In 2015, the United Nation’s Paris Agreement heralded a monumental turning point in the fight against climate change. But observers agreed the fight to reduce carbon emissions required vigorous action beyond the 194 sovereign signatories or their billions of individual citizens. Also critical was engagement from the thousands of businesses whose operations keep the global economy moving and, to do so, emit carbon dioxide (CO2) every day in countless ways. Like nations structuring laws, or consumers adopting new habits, companies around the world were called on to ambitiously set goals and implement practices to reduce carbon emissions.
And many did. Throughout the world, businesses have committed attention, effort, and resources to reducing carbon emissions. By changing practices, rethinking production and materials, and—in some cases—purchasing carbon offsets, many of the world’s key public and private companies set targets to reduce their net carbon emissions to zero. This did not happen in a vacuum. Like the Paris Agreement for sovereign states, laws and regulations have attempted to frame requirements and guidelines for companies chasing “net zero.” And, just as media attention and multilateral agreements have incentivized states to be ambitious and proactive, consumer appeal and changing corporate ethos have incentivized companies to make ambitious commitments and innovate to reach them.
Therein lies a conflict. On the one hand, with consumer appeal and market share at stake, some companies overstate their accomplishments and “environmental friendliness,” including carbon emissions reductions and net-zero commitments. In the United States, nascent legal and regulatory frameworks leave much uncertainty surrounding the definition of “net zero” for business operations. In that context, assuming all businesses will responsibly and accurately represent their net-zero efforts, or other environmental impacts, would be naive—thus, the meteoric rise in popularity of the term “greenwashing.”
On the other hand, most companies seek to play by the rules—and to find appropriate metrics where the rules are developing or unclear. This point is overlooked by many in the crowded field of advocates making bold statements or pursuing claims (including fraud) against businesses’ sustainability actions. Corporations comprise people, the vast majority of whom are honest, well-intentioned, and, where it comes to climate change, striving to innovate to meet the key challenge of our time. Sustainability personnel have more leverage than ever before to change business practices and improve carbon footprints and environmental impacts. But when sustainability efforts become liabilities, that leverage plummets within a large company. And for smaller companies, hostile legal environments can crush ambitious start-ups and first movers disrupting more carbon-intensive practices. These companies are integral to innovation, fresh ideas, and progress. They move quickly and can make bold statements but cannot weather greenwashing lawsuits as a “cost of doing business.”
Thus, an aggressive plaintiffs’ bar becomes counterproductive if too extreme. In the United States, where regulation around net-zero efforts and disclosures is extremely unclear, public flogging of such efforts and aggressive lawsuits can squelch important innovation, punish well-intended initiatives, and discourage risk-taking in finding carbon reduction strategies that work. Enter “greenhushing,” a term rising in popularity as greenwashing did before it and referencing companies disinclined from touting or even disclosing their net-zero efforts. Close on greenhushing’s heels is demotivating or squelching those efforts altogether.
Given these negative outcomes on both ends, where—in a rapidly evolving regulatory landscape—is the right balance for the legal community’s engagement with corporate net-zero commitments? How do we avoid naivety but foster innovation? The legal community must strike a balance between policing net-zero commitments and allowing companies reasonable room to strive and sometimes fail. Net-zero commitments, like any innovation, will experience failures that lead to lessons. In the current landscape, aggressive lawsuits risk discouraging ambitious net-zero commitments if businesses are denied room to take risks and learn.
Meeting the call of the Paris Agreement requires not just governments, but also companies doing work to dramatically reduce greenhouse gas emissions through their own volition.
Below, we explore this tension. We posit that companies must pursue science- and metrics-based net-zero strategies, but that some emerging plaintiffs’ liability theories must, in turn, respect those approaches and are dangerous to progress when they do not.
Corporate Net-Zero Commitments
The mandate for net-zero action is not seriously disputed. The leading global voice on climate action—the United Nations Framework Convention on Climate Change (UNFCCC)—believes achieving “a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century” is critical to our planet’s future: “To keep global warming to no more than 1.5°C—as called for in the Paris Agreement—emissions need to be reduced by 45% by 2030 and reach net zero by 2050.” Paris Agreement to the UNFCCC, Dec. 12, 2015, T.I.A.S. No. 16-1104. No government mandates can realistically dictate these outcomes on this time line. Meeting the call of the Paris Agreement requires not just governments, but also companies doing work and making things to dramatically reduce greenhouse gas (GHG) emissions through their own volition.
In practice, corporate commitments to net zero are anything but simple and can comprise many different methods and pathways. Appropriate standards require consideration of Scope 1 (direct), Scope 2 (energy consumption), and possibly Scope 3 (value chain) emissions from complex supply chains and end-product uses. Most serious sustainability initiatives, including net-zero commitments, require objective measurement under well-defined standards. Here, third-party standards and certifications have burgeoned. Some standards have emerged as leading global authorities that companies may use to guide, benchmark, and measure their commitments. But the playing field continues to evolve and develop in sophistication.
