well as claims of significant reductions in greenhouse gas (“GHG”) emissions,
- Entities operating in California and using voluntary carbon credits to support a climate-related claim.
- Must publicly disclose detailed information related to the credits purchased, the underlying offset projects and any independent verification of the climate-related claims made.
EU Green Claims Directive
- Applies to EU companies and non-EU companies making environmental claims aimed at EU consumers.
- Aims to eliminate greenwashing across EU markets by setting out detailed rules for how companies should market their environmental impacts and performance. It targets “vague, misleading or unfounded information on products’ environmental characteristics. “
- The current list of commercial practices that are banned in the EU is updated to include generic environmental claims – such as ‘environmentally friendly’, ‘natural’, ‘biodegradable’, ‘climate neutral’ or ‘eco’ – unless they can be properly evidenced.
- On the use of carbon credits specifically, the Green Claims Directive allows companies to make “carbon neutral” claims supported by carbon credits, but only if the carbon credits are disclosed correctly:
- Clearly state that carbon credits are being used to offset emissions.
- Disclose sources of emissions and amounts addressed with carbon credits.
- Identify carbon offset project types and distinguish between Reduction and removal offsets (requested, not required)
ICVCM (The Integrity Council for the Voluntary Carbon Market)
- New global quality standards for voluntary carbon credit projects; “regulatory-like”
- Program will be fully implemented over the course of 2023-2024.
- Rules for each carbon credit Category (Methodology/Project Type) were released in June 2023
- CCP-Eligible Programs (Registries) and CCP-Approved Categories (Project Types) will be announced in 2024.
- Not a one-time rule, standards will continuously evolve.
- First revision process for the CCPs in 2025, aimed at implementation starting in 2026.
- ICVCM points to VCMI for guidance on how businesses should use carbon credits.
VCMI (The Voluntary Carbon Markets Integrity Initiative)
- VCMI was established in 2021 to help ensure that voluntary carbon markets make a significant, measurable, and positive contribution to achieving the Paris Agreement goals.
- The VCMI Claims Code addresses market integrity on the demand side by guiding companies on:
- How they can credibly make voluntary use of carbon credits as part of their climate commitments, and
- The associated claims they can make regarding the use of those credits.
- The VCMI program should be followed together with ICVCM rules for high-integrity carbon credits.
Note: The above article provides introductory information only. Every organization must independently evaluate these rules and regulations, and determine specific actions needed for its own compliance.
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Written by Sam Tellen
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