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Catherine McKenna, chair of the UN Secretary-General's High-Level Expert Group on Net-Zero Commitments, speaks during the COP27 climate conference at the Sharm el-Sheikh International Convention Centre, on Nov. 8.JOSEPH EID/AFP/Getty Images

A United Nations advisory panel led by Canada’s former environment minister is calling on governments around the world to force companies to make serious net-zero emissions targets, including curtailing spending on fossil fuels, to limit the damage caused by climate change.

Voluntary measures in the private sector won’t be enough on their own to achieve global climate goals, so governments and regulators will have to step in to make sure companies set and live up to commitments to slash emissions, according to the report by the UN’s High‑Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities.

Former Liberal MP Catherine McKenna, chair of the group, delivered the findings to Secretary-General Antonio Guterres at the COP27 climate summit in Sharm el-Sheikh, Egypt on Tuesday.

The issue of voluntary versus mandatory climate measures has been a growing source of tension between industry and environmentalists as some financial institutions resist being held to consistent standards in their net-zero strategies.

Regulatory enforcement of net-zero targets is one of 10 recommendations the panel is making after seven months of work in consultation with hundreds of organizations. It is offering advice on other measures such as creating energy-transition plans and making them equitable in society, phasing out fossil fuels, promoting renewables, bolstering voluntary carbon markets and aligning lobbying and advocacy with climate goals.

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The goals are to root out greenwashing – the practice of making false or exaggerated environmental claims – and make sure all companies are playing by the same rules, Ms. McKenna said in an interview.

“There’s a real limit to voluntary initiatives. There are a lot of companies with competitiveness issues. There are a lot of, in particular, privately held companies that are not part of these initiatives – and state-owned enterprises. We need governments to regulate,” she said by phone from Sharm el-Sheikh.

Europe is already moving toward mandatory measures, and there are similar efforts to require climate-related disclosure in Britain and in the United States, she said.

Ms. McKenna was minister of environment and climate change in Justin Trudeau’s government until 2019, and subsequently minister of infrastructure and communities before leaving Canadian politics in 2021. The high-level expert group has 16 other members from around the world.

Mr. Guterres acknowledged on Tuesday that governments and other non-state actors are pledging to be carbon-free, but big gaps remain that the recommendations can address.

“The problem is that the criteria and benchmarks for these net-zero commitments have varied levels of rigour and loopholes wide enough to drive a diesel truck through,” he told a news conference. “We must have zero tolerance for net-zero greenwashing.”

Corporations should have short, medium and long-term greenhouse-gas reduction targets that encompass the full range of emissions – those from a company’s operations, from the energy it buys and along the value chain to its product end use, the group said. For financial institutions, that includes industrial operations that its lending and capital raising support.

“There’s a price of admission if you’re going to sign up for these things,” Ms. McKenna said. “We’ve been pretty clear on what is the definition of net zero and net zero-aligned, and that you need to cover all emissions. You can’t pick and choose. You need to cover the three emissions, and it can’t just be intensity of emissions. That can be an important measure, but the planet doesn’t care – it’s got to be absolute emission reductions.”

Reduction goals should be in line with the latest net-zero “pathways” to limit warming to 1.5 C above preindustrial levels, as set by the UN Intergovernmental Panel on Climate Change (IPCC), the report said.

To date, a patchwork of different regulations and guidelines in various countries has made it nearly impossible to agree on global standards for net-zero targets that could be consistently enforced.

In response, at last year’s climate summit in Glasgow, the International Financial Reporting Standards launched a sustainability standards board, to establish methods of quantifying and disclosing climate and other non-financial metrics. Its standards are still being finalized, and are not yet specifically tied to net-zero targets.

In the finance world, the Glasgow Financial Alliance for Net Zero, the US$140-trillion coalition of financial institutions, was set up to create systems to align investment decisions with net-zero goals. Its co-founder, former central banker Mark Carney, told The Globe and Mail last week that the voluntary organization, known as GFANZ, stepped in because there was no net-zero imperative administered by governments and regulators.

Even so, the decarbonization requirements of membership in GFANZ led some U.S. and Canadian banks to express legal concerns about their involvement, prompting the alliance to loosen that criteria, raising questions about the effