Recognising it needs to evolve to meet increasingly rigorous expectations around climate-related claims, Climate Active is seeking submissions on the Program Direction Consultation (CA Review) until 15 December 2023.
From a market-leading scheme to potential greenwashing
Climate Active has been the national benchmark for companies seeking to be climate leaders and create market differentiation. It has certified more than 700 organisations, products, services and precincts, enabling Australian businesses of any size to market their carbon neutral claims with the backing of a government scheme.
Since its conception in 2010, Climate Active (formerly the National Carbon Offset Standard, and before that Greenhouse Friendly) has required organisations to understand, reduce and offset their own carbon footprint and that of their products, services and events. Energetics and many of our clients have been certified as carbon neutral organisations by Climate Active.
With the backing of the federal government, many companies never even considered the potential of greenwashing claims arising from its accreditation. But in recent months, the scheme has experienced significant criticism, including allegations of “misleading and deceptive conduct” and a referral to the Australian Competition and Consumer Commission (ACCC).
Proposed changes to the scheme, outlined in more detail below, would significantly raise requirements on companies. This suggests that Climate Active accreditation will, like regulators’ pushes against ‘greenwashing’ and the incoming mandatory climate-related financial disclosure regime, enforce a much more robust approach to decarbonisation.
So, what should companies be doing to future-proof themselves against the proposed changes to Climate Active? The answer to this is also the response to the other initiatives noted above: establish climate risk management with greater transparency, technical rigour and integrity.
Has Climate Active enabled greenwashing?
In February 2023, The Australia Institute filed a complaint with the ACCC on the basis that Climate Active certification may be misleading or deceptive under consumer law. Examples include fossil fuel companies, with plans to increase their production of fossil fuels, achieving ‘carbon neutral’ accreditation by offsetting emissions from their office buildings.
The scheme’s credibility has also been impacted by ongoing scrutiny directed at domestic and international carbon markets alike, from the Chubb Review, the Climate Change Authority’s review of international offsets in 2022, and media investigations. Climate Active relies on the principle of offsetting to underpin carbon neutrality claims but has no minimum requirements for actual emissions reduction and allows for use of offsets of questionable quality.
Increased action by Australian Securities and Investments Commission (ASIC), Australian Prudential Regulation Authority (APRA) and the ACCC against greenwashing mean that companies face significant legal risks if their climate-related claims are considered insufficiently robust.
What do businesses need to know about the current CA review?
Climate Active’s proposed changes would establish a new credential more aligned with principles for effective decarbonisation. Key changes include:
Requiring companies set an emissions reduction trajectory consistent with Australia’s national targets – and deliver on it
Although Climate Active requires companies achieve ongoing emissions reductions this has not been enforced in practice. It’s now proposes companies set a near-term target that is, at a minimum, consistent with Australia’s Nationally Determined Contribution (NDC) of 43% below 2005 levels by 2030, and a long-term target consistent with net zero by 2050. Thereafter companies will need to show their emissions are on track to maintain certification.
Discontinuing use of “carbon neutral” as a claim
As ‘net zero’ and ‘carbon neutrality’ are often seen by consumers as interchangeable terms, there is inherent potential to cause confusion. ‘Net zero’ emerged from the Paris Agreement and the Science-based Target Initiative (SBTi), and is defined by the UN as ‘cutting greenhouse gas emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere’. SBTi’s net zero standard also requires the inclusion of all material emissions, including scope 3, in a company’s long-term target, typically 2040 or 2050. Net Zero delivers greater ambition and requires continuous improvement and a science-based approach to decarbonisation.
‘Carbon neutral’ is much more loosely defined and applies to corporate emissions at a point in time. The review proposes a new, undefined term be used instead. This follows the global push for consistent climate-related taxonomies - earlier this year, the EU started a process to ban the use of the term ‘carbon neutral’ in corporate claims.
Setting stricter requirements for offset use
The Oxford Principles has a defined hierarchy for offset use. It starts with cutting emissions and using high quality offsets and requires a shift to offsets that directly move the carbon from the atmosphere or sequester it, long-term. Climate Active has had relatively relaxed rules for offset use, but now proposes that international offsets used under the program meet a rolling five-year vintage.
