Case Studies of Company Climate Commitments

WORKING PAPER Use Cases and Case Studies of Company Climate Commitments

July 2021 vcmintegrity.org ABOUT VCMI Contents I. Introduction The Voluntary Carbon Markets Integrity Initiative (VCMI) is a Pg 5 multistakeholder platform to drive credible, net zero aligned participation in voluntary carbon markets (VCMs). VCMI’s goal is to ensure VCMs make a significant and meaningful II. Types of Corporate Climate Claims contribution to climate action and limit global temperature from rising to 1.5˚C above pre-industrial levels, while also supporting Pg 9 the achievement of the UN Sustainable Development Goals (SDGs). III. Case Studies: Company Commitments Through consultation with stakeholders from civil society, the private sector, Indigenous Peoples, local communities, and Claims and governments, VCMI intends to develop and communicate Pg 17 guidance on how carbon credits can be voluntarily used and claimed by businesses and others as part of credible, net zero decarbonization strategies. It also engages countries to IV. Summary support development of strategies to access VCMs to drive ambitious climate mitigation. Pg 27

The UK Government is supporting VCMI, as announced by COP26 President-Designate Alok Sharma at the Climate and Development Ministerial on 31 March 2021. To date, VCMI has been led by Meridian Institute, a US-based not-for-profit organization, and supported by consultants (hereafter referred to as the VCMI Consortium).

The VCMI Consortium’s role is to refine the scope, governance and processes that will underpin VCMI in its future phases. The Initiative is co-funded by the Children’s Investment Fund Foundation (CIFF) and the UK Department for Business, Energy and Industrial Strategy (BEIS).

ABOUT THIS PAPER

This VCMI Working Paper is a product of the Key Terms of Reference: The subject matter VCMI Consortium working in collaboration with addressed in this paper relies upon a complex, staff from the VCMI funders. This particular evolving, and interrelated set of key terms. paper was led by Trove Research. This paper In an effort to be clear about the definitions has not been reviewed nor approved by the we have used for these key terms, the VCMI VCMI Steering Committee, which was being Consortium has developed a Glossary of Key formed as the paper was being developed. Terms that can be found in Annex A of this The intent of the paper is to spur dialogue paper as well as all of the Working Papers and an exchange of ideas amongst all key that are being released by the VCMI at the stakeholders to inform the development of time of its official launch. VCMI guidance on matters addressed in this paper during the next phase of the VCMI process, which will be governed by the VCMI If you would like to give feedback, please Steering Committee. You can learn more about contact [email protected] the Steering Committeehere ).

2 VCMI — Voluntary Carbon Markets Integrity Initiative Image: © RLU Case Studies Working Paper 3 I. Introduction

4 Forests Partnerships for Flores, Sunan plantation, Image: Kemiri 5 Introduction

This paper has been prepared by Trove The SBTi is now developing the criteria for Researchi to support VCMI with an analysis a net zero standard, enabling companies to of the state of play of corporate climate commit to achieving net zero emissions by claims. Specifically, it sheds light on the 2050 or sooner. This is likely to be released nature of current claims, how they differ, in November 2021. It is anticipated that and how prevalently they feature in different existing SBTs will become an interim to the industry sectors. The numerical analysis longer-term net zero targets that companies is drawn from a sample of 60 large firms will commit to. Companies are also making covering six broad economic sectors, using commitments to achieve net zero emissions data from Q1 2021. Claims that have been by different target dates, or to reduce or updated more recently are not included in offset all emissions associated with their the analysis. operations to claim a “carbon neutral” status for a product, service, or the company as In the last year, there has been significant a whole. growth in the number of companies making climate commitments or making These developments are taking place claims related to the climate impact of as companies seek to make climate their products and services. The focus of commitments or ambitions public or many company climate targets is emissions demonstrate that they have already reductions within the company’s own achieved an emissions reduction or offset- operations and supply chain. However, there based claim, without broad agreement on are various types of targets, claims, and the definitions of these climate claims or commitments that incorporate the use of commitments. This may create difficulties in emissions offsetting through the purchase understanding, comparing, and assessing of carbon credits. different climate targets, claims, and commitments made by companies, as well The use of “science-based targets”, as increase the complexity for companies developed by the Science Based Targets in trying to understand how to set their own initiative (SBTi), is one of the main methods commitments or claims. by which companies seek to demonstrate that their emissions reductions targets are Section 2 of this paper describes the aligned with global emissions reductions structure of corporate climate claims used targets agreed under the Paris Agreement. in the analysis and shows the distribution of Under current guidance from the SBTi, claims by type and sector. Section 3 presents emissions reductions should be achieved examples of firms using these claims, and throughout the company’s value chain that Section 4 lays out some brief observations. represent an emissions reduction pathway that is aligned with the Paris Agreement. Currently, only Science Based Targets (SBTs) that extend up to 15 years into the future can be verified by the SBTi.

6 VCMI — Voluntary Carbon Markets Integrity Initiative Trove Research analysis, 2021 Unsplash Image: Veeterzy, Case Studies Working Paper 7 II. Types of Corporate Climate Claims

8 Image: Filippo Cesarini, Unsplash 9 Types of Corporate Climate Claims Figure 1 shows the key differences between — Emissions coverage: the type of emissions these types of claims, based on five key covered (both in terms of the gases attributes: emitted and the source of those emissions Companies use a wide variety of terms to “achievement” claims. “Net zero” claims within the company’s value chain). refer to their voluntary climate commitments. reflect a commitment to achieving emissions — Company coverage: whether the — Use of carbon credits: whether the These fall into four broad categories: reductions in the future. We refer to these commitment covers the entirety of the commitment uses both compensation as “commitment” claims. Claims referring — Carbon Neutral – company level company’s value chain, or one particular and neutralization carbon credits, or to “beyond carbon/climate neutral” imply — Carbon Neutral – products or services product or service. neutralization credits only. reducing emissions in excess of current — Beyond Carbon Neutral (can also be — Target achievement date: whether the emissions, for example covering historic Beyond Climate Neutral) company has made a commitment to This table is a summary of current practice years. These can be either, achievement — Net Zero achieve a certain target in the future, or if and is not a recommendation for the structure or commitment claims, depending on the the company is claiming to have reached of claims going forward. There are also a “Carbon neutral” (company level and state of company’s carbon credit purchasing the agreement today. number of attributes that are not presented products) claims are typically made in programme. This is summarised in Table 1. — Emissions target: whether the emissions in this table. For example, the strength of relation to current activities. We term these target is aligned with an emissions evidence required to justify progress against a pathway of 1.5°C of warming by 2100. target might become a requirement.

Table 1: Types of commitment and achievement claims Figure 1: Differences in company climate claims

COMMITMENT CLAIMS ACHIEVEMENT CLAIMS 1. Carbon 2. Carbon 3. Carbon 4. Net Zero Neutral Neutral Neutral Product Company Product Carbon Neutral – company level Whole company value chain Company coverage Carbon Neutral – product level Specific product/service

Target Today ( ) Beyond Carbon Neutral achievement date Future (2030 — 2050) ( )

Net Zero 1.5˚C pathway alignment Emissions ( ) ( ) ( ) target Internal emissions reduction required

CO2 only

All GHGs Emissions coverage Scope 1 and 2 required, Scope 3 encouraged

Scope 1, 2, and 3 required

Compensation and Emissions neutralization projects target Only neutralization projects

10 VCMI — Voluntary Carbon Markets Integrity Initiative Case Studies Working Paper 11 Figure 2 shows the distribution of company Companies were counted twice if they claims from the sample of 60 companies have both current and future claims. used in the analysis, differentiated by claim Where companies have multiple future type and the year in which the target needs claims, the most ambitious target or the to be achieved. Targets set by companies target with the longest timeframe was can be achieved immediately, or before 2030, mapped, and other pledges were considered 2040, or 2050. to be interim on the pathway to their principal climate commitment. The size of the circles represents the number of companies in a particular time/commitment cluster.

Figure 2: Distribution of corporate climate commitments (sample 60 companies)ii

Target Year

Now By 2030 By 2040 By 2050

Carbon Neutral (Product) 6 Image: © Stuart Clouth / P4F

Nearly a third of claims (18) in the sample targets such as 2050 are likely to be in Carbon Neutral (Company) 15 2 1 5 are “carbon neutral” at the company level, more carbon-intensive industries, such as reflecting immediate actions to offset a energy and metals. This reflects the absolute company’s carbon footprint. Some of these cost of carbon to these companies and the (8) are commitments for achieving carbon time required to make material changes to neutrality in later years, the most prevalent technology, processes, and supply chains being by 2050. However, over half the claims to reduce emissions. Companies prepared in the sample are for “net zero”, with target to make shorter term commitments, such Beyond Carbon 1 2 1 dates roughly equally split between 2030 as carbon-neutral, are more likely to be in Neutral (Company) and 2050, and some in 2040. The high the services sector with smaller carbon representation of net zero commitments is footprints. Figure 3, also highlights where in part likely due to the size of the companies companies that have current carbon in the sample, with large companies more neutrality-related pledges have also made likely to commit to longer-term targets. Only future commitments, either fully carbon a few companies have set “beyond carbon neutral pledges (e.g. RWE, ArcelorMittal) Net Zero (Company) 16 1 15 neutral” targets. or net zero pledges (e.g. HP, BlackRock).

Figure 3 shows these commitments by company and economic sector. A general pattern is that companies with long-term

12 VCMI — Voluntary Carbon Markets Integrity Initiative ii) Trove Research analysis, 2021 Case Studies Working Paper 13 Figure 3: Visualizing the current and future carbon neutral and net zero commitments of companies by their high-level sectors

Target YearTarget Year

Target Year Now Now By 2030 By 2030 By 2040By 2040 By 2050By 2050 SectorsSectors

ConsumerConsumer Goods Goods ArcelorMial ArcelorMialBarilla Barilla Carbon NeutralCarbon Neutral Macquarie Macquarie FoodFood & &Drink Drink Cargill (Product) (Product) Cargill RWE RWE Services OVO Energy OVO Energy Services Energy Salesforce Energy SalesforceHP Novartis HP Fly Victor Novartis Ford Fly VictorGoogle Ford UEFA Industry Google McKinsey Boeing Industry Carbon Neutral RWE DanoneUEFA Carbon Neutral EsteeMcKinsey Lauder Boeing Danone Volkswagen (Company)Estee Lauder Ly American Airlines RWE Volkswagen Transport KeringLy ArcelorMial (Company) BCGAmericanGoldmanSachs Airlines Netﬂix Transport Kering BoA ArcelorMial BCG GoldmanSachs Netﬂix BoA BlackRock Pukka Herbs BlackRockBNPPukka Paribas HerbsBain & Co Boeing BNP Paribas Bain & Co Boeing Microso Beyond Carbon EY Microso Neutral (Company) Google BCG Beyond Carbon EY Neutral (Company) Google BCG

Canary Wharf Bain & Co Amazon Nike Siemens Walmart Shell Pukka Herbs PWCCanary Wharf Barilla Bain & Co GSK EY AmazonVodafone Macquarie Nike BMW Net Zero OVO EnergySiemens Walmart Bayer BoA Shell BlackRock Pukka Herbs PWC KPMG Barilla (Company) McKinsey Disney HP GSK EY Vodafone MacquarieMars Standard Chartered BPBMWEquinor Fly Victor Net Zero OVO Energy Netﬂix Bayer BoA BlackRock GoldmanSachs Unilever Total American Airlines KPMGDBS Bank HSBC (Company) McKinsey Disney HP Standard Chartered BP Equinor Fly Victor Legal & GeneralNetﬂix Mars Coca-Cola Dominion Energy GoldmanSachs Unilever Total American Airlines DBS Bank HSBC Legal & General Coca-Cola Dominion Energy

Source: Trove Research analysis, 2021

14 VCMI — Voluntary Carbon Markets Integrity Initiative Case Studies Working Paper 15 III. Case Studies: Company Commitments and Claims

16 and Land Use Coalition Panos Pictures/Food for Loke Image: Atul 17 1. Carbon Neutral Company Table 2: Case studies of carbon neutral company claims