The Role of Net-Zero Standards and Environmental Certifications
Laws and regulations always lag behind developments in areas they address, and often cannot resolve key technical issues for compliance. Especially in dynamic fields like carbon emissions accounting, it is difficult enough for legislators or agencies to promulgate laws and regulations that are sufficiently detailed to be useful. It is impossible to do so rapidly and nimbly enough to serve the needs of quickly developing science and new innovations.
Typically, this is where respected third-party certification bodies (familiar ones include the International Standards Organization (ISO) and ASTM International, but there are many) step in to provide exacting requirements for objects, systems, or processes that are just too specific, complex, or dynamic for legislators and regulators to practically address. Third-party standards can apply to anything from toys to nuclear technology and, relevant here, to sustainability-related protocols including carbon neutrality. While no system or standard is perfect, respected standards organizations are seen as reliable, objective, and sound, and take this role very seriously. Sometimes, independent standards become the basis for statutes or regulations or are even adopted outright.
Thus, third-party standards can presage later-adopted government laws and rules in areas—like sustainability and carbon emissions reduction—that involve rapidly evolving science, standards, capabilities, and expectations. Third-party standards organizations play a critical role in developing a common language and understanding among industry, regulators, and consumers about what dynamics and aspirations are in play when words and phrases like “sustainable” or “net zero” are invoked.
Not surprisingly, net-zero certification programs across industries have proliferated into a wide-ranging and diversified world of standards for different types of companies and projects, each taking different approaches to protocols and performance. Of course, some are more rigorous, well-defined, and well-executed than others.
The Role of Carbon Credits and Offsets
An important issue in the net-zero context involves how carbon offsets—marketable certificates linked to activities that reduce or remove CO2 in the atmosphere—may play into a company’s strategy. By buying these certificates, companies “claim” carbon captures and can supplement (or replace) carbon emission reduction from their own activities. Offsets continue to generate controversy among policy makers, activists, and scientists, coalescing around two questions: Are the offsets (1) legitimate, i.e., properly certified and accounted for, and (2) substituting for carbon emission reduction efforts or supplementing those efforts?
As to the first question, all carbon offsets are not created equal. In a recent report, McKinsey described the voluntary carbon market as a “fragmented and complex market with low to no regulation, different accounting methodologies with varying degrees of rigor and a variety of industry-created standards.”McKinsey & Co., Putting Carbon Markets to Work on the Path to Net Zero (Oct. 28, 2021). Some carbon credits are rigorously audited, verified, and third-party certified, representing already-realized removal of CO2 from the atmosphere. They are carefully and conservatively measured as to the amount of carbon removal credited to the offsetting activity. Others may be questionable, “over-credit” removal activity (e.g., crediting already-planned activity) or represent “aspirational” offsets (e.g., trees recently planted and yet to grow).
Responsible companies using offsets in a net-zero strategy are wise to carefully seek out reputably certified offsets with full documentation, backed by recognized authorities. Some organizations are seeking to provide guidance about the quality of various carbon credit programs. Susanna Twidale, Global Initiative Outlines Criteria for Carbon Offsets, Reuters (Mar. 30, 2023). Ultimately, however, this problem is like legitimacy issues experienced in every innovation space since the dawn of time. Carbon offset markets will continue to evolve and legitimate organizations will continue to distinguish themselves among competitors.
The second question—whether offsets are substitutes for carbon reduction or part of a broader reduction strategy and effort—is critical and can be divisive. Opponents of carbon credits and offsetting often argue they simply “cover” for companies doing nothing to improve their own operations, thereby embedding carbon-emitting practices even further. In the real world, however, the story is not that simple. Painting all carbon offsets as substitutes and not supplements is inaccurate. Some companies may employ offsets as substitutes. But they would fail the standards of respected net-zero certification protocols that recognize carbon offsetting. Such standards (often adopted and followed by companies employing sophisticated net-zero strategies) require that meaningful carbon reductions be achieved in actual operations, at regular intervals, even where carbon offsets are purchased as part of a net-zero strategy. This approach seeks to ensure that carbon offsets are supplementing, not substituting for, business practice changes and resource investments. Even among those net-zero certification organizations that do not recognize offsets as a core mitigation strategy (e.g., Science Based Targets initiative), carbon credits are recognized as a strategy to reduce carbon emissions beyond a company’s set reduction targets.
Thus, while the provenance of carbon credits is an important question and debate remains about the ultimate role of carbon offsets in achieving net zero, responsible standards organizations recognize the strategy as a supplement—and not a substitute—for carbon emissions reduction from core business activities.
