Climate

Climate change will be the challenge of our generation and most likely the next. To transition our economy, which, since the industrial revolution, has been based around fossil fuels and carbon, presents a staggering test of resolve for both industry and society. The changes to society needed now to slow global temperature rises are dramatic. To win this fight demands a multi-faceted approach by industry, investors, governments and the legislature. Businesses need to move beyond good intentions and start achieving real results as well as implementing appropriate mitigation.

The economy’s focus is shifting to sustainable models across the board: just as renewable energy will replace fossil fuels, electric vehicles will eventually overtake petrol and diesel cars, air and ground heat will replace gas boilers. Businesses face risks, directly from failure to adopt adaptation measures and indirectly from changing customer and consumer appetites, but opportunities for sustainable businesses should not be overlooked. Businesses should expect increased regulatory involvement. Current and proposed carbon and energy efficiency reporting and transparency regimes are likely to both increase in scope and gain additional regulatory teeth.

Ultimately, traditional businesses will need to pivot to more sustainable activities, and innovative, yet to be discovered solutions will play a key role in this transition. These changes could happen organically through personal, shareholder and investor decisions (in part fuelled by increased corporate transparency, both mandatory and voluntary), or through more direct regulatory action. In all likelihood, it will be a mix of both.

The UK has had a legally binding commitment to reduce greenhouse gas emissions since 2008. In 2019, it increased that commitment to achieve net zero emissions by 2050. The EU, on behalf of the whole bloc, will follow suit in 2020, having published a draft EU Climate Law in March 2020. Scores of multinational companies from Tesco to BP have separately pledged to achieve net zero carbon emissions by 2050, while Amazon has pledged to achieve this by 2040 and Microsoft aims to be "carbon negative" by 2030.

Emissions reductions can be straightforward – for example, there is little dispute about the benefits of a solar installation on a factory rooftop -- but claims and statements made about reductions are not always. A spotlight was shone on the issue when prominent activist Greta Thunberg accused countries of "creative carbon accounting". The optics of emissions reduction can be severely skewed by countries investing significantly into overseas carbon offsetting projects, whilst failing to take aggressive action on domestic emissions.
The EU has proposed a controversial "carbon border adjustment", essentially an import tax, to discourage carbon offshoring. The UK centre-right think tank, the Centre for Policy Studies, has also supported such a tax for the UK's carbon-intensive sectors such as steel, coal and electricity production. The amount of 'carbon leakage' over the last few decades has been significant and, many would argue, significantly hides the impact of consumer-driven developed countries.

Legislation requiring emissions reduction has often been described as piecemeal or fragmented. However, a holistic approach will be needed to ensure that emissions move towards the trajectory needed to keep temperature increases below 2% or 1.5%. In December 2019, the EU outlined its Green Deal, which introduces some of the policies it will develop to tackle climate change. Amongst other things, renewable energy targets for both power and transport will need to be more ambitious, new buildings will need to be more efficient (and existing buildings renovated to improve efficiency), durable, sustainable and recyclable products will need to become the norm (not only complying with current energy efficiency rules, but also looking to voluntary standards), and the entire food chain will need to be addressed, from sustainable farming practices to influencing consumer choices.

Best pracice

An appropriate climate change response could take a myriad of forms, and is particularly dependent on the nature of the business. A key message is for businesses to take incremental steps towards a goal in several areas, which can lead to a cumulatively large impact on a long term basis. Thanks to mandatory or voluntary reporting schemes, it is easy to see this change over time (but this does require momentum to be maintained). Some common measures might include the following:

Ensure that current climate change/sustainability-focused policies (i) are fit for purpose, (ii) comply with climate change and energy efficiency rules, (iii) represent both legal baseline targets (iv) are dependent on the business's ambition, stretch goals, and (v) are reviewed on a regular basis.
Consider what areas of the business could easily be adapted to ensure better emissions performance – is the business purchasing (or could it even install) renewable energy, does its travel policy strike the right balance between onsite relationship building and unnecessary business travel, and do employee-facing policies require simple measures such as turning off lights or activating energy-saving modes on computers where appropriate?
Supply chain emissions are not the first concern for most businesses but if the EU's carbon border adjustment tax comes into effect, they are likely to come under greater scrutiny. Consider whether procurement policies need to take account of supplier performance, or that of the products/services being purchased (eg. minimum energy efficiency standards for hardware or data centres).
Investment criteria in the financial services sector will need to integrate sustainability factors at a more rapid pace in light of tightening regulatory requirements.

Our work

We help clients both comply with their legal obligations around climate change, energy efficiency and carbon reporting, and also formulate appropriate responses to the ever-increasing demands of investors, shareholders and customers in understanding these risks.

A significant part of our practice has been focused on helping clients find ways to transition the economy and businesses to more renewable and clean technologies.

As governments, investors and the markets push for change, the most immediate challenge from a legal perspective remains understanding and guiding clients through the rapidly changing regulatory landscape. As the UK and EU commit to a carbon-neutral future, we expect to see a raft of new regulations as well as voluntary, market-led schemes contributing towards meeting the 2050 goals.

Legal briefing

Aug 11