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PA OPINION

Regulators can steer industries towards Net Zero

The UK Government has committed to Net Zero greenhouse gas emissions by 2050. The EU has announced a European Green Deal with the same aim. And the Biden administration is renewing a federal commitment to the US Green New Deal.

And it’s not just governments pushing for sustainability. Increasingly conscious consumers and investors are seeking information on the environmental performance of the companies they engage with.

To answer these calls for Net Zero, all organisations need to start cutting their carbon footprints at pace from today. In response, supply chain leaders have come together to pledge to halve their emissions by 2030 and many organisations have increased their carbon reporting to get a better picture of progress and where they can improve.

But there are systemic issues within the carbon accounting process. For example, organisations can choose how to measure emissions and what to report. So, they could choose to exclude part of their value chain emissions, which can account for up to 90 per cent of an organisation’s carbon footprint.

The wide range of choices, even within globally recognised standards like the Greenhouse Gas Protocol, means two companies that produce similar amounts of carbon can report vastly different figures. And as consumers and investors put more of their money into more sustainable companies, there’s an incentive to report the lowest emissions figures possible, which could be misleading.

Consistent, comprehensive and accurate reporting on carbon emissions is the critical first step towards reducing them. Given many of the challenges in emissions reporting are sector specific, regulators will be key in driving meaningful progress and protecting consumers.

How can regulators create a level carbon reporting playing field?

Regulators can bring clarity and fairness to emissions reporting practices by setting standards that effect change at an industry level. But creating consistency without impeding innovation is a careful balancing act. So, regulators should tailor their interventions to their industry’s existing reporting maturity.

In our experience, this means taking one of three approaches:

Soft intervention

Soft intervention sees regulators providing guidance and support to empower organisations to make the right choices in emissions reporting. This approach suits sectors that are already committed to improving their reporting.

The soft approach can include convening key industry players to establish best practice on standards, methods and boundaries, and developing how-to guides to support emerging organisations. Soft interventions should also aim to encourage transparency in reporting practices and incentivise positive behaviour.

Medium intervention

Medium intervention involves defining the standards within which regulated organisations should operate. Where regulators identify different approaches to meeting these standards, they should encourage organisations to report on how successful they are and provide appropriate recognition.

In practice, this requires the monitoring and evaluation of emissions reporting, along with the voluntary publishing of performance records.

Hard intervention

Hard intervention is effective in industries that are yet to prioritise emissions reporting. It involves setting formal rules or principles, which organisations must follow. There are opportunities for regulators to offer formal accreditation, and to enforce compliance through new legal powers.

Intervening now will deliver the best result for regulators, companies, consumers and the planet

There’s a clear opportunity for regulators to improve emissions reporting in their sectors. This would empower organisations to take targeted interventions to reduce their emissions and, crucially, protect consumers.

But regulators must act quickly. Delaying interventions will put them under scrutiny for the missed opportunity to improve reporting. ​

Contact the authors

Contact our regulatory experts