Regulatory Uncertainty Creates Risk
Even with responsible third-party net-zero standards, the lack of significant, harmonized, binding law and regulation around carbon reduction strategies in the United States presents serious risks for companies considering net-zero commitments. Investments in the wrong type of action can be lost if laws ultimately require different efforts. Reduction strategies seen as flawed by stakeholders can become liabilities in litigation. Clarity is key.
We are moving towards regulatory clarity in the United States, but there is a long way to go. In March 2022, the Securities and Exchange Commission (SEC) proposed an expansive Climate Risk Disclosure Rule to require that public companies disclose certain emissions information, including Scope 1, 2, and 3 GHG emissions. A host of government agencies also propose to amend the Federal Acquisition Regulation (FAR) to require that federal contractors disclose their GHG emissions and climate-related financial risk and set science-based targets to reduce their emissions. Several states are moving towards similar requirements, notably including California’s Climate Corporate Data Accountability Act (S.B. 253), which would require U.S. businesses with over $1 billion in annual revenue to annually disclose verified Scope 1, 2, and 3 GHG emissions each year, and its Climate-Related Financial Risk Act (S.B. 261), which would require financial entities with revenues over $500 million to disclose climate-related financial risk. The Federal Trade Commission is revising its environmental marketing “Green Guides” to address matters related to net-zero and carbon emissions reductions. These efforts intend to create more universal standards for emissions reductions and reporting.
The plaintiffs’ bar plays an active role in policing net-zero commitments by pursuing claims on behalf of stakeholders against false or misleading sustainability related statements in corporate disclosures or marketing.
Laws and regulations like these can enhance transparency and promote an open conversation about net-zero commitments. But more agency guidance is required. Lack of clarity on adequate disclosures could discourage ambitious action due to the reporting risks such actions create. To avoid the counterproductive deterrence of net-zero ambition through regulation, well-meaning regulators must follow up rulemaking with clear guidance and evenhanded involvement.
Litigation over Climate-Positive and Net-Zero Commitments Can Set Dangerous Trends
Against that background, we evaluate the balance between policing net-zero imposters and protecting net-zero strivers and innovators. As is typical in the United States, the plaintiffs’ bar plays an active role in policing net-zero commitments by pursuing claims on behalf of stakeholders against false or misleading sustainability-related statements in corporate disclosures or marketing. Traditionally, state consumer protection laws have been the vehicle to pursue these claims. Creative attempts to expand legal liability theories around sustainability using other claims (e.g., product liability and public nuisance) have been less successful. Regardless, all types of claims have mushroomed as sustainability and carbon footprint reduction have become high corporate priorities.
While companies continue to invest in improving their ESG capabilities, these trends may wither if litigation risks continue to rise.
Even the most strident stakeholder advocates may concede that today’s consumer protection laws have taken on an increasingly expansive role through threatened and actual litigation. Some suits have pushed beyond standard claims that a specific statement about a product’s environmental benefits is false or misleading. In increasing order of aggressiveness, stakeholder protection lawyers are alleging (1) a factual statement that a certification was achieved is misleading; (2) consumers do not understand key terms related to environmental impacts (including, relevant here, what “net carbon zero” means or that products and processes cannot come to market without the emission of CO2); (3) the plaintiff accepts that the standard in question was met or the certification received but does not like it or agree with its approach (including, relevant here, that it incorporates carbon offsets); and (4) the plaintiff accepts the company complied with the law in question (e.g., product chemical content or emissions were below limits) but does not think the law is sufficiently protective.
In support of these attacks, some nongovernmental organizations and plaintiffs’ lawyers argue that companies and industry organizations manipulate certification systems to prop up flimsy standards and cloak themselves in “official” imprimaturs of excellence (here, a form of greenwashing). Watchdog organizations do sometimes ferret out such wrongs, including the use of certifications or affiliations with third-party organizations to imply generalized environmental benefits. Sustainability goals are too important to ignore bad behavior in this context. Indeed, the Federal Trade Commission’s recent Green Guide revisions provide further guidance to address these very situations.
Claims against companies touting legitimate environmental certifications, however, should be pursued more judiciously. It is one thing to find and punish the exploitation of illegitimate standards. It is another to exploit evolving sustainability issues to attack earnest corporate efforts to achieve independent standards, to be ambitious in those efforts, and to disclose or publicize them. As discussed, third-party standards can fill a void where laws and regulations have yet to provide clarity. When plaintiffs use litigation to attack a company’s investment in achieving a third-party standard as “fraudulent” or “misleading” or otherwise inadequate—with no evidence of such intent or inadequacy—those plaintiffs damage the overall willingness of companies to invest in such achievements. Such claims push beyond legitimate policing and do harm.
Various courts have agreed, dismissing complaints that merely criticize a company’s stated methodology or reliance on a clear and reasoned standard with no intent to mislead consumers. Nonetheless, numerous companies relying on established, legitimate third-party methodologies to support measured claims are being attacked for what amount to technical disagreements with the methodological approach. In these cases, the risks of litigation present themselves even when companies disclose the methodology used to measure carbon emissions.
