Net Zero: are you ready?

Before you can judge whether you are ready or not, you need to understand what net zero is all about. Let Natalie Beeraje be your guide.

Introduction

Climate-related litigation against companies and national governments (as seen in the landmark “Urgenda” case last year) is being used as a tool to influence behaviour around the world. Pressure groups are using the law to hold companies and governments to account for their environmental impact, in a drive to achieve net zero emissions. In this article, we will take a brief look at the law around “net zero”, including recent cases impacting the construction industry.

Net zero – legal recap

The Paris Agreement kick-started this recent momentum in 2015. It set a long-term goal, to limit the rise of global temperatures to well below 2 degrees C above pre-industrial levels, and to pursue efforts towards keeping that below 1.5 degrees.

The IPCC Report in 2018 suggested that a target of limiting global warming at 2˚C above pre-industrial levels was no longer adequate, and that a target of 1.5˚C above pre-industrial levels.

This ushered an amendment to the Climate Change Act in June 2019 in the UK, setting the target to reduce the UK’s net greenhouse gas emissions by 100% before 2050 – i.e. the “net zero” emissions target. The UK was one of the first major world economies to enshrine its commitment under the Paris Agreement to achieve net zero emissions by 2050 into national law. 

The Environment Bill was introduced into Parliament in January of this year; however, due to COVID-19, the progress of the bill has been postponed until after the summer recess. Pursuant to the Environment Bill, the Office for Environmental Protection will be established to “scrutinise environmental policy and law, investigate complaints and take enforcement action where required … to uphold environmental standards. The office’s powers will cover all climate change legislation and hold the government to account on its commitment to reach net zero emissions by 2050.” This will no doubt herald a rise in scrutiny of construction projects, and compliance with net zero legislation in the future. 

Climate disputes impacting upon the construction industry     

Alongside developments in legislation described above, we have seen a rise in climate-related litigation being brought against both governments and companies all over the world. 

The landmark “Urgenda” case in December 2019 was a significant turning point. The Netherlands Supreme Court held that the Netherlands government was under an obligation to significantly reduce its greenhouse gas emissions by the end of 2020 (by at least 25% compared with 1990). This was due to the risk of dangerous climate change that could have a severe impact on the lives and welfare of the residents in the Netherlands. In response, this year, the Dutch government announced a plan of more than €3 billion, including €2 billion for large-scale solar projects, and the reduction of coal-fired power stations.1

In the UK, two recent cases bring home the importance of considering the UK’s commitments under the Climate Change Act, in the context of construction projects. Earlier this year, the English Court of Appeal ruled that the government’s plans to build a third runway at Heathrow Airport was unlawful because it had failed to take into account the UK’s climate change commitments under the Paris Agreement, as required under the Planning Act.2 The Court of Appeal therefore ruled that the government’s policy was unlawful. The Supreme Court has given permission to appeal this decision. In light of the Court of Appeal decision, Transport Action Network launched judicial review proceedings against the Department for Transport in respect of RIS2 (Road Investment Strategy 2), in July of this year. RIS2 is the government’s strategy for the investment of £27.4 billion into the road network. Transport Action Network is challenging the strategy on the basis that ministers published it without considering the net zero target, set out in the Climate Change Act 2019. A hearing on this challenge is anticipated by November 2020.

Companies should be mindful of potential litigation arising from “greenwashing”, a term which describes organisations misleading stakeholders about their environmental credentials. For example, Client Earth filed a complaint against BP in December 2019, in respect of its “Keep Advancing” and “Possibilities Everywhere” advertisement campaigns, on the basis that they violated OECD rules on misleading and deceptive claims. Client Earth alleged that these campaigns misled the public by “focussing upon BP’s low carbon energy products when 96% of BP’s annual spend is on oil and gas”. BP withdrew those campaigns in February 2020. In June 2020, the UK National Contact Point for the OECD Guidelines for Multinational Enterprises noted that Client Earth’s complaints were material and substantiated.3 This will pave the way for more organisations to be challenged for “greenwashing”, using the OECD guidelines.

In addition, actions are being brought by shareholders against their companies for failure to incorporate climate risk into their corporate strategies, and failure to disclose climate risks.4 Typically, these have been in the context of banks, pension funds and investment funds. However, we expect that similar actions could be brought by shareholders across other industries, including construction.

(Net) zero place to hide 

This is an area in which we expect to see an increase in policy and regulation in the coming years. The government will be under considerable public and political pressure to start implementing policies and legislation to achieve net zero, particularly in light of hosting COP 26 next year – this will be the largest international summit that the UK has ever hosted.

The construction and engineering sectors were drawn into sharp focus in The Committee on Climate Change’s Net Zero Technical Report 2019. This states that in 2017:

  • buildings alone account for 26% of total UK GHG emissions; 
  • UK surface transport sector accounted for 23% of total UK GHG emissions (as of 2017);
  • industrial emissions in UK made up 21% of UK GHG emissions in 2017; and 
  • emissions in the UK power sector accounted for 15% of all UK emissions in 2019.

Many businesses around the world have publicly pledged their commitments to achieve net zero carbon targets. According to the independent Committee on Climate Change’s recent Progress Report, 15% of FTSE 100 companies have set corporate targets to achieve net zero carbon or carbon neutrality by 2050. There have been some significant announcements in the oil and gas sector this year, with BP and Shell both declaring their net zero commitments. It is clear that widespread momentum is gathering, and new industry benchmarks are being set.

How can you get ready?

It is clear that net zero commitments need to be taken seriously, as pressure is only set to increase between now and 2050. 

For companies who are seeking to begin or accelerate their journey to net zero, the independent Committee on Climate Change has suggested two starting points: (1) Task Force on Climate Related Financial Disclosures and (2) Carbon Disclosure Project. 

The World Green Building Council has set up the Advancing Net Zero campaign.5 Its Net Zero Carbon Buildings Commitment challenges its signatories to achieve net zero in operation of their own buildings by 2030, and to advocate for all buildings to be net zero carbon by 2050. So far 61 companies globally have signed up to the Commitment, 21 of which are members of the UK Green Building Council. 

With an expected rise in legal action in this area, it is advisable to plan ahead for climate-related legal risks for your organisation. Whilst we await further regulation and legislation from the government, teams of lawyers have got ahead of the game and started to draft model clauses which can be built into construction contracts. For further information about this, please do not hesitate to contact us.

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Key contact

Natalie Beeraje

Tel: +44 (0)20 7421 1986