Challenges in Meeting 2030 Climate Goals? What To Do Now

I was talking to Cooley’s Beth Sasfai and Michael Mencher about the challenges many companies are facing with ambitious climate goals that no longer seem realistic. Here’s what Beth and Michael told me (also see them in this 3-minute video with Emma Bichet about the same topic): Maybe you set 2030 targets way back in 2019 or 2020 – or recently set targets to meet customer or investor expectations – but with the passage of time, you’re discovering that paths to target achievement may not be as viable as once hoped.

Concerns with climate targets often arise as you start preparing your sustainability report and consider whether to add new mitigating disclosure laying out the challenges in meeting goals and justifying ambitious targets.

Target anxiety also may arise from new regulations, such as California’s AB 1305, the European Union Corporate Sustainability Reporting Directive (CSRD), or maybe even the stayed SEC climate rules, which include target-related disclosure obligations. Many are unsurprisingly reevaluating their goals and strategy and are considering amending their goals. And, as a result, they may need to communicate that in their reports. 

Your risk scenarios

You could face risk for missing a stated climate goal in the form of:

1. Diminished reputation – Missed or retracted targets could impact key stakeholder relationships, including with customers, suppliers, partners, employees or investors, particularly if targets were initially adopted in response to pressure from these stakeholders.
   
2. Becoming a target for shareholder activism – Activism from shareholders could result as an opportunity for those that might want to target the company for other reasons. Or the missed goal itself could be the true target. In addition to encouraging precatory shareholder proposals, missed or retracted targets may provide ammunition for activists in proxy fights.
   
3. Litigation or government action – There could be litigation or a governmental enforcement action alleging that a company’s target-related statements, such as touting targets in ESG publicity or product marketing, constitute misleading or deceptive communications to consumers or shareholders.
   
   In addition to actions targeting misleading statements made in SEC filings or general anti-fraud actions for statements in ESG publicity, SEC enforcement may include Exchange Act 13a-15(a) actions alleging a failure to maintain effective disclosure controls and procedures.
   
   Outside of SEC investigations and US shareholder litigation, companies also may face threats of consumer litigation focused on target-related claims included in product marketing. These sorts of risks may be particularly acute for companies with significant international operations – particularly in Europe, where there has been an uptick in misleading commercial practices claims targeting sustainability practices.

Not all risks are created equal. While many companies are failing to make sufficient progress toward their targets, there is a meaningful difference between ambitious targets, which are subject to significant risks and may depend on contingencies, such as technological and market shifts outside of a company’s control, and targets that are clearly implausible.

Where companies cannot articulate a target strategy and have taken no meaningful actions, or where no reasonable possibility remains that a target may be achieved in the remaining window, maintaining (or reaffirming) targets starts to look more like greenwashing than good-faith ambition.

Your risk mitigation strategies

Here are a few things to consider doing now if you are concerned about targets and goals:

1. Use disclosure to highlight challenges with achieving the target – In the short term, companies may consider adopting more disclosure, both in their sustainability/ESG reports and in the risk factors they disclose in SEC filings, that address the challenges associated with a particular target.
   
   You could discuss your strategy for achieving the target, whether your plans align with the company’s broader business strategy and challenges that are making it difficult to make progress toward the goal.  
   
   A number of companies have already disclosed that they may need to – or already have – modified a 2030 goal. These disclosures include companies that have:

• Highlighted the challenges in meeting their existing goals.
• Developed new goals with an intent to replace existing goals.
• Noted that they’re in the process of reevaluating their existing goals.
• Dropped and scaled back their existing goals.
  
  As we get closer to 2030 or other target dates, more robust language may need to be considered, such as a statement that, in light of current trajectories, strategic plans and implementation timelines, the company does not expect to meet the target. This approach would be consistent with sound practices for updating SEC risk factors, as previously hypothetical risks become increasingly certain.

2. Consider modifying targets – As target dates approach, and missing the target moves from a likelihood to a near certainty, cautionary risk factor-type language may become less protective. Given the long timelines for product development, technology adoption and other strategic changes, a significant target miss may cease to be hypothetical quite a few years in advance of 2030. In such a scenario, the most prudent risk mitigation strategy may be to retract – or amend – the target.
   
3. Engage with stakeholders – It is important to directly engage your stakeholders over a target that is in jeopardy, including customers, investors, industry groups and employees, to update them on the company’s progress and challenges. Before you do so, it would be wise to learn about how peers are responding to similar challenges, so you can anticipate questions and concerns and better understand evolving expectations from stakeholders about broadly shared challenges.
   
4. Plan ahead – While many target dates are still several years away, advanced planning should help companies navigate achievement challenges. Addressing problematic targets now will allow companies to lay the groundwork for any future amendments or retractions by effectively communicating challenges, while also providing companies time to develop alternative strategies or goals that can sweeten the message.