Achieving corporate carbon neutrality can be considered an important interim target to the BNP PARIBAS KERING DANONE achievement of global net zero, but carbon neutrality alone is distinct from corporate net zero. Some of the factors that differentiate Sector Financial services Apparel Food and beverage the two include: processing

— Alignment with a temperature pathway: To be net zero, an organization must Carbon neutral operations Carbon neutral within its Pledged to become carbon prioritize value chain emissions reductions Credit type (direct emissions and own operations and across neutral by 2050 across their and align this with a 1.5 ̊C trajectory. indirect emissions linked the entire supply chain full value chain. At present, carbon neutral commitments to the purchase of energy since 2019. tend to require less strict commitments and to business travel) to future emissions reductions. since 2017.

— Emissions coverage:

Carbon neutrality tends to prioritize CO2 emissions and covers Scopes 1 and 2 Use of offsetting BNP Paribas have On top of efforts to first Committed to compensating emissions, with Scope 3 encouraged. Net maintained carbon avoid and then reduce their for their remaining carbon zero covers all greenhouse gas emissions neutrality through careful emissions, Kering offset the emissions as they work across Scopes 1, 2, and 3. monitoring and reductions Group’s annual greenhouse towards a carbon neutral

of CO2 emissions, the use gas emissions from 2018. future. — Time horizon for achievement: of renewable energy and, Carbon neutrality reflects an immediate offsetting residual emissions. achievement, whereas net zero typically has a long-term time horizon, often to 2040 or 2050. Credit type Sustainable forestry REDD+ forestry credits Agroforestry, mangrove management credits from from VCS. restoration, and clean — Type of credits: Verified Carbon Standard cookstove project credits To date, there has been little restriction in (VCS). from VCS and Gold the type of credits used in carbon neutral Standard. claims. Net zero claims associated with the SBTi currently limit the use of carbon

credits from projects that remove CO2 Scope 1, 2, and Reduce absolute Scope 1, Reduce absolute Scope 1 Reduce Scope 1 and 2 GHG from the atmosphere. 3 emissions 2, and 3 GHG emissions by and 2 GHG emissions 90% emissions 30% by 2030 25% from a 2012 base year. by 2030 from a 2015 base from a 2015 base year. Companies can maintain their carbon year. neutrality status each year by re-evaluating Reduce Scope 1, 2, and 3 their carbon footprint and then purchasing Reduce Scope 3 GHG emissions per ton of sold carbon credits on an annual basis to cover emissions 70% per unit of product 50% by 2030 from their absolute annual greenhouse gas value added by 2030 from a 2015 base year. emissions. Neutrality status can be recognized a 2015 base year. by credible third-party verification schemes, such as PAS 2060, a standard developed by The British Standards Institution (BSI) and the Carbon Trust.

18 Image: Sephonias Jack/P4F Sources: BNP Paribas 2020, Kering 2019, and Danone 2020. Case Studies Working Paper 19 2. Carbon Neutral Products or Services Table 3: Case studies of carbon neutral product or service claims A carbon neutral product applies the same with a clear timescale for achievement concept of a carbon neutral company, but to before finally compensating unabatable a particular component of the company, such emissions, typically through the purchase MICROSOFT LYFT RWE as a product or service. In order to achieve of carbon offset credits. The duration for carbon neutral certification, a company must certification tends to last for one year, after first calculate the emissions associated with which the product must be re-certified, IT and software Commercial and the production of a product (i.e. product with the company providing clear evidence Sector Energy utility networks development consumer services carbon footprint) through undertaking of achieved emissions reductions over the life-cycle analysis (LCA). The company preceding period. must then develop a carbon reduction plan Target description Certified 825,000 Xbox Began offering carbon Delivered a carbon neutral consoles as carbon neutral neutral rides in April 2018. LNG cargo shipment to in 2019. Lyft became the first Korean steel company rideshare company to offset POSCO in March 2021. all rides globally.

Use of offsetting Neutrality was achieved Through its carbon offsets The carbon neutral through purchasing program, Lyft purchased shipment was achieved renewable electricity and retired carbon offset through the retirement of and verified emissions credits in an amount an equal amount of carbon reductions. equal to the total carbon credits. emissions calculated through its greenhouse gas inventory.

Credit type Finances the Sichuan China Finances a range of High quality credits Biodigesters project. projects, e.g. automotive purchased from Gold manufacturing process, Standard. renewable energy, forestry, and methane capture from landfills.

Scope 1, 2, and 3 Continue 100% renewable Reach 100% EVs on the Reduce Scope 1 and 2 emissions electricity through 2030. Lyft platform by 2030. GHG emissions 50% per Reduce Scope 3 GHG Full decarbonization of kWh by 2030 from a 2019 emissions intensity per unit Scope 1, 2, and 3 GHG base year. Reduce absolute of revenue 30% by 2030 emissions by 2030, Scope 3 GHG emissions from a 2017 base year and reducing reliance on 30% by 2030 from a 2019 to avoid growth in absolute carbon offsets and RECs. base year. Scope 3 emissions. Image: © RLU

20 VCMI — Voluntary Carbon Markets Integrity Initiative Sources: Microsoft 2020, Lyft 2020, and RWE 2021. Case Studies Working Paper 21 3. Beyond Carbon Neutral Table 4: Case studies of net zero company claims For a company to go “beyond carbon through the utilization of renewable energy. neutral”, they must remove more carbon Companies within these sectors are then from the atmosphere than they emit each able to purchase lower volumes of credits GOOGLE EY BCG year, i.e. compensate for emissions over than companies in carbon intensive sectors and above their own carbon footprint to (such as heavy industry) to meet a beyond produce additional environmental benefits. neutrality target. IT and software Professional services Compensation may come in the form of Sector Professional services Beyond carbon neutral is a relatively recent development carbon credit purchases or funding additional concept and suffers from a lack of consensus carbon sequestration projects. Various terms on its definition, with uncertainty raised about have been used by companies to encompass the type/number of offsets that should be this concept, including carbon negative, net Target description In September 2021, Google In January 2021, EY BCG have committed to a utilized and which greenhouse gases are positive, and climate positive. became the first major announced an ambition to “Beyond 2030” target to covered. Lack of international consensus has company to compensate for be carbon negative in 2021. become climate positive by This term is commonly used in service-based led to companies interpreting this ambition their entire legacy carbon removing more carbon than sectors such as IT, software development, in different ways. Currently, there is no footprint and committed to they emit. and professional services, owing to lower internationally recognized certification body operate 24/7 carbon-free by carbon footprints that can be greatly reduced for a “beyond carbon neutral” company. 2030.

Use of offsetting Purchased enough credits Achieve carbon negative Carbon neutral since 2019 Technology-based removals are being developed, such as direct air capture plants (DACs) to neutralize the company’s by significantly reducing through carbon credit legacy carbon emissions absolute carbon emissions purchases. Committed to since 1998. and then removing or removing their remaining offsetting more than the carbon footprint with remaining amount of nature-based and emissions every year. engineered solutions at an annual average of $80 per tonne by 2030.

Credit type Its parent company, Wind power renewable Currently purchase credits Alphabet, has purchased energy credits and nature- from sustainable forest landfill gas project credits based solutions. management, cookstove, from CAR. REDD and reforestation projects. Will transition to 100% carbon removal solutions by 2030.

Scope 1, 2, and 3 Reduce absolute Scope Reduce absolute emissions Reduce Scope 1 and 2 emissions 1 and 2 emissions to zero by 40% across Scopes 1, 2, emissions per full-time by 2025 against 2019 and and 3 by 2025, against a equivalent employee (FTE) 2015 baselines, respectively. 2019 baseline. by 90% by 2025. Reduce Scope 3 business travel emissions per FTE by 30% by 2025. Image: Climeworks

22 VCMI — Voluntary Carbon Markets Integrity Initiative Sources: Google 2020, EY 2021, BCG 2021. Case Studies Working Paper 23 4. Net Zero Table 5: Case studies of net zero company claims Net zero emissions at a global level, as Net zero targets must be set for a target year defined by the International Panel on no later than 2050 and companies should Climate Change (IPCC), is achieved when commit to interim (5–10 years) science-based NIKE VOLKSWAGEN UNILEVER “anthropogenic emissions of greenhouse targets (SBTs). Companies are encouraged gases to the atmosphere are balanced by to undertake optional compensation (directly anthropogenic removals over a specified financing innovative projects and programs, Textiles and fabric goods Transportation equipment Chemicals period”. as well as purchasing high-quality carbon Sector credits) during their net zero transition to At a corporate level, a net zero definition help deliver positive outcomes beyond a is yet to be agreed. However, the SBTi is company’s value chain. Target description In 2019, Nike committed to Volkswagen have committed In 2020, Unilever committed currently undertaking a public consultation ‘Move to Zero’ – a journey to achieving the Paris to achieve zero operational process and will release their official The SBTi distinguishes distinguish between towards zero carbon and climate targets for 2050 emissions by 2030 and net corporate net zero standard in November neutralization measures (activities that zero waste. under the “goTOzero” zero across their value chain 2021. The SBTi’s working definition for a net remove emissions from the atmosphere environmental mission by 2039. zero company requires two conditions to within or beyond a company’s value chain) statement. be met: and compensation measures (activities that reduce/avoid emissions outside a a) Deep decarbonization of value chain company’s value chain, beyond those emissions (Scope 1, 2, and 3) in line with Nike plants trees to offset On its path to net zero, the Will not use carbon credits mitigated by its SBT and net zero target). Use of offsetting limiting warming to 1.5°C. the carbon emissions Group will continue to work to meet their targets but, Currently, companies use both compensation associated with all Nike.com with climate protection in 2039 and thereafter, and neutralization measures to achieve b) Neutralization of any residual emissions shipments in Europe. projects to offset its will ensure any residual carbon neutrality, whereas currently only with permanent carbon removal. emissions. emissions are balanced with neutralization measures are being suggested Use of offsetting in relation carbon removals to achieve by the SBTi for corporate net to their net zero target will and maintain their net zero zero targets. follow SBTi guidance. position.

Credit type Credits generated from Forestry credits from VCS May purchase carbon sustainable forestry and renewable energy removal credits in the future. management, in partnership credits (wind) from Gold with WeForest. Standard.

Scope 1, 2, and 3 Reduce absolute Scope Reduce absolute Scope Reduce Scope 1 and 2 GHG emissions 1 and 2 GHG emissions 1 and 2 GHG emissions emissions 100% by 2030 65% by 2030 from a 2015 30% by 2030 from a 2018 from a 2015 base year. base year. base year. Reduce GHG emissions Image: ©Marcelo Camargo/Agência Brasil Camargo/Agência Image: ©Marcelo from the life-cycle of Reduce absolute Scope 3 Reduce Scope 3 GHG their products 50% per GHG emissions 30% within emissions from use of consumer use by 2030 from "Net zero emissions at a the same timeframe. sold products of light duty a 2010 base-year. global level, as defined by the vehicles 30% per vehicle km by 2030 from a 2018 International Panel on Climate base year. Change (IPCC)..."

24 VCMI — Voluntary Carbon Markets Integrity Initiative Sources: Nike 2021, Volkswagen 2020, Unilever 2020. Case Studies Working Paper 25 IV. Summary

This analysis summarizes the “state of play” of corporate climate claims and commitments through the four use cases relating to carbon neutrality and net zero. While not exhaustive, it provides a categorization of the main claims and commitments being made to inform future guidance on corporate climate claims in VCMI.

There are some areas where the lack of consensus on the scope and scale of ambition of these terms is more evident. For example, there is little agreement on what constitutes “beyond carbon neutral”, and the claims and commitments that are related to this, such as “carbon negative” and “climate positive”. Greater clarification about the definitions and level of ambition of “carbon neutral” and “net zero” is also clearly required and the subject of the main VCMI Consultation Report.

28 Anandi /ISA Image: © Tui www.joryand.co The Voluntary Carbon Markets Integrity Initiative (VCMI) is a multistakeholder platform to drive credible, net zero aligned participation in voluntary carbon markets (VCMs).

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