Finding the Balance
When it comes to corporate net-zero commitments, the dangerous consequence of an overly aggressive plaintiffs’ bar is deterrence. Corporations may limit carbon reduction ambitions to reduce risks like litigation. Rather than thinking creatively about carbon reduction and net-zero commitments, companies are incentivized to stay silent or avoid innovation risks—greenhushing and worse. When corporations greenhush, emissions targets are harder to assess and knowledge-sharing limited, leading to less ambitious targets, decreased collaboration across industries, and slowed progress. Net Zero and Beyond: A Deep-Dive on Climate Leaders and What’s Driving Them, South Pole (2022). Studies show that greenhushing is on the rise and one in four companies with science-based emission reduction targets does not plan to publicize such projects. This reverses corporate trends of just a few years ago. For instance, leading up to COP26 in 2021, hundreds of companies were willing to publicize their science-based climate targets on the global stage. Yet ahead of COP27 just one year later, studies observed a growing hesitancy among corporations to make science-based climate targets public.Id.
These studies found that media scrutiny, nonprofit organization pressures, and litigation risks may be responsible for deterring companies from being more transparent about science-based climate targets. Id. While companies continue to invest in improving their ESG capabilities—one study found three-quarters have increased their net-zero budgets since 2021 and many are increasing their in-house ESG capabilities—these trends may wither if litigation risks continue to rise, even for companies that pursue science-based third-party standards and certifications.
Solutions are difficult to come by. First, clearer sustainability law and regulation in the United States will help alleviate this pressure. The SEC proposed rule, FAR obligations, state laws, and revised Green Guides may be steps in this direction. Clearer legal frameworks give companies guidelines. While not a panacea, they can reduce ambition-muting litigation. The legal community must continue to develop legal frameworks as consistent and transparent as possible around net-zero commitments and carbon emissions reduction strategies. Incorporating legitimate, responsible third-party net-zero standards into laws and regulations, as has been done in other contexts, can be an effective part of the solution by leveraging progress already made by the scientific community.
Beyond that, corporate citizens themselves are best positioned to protect their approaches to net-zero commitments. First, due diligence in developing commitments should include input of experienced sustainability professionals and careful evaluation of which third-party standards to adopt. As discussed above, whether and how carbon offsets fit into a net-zero strategy are key decisions. Second, the net-zero journey requires an organized, documented process imbedding commitments throughout the business operations, auditing progress and adjusting where necessary. Third, public-facing claims and statements about net-zero commitments across all communication channels should be consistent and carefully substantiated with science-based files and supplemented over time. Fourth, each of the above steps should be documented as possible and coupled with stringent oversight by a company’s executive management and board.
But lawmakers and companies are not the only parties responsible for acting with due care in the pursuit of net zero. Plaintiffs evaluating sustainability litigation must consider whether the aims of their claims justify the potential costs. Plaintiffs clearly hold the burden of proving a sustainability-related statement is false and misleading. See, e.g., Kwan v. SanMedica Int’l, 854 F.3d 1088, 1095–96 (9th Cir. 2017). In practice, however, plaintiffs often wield the threat of litigation to shift that burden. In pursuing attacks on corporate statements touting standards achievement, plaintiffs should demonstrate substantial research—at least as substantial as the due diligence done by companies choosing to pursue those standards—into the legitimacy of the standard propagated and have specific evidence that a statement of achievement is intentionally misleading. In asserting that consumers do not understand key terms related to environmental impacts and standards, plaintiffs should demonstrate the legitimacy of surveys and research before pursuing such claims, including whether the research addressed reasonably informed consumers of the actual products at issue, not the “person on the street.” Attacks on the bona fides of an adopted standard itself (i.e., not the veracity of a claim but the wisdom of the protocols underpinning that claim) should be through engagement, input, and debate with the organization propagating that standard—not through attempts to punish companies that have chosen to pursue and achieve it. And, finally, when plaintiffs seek to reject or push beyond established laws or regulations like emissions-counting mechanisms or chemical content limitations, those plaintiffs should be held to a rigorous scientific standard for demonstrating actual risk and harm that justifies the claims.
The legal community must continue to develop legal frameworks as consistent and transparent as possible around net-zero commitments and carbon emissions reduction strategies.
Net Zero Requires Responsibility and Action
Net-zero commitments seek an inhabitable world with tolerably mitigated climate change. The importance of this goal requires responsibility and action: by lawmakers to promptly develop clear, consistent, and transparent standards; by corporate citizens to temper ambition and innovation with due diligence and documentation; and by those considering litigation to approach policing wrongdoers with restraint, judiciousness, and consideration for ambitious and innovative companies acting in good faith.