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Choosing the proverbial carrot over the stick, a new initiative
launched by the federal government aims to encourage private sector
companies across Canada to develop credible – and accountable
– net-zero plans.
On August 26, the Government of Canada announced the launch of
the Net-Zero Challenge, a voluntary initiative for
Canadian businesses to commit to developing and implementing
effective plans to achieve net-zero emissions by the year 2050.
So far, 12 organizations across Canada –
including companies in the construction, energy, transportation and
financial services sectors – have joined the challenge, which
complements the federal government’s 2030 Emissions Reduction Plan.
How It Works
For companies to participate in the challenge, they must commit
to meet the
minimum requirements, which include:
- Setting a net-zero target for 2050 or earlier
- Developing a preliminary net-zero plan within 12 months and a
comprehensive plan within 24 months of joining
- Setting at least two interim emissions reduction targets
- Making annual progress reports
- Making attestations to the content of net-zero plans and
progress reports, with strong encouragement to publicly disclose
- Making public climate-related financial disclosures based on
the recommendations of the Task Force on Climate-Related Financial
Disclosures (small- and medium-sized business are exempted from
There are three participation streams: Stream 1 is for large
industrial emitters, Stream 2 is for financial institutions and
Stream 3 is for all other companies. Each stream has different
requirements for reporting Scope 3 emissions.
What is the Carrot?
Although there are no specific financial or other incentives
offered, participants will be grouped in accordance with their
level of participation in several tiers including: Bronze, Silver,
Gold, Platinum and Diamond. Companies that meet the minimum
requirements are in the Bronze tier, while businesses with the most
ambitious plans are in the Diamond tier. Details on technical
requirements for each tier are in the program’s comprehensive
Interplay with Other Net-Zero Initiatives
The Net-Zero Challenge acknowledges the work of other global
target setting and net-zero initiatives such as the Science-Based
Targets Initiative (SBTi) while “offering a made-in-Canada
approach.” Similarities between to SBTi Net-Zero Standard include a phased
approach to target setting with timelines around corporate
commitments and comprehensive net-zero planning, expectations for
public reporting and guidance for plan updates.
Unlike the SBTi, there is no validation of corporate net-zero
plans as part of the Net-Zero Challenge with requirements limited
to submission of participation checklists with attestation of
preliminary and comprehensive net-zero plan development. The
Technical Guide notes that Environment and Climate Change Canada
will be evaluating validation tools, but placement in a
participation tier is not “an endorsement of the net-zero
plan, nor an indication of whether the net-zero plan is
Another significant difference between the SBTi and the Net-Zero
Challenge is around the use of carbon offset credits to meet near
or long-term emissions targets. SBTi does not allow the use of
carbon offset credits when companies are setting net-zero targets
for their Scope 1, 2 and 3 emissions. Under the Net-Zero Challenge,
companies will be allowed to use carbon offset credits as part of
corporate net-zero plans with guidance provided around their
sourcing and use.
Challenge Comes Amid Heightened Scrutiny
While the federal government’s initiative is voluntary, and
is intended to encourage net-zero goal setting and action, it will
also serve as additional pressure on companies scrambling to get
climate-related disclosures and GHG emissions reductions plans
ready before pending mandatory disclosure requirements come
into effect. As discussed in a previous article, these
mandatory disclosure requirements will create significant legal
risk for companies, in particular in relation sustainability
reports and net-zero commitments. In addition, and from a practical
perspective, companies currently lacking baseline carbon footprint
information will require additional internal focus and resources to
participate in the Net-Zero Challenge.
Earlier this year, shareholders of Shell threatened legal action
against the company’s directors over allegations that the
energy giant’s net-zero plan was “fundamentally
flawed.” This marked the first time shareholders sought to
hold directors personally liable for perceived shortcomings in a
company’s climate plan.
We also saw the U.S. Securities and Exchange Commission charge a
Brazilian mining company for allegedly making false and
misleading claims in its sustainability reports, and German police raid the offices of Deutsche
Bank to investigate claims the bank was misleading clients
about green investments.
With the heightened litigation and enforcement activity around
climate-related disclosures, companies would be wise to take a
methodical and structured approach when developing such plans or
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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