Summary of Proposed changes to Climate Active’s Program Direction
Tranche 1: Raise the level of climate ambition and action required from members to be certified under the Climate Active program.
Proposal 1. Mandated emissions reduction strategy that includes a near-term and long-term gross emissions target aligned with (at a minimum) Australia’s NDC.
Proposal 2. Companies need to demonstrate that their targets are tracking in line with required reductions to achieve and maintain their certifications.
Proposal 3. Mandatory inclusion of specific scope 3 emissions sources for certification types with Climate Active guidance and support.
Proposal 4. Require international carbon offsets meet a 5-year rolling vintage requirement.
Tranche 2: Improve the integration of Climate Active with other government climate objectives.
Proposal 5. Minimum percentage of renewable electricity and requires the use of the market-based method to set emissions liability.
Proposal 6. Abatement from all ACCUs used under Climate Active will count towards meeting Australia’s emissions reduction target as defined in our NDC.
Tranche 3: Propose reforms towards the program's operation through the following proposals.
Proposal 7. Replace “carbon neutral” with a new term that communicates to consumers the meaning of Climate Active certification.
Proposal 8. Develop certification pathways to assist current and future members with meeting the new, elevated standards of Climate Active certification.
What do companies need to do about it?
- Consider a legal review of the claims you have made. Businesses should consider obtaining legal advice on their Climate Active accreditation and their ‘carbon neutral’ claims and the degree to which these may be perceived as misleading and deceptive.
- Make a submission to the Climate Active Review. Consider how Climate Active has delivered value to your business and customers, from building reputation and establishing leadership to accelerating decarbonisation efforts (with offsetting being an effective price on carbon) and assess if the proposed changes to the scheme will continue to enable this action. Assess the impact of proposed changes to requirements to reduce emissions, offset characteristics including vintage and source, and boundaries on your Climate Active accreditation and consider these in your response.
- Focus on understanding if, how and when your company will need to report under the incoming mandatory climate-related disclosure legislation. This should be the immediate priority of all companies, recognising that the proposed changes to Climate Active are likely to be consistent with this framework.
- Improve your decarbonisation plan. Whether it’s to retain Climate Active accreditation or to comply with upcoming mandatory climate-related disclosure legislation, focus will be on transition plans covering scope 1, 2 and 3 emissions. Businesses will need targets and decarbonisation plans and be able to demonstrate a reduction in emissions year on year. This should be aligned with any action you take under commitments made in mandatory reporting.
- Review your offset strategy. Offsets requirements are becoming more stringent, and changes proposed in the CA review are the tip of the iceberg. Be ready to review your offset strategy and understand the potential cost increases if the proposed changes to implement a 5-year rolling vintage are implemented. Unpack the current challenges to offset quality and source and develop a risk-based view on how you will manage your offset portfolio in light of what might be very significant changes to offsets sources and costs in the near to medium term.
How can Energetics help?
Having been a Climate Active-certified ‘organisation’ and ‘service’ since 2019, and accredited carbon neutral under the Greenhouse Friendly program as far back as 2010, as well as advising many of Australia’s largest companies with both their voluntary and mandatory climate disclosures, Energetics is well placed to help you prepare a response to Climate Active’s call for consultation that is both pragmatic and defensible. Submissions will help shape the future of Climate Active, and responses need to be reflective of your business and customer needs.
Climate Active is evolving and businesses need to evolve in parallel. We have been in the business of climate and energy for almost 40 years and can also assist you in updating reporting and claims to ensure they're future-proofed against the proposed changes to the Climate Active program and align with the upcoming mandatory climate-related disclosures.
Leading organisations wishing to continue to differentiate themselves based on their climate credentials are acting now to be ahead of changes. Although frameworks are still emerging, it’s clear that expanded boundaries and a more robust approach to decarbonisation is required.
The technical rigour being proposed by Climate Active to align with global standards is Energetics’ area of expertise. Whether you need a scope 3 inventory, a gold-standard decarbonisation plan and offset strategy or a strategy to ensure you continue to gain value from the Climate Active certification, Energetics continues to help you maintain your climate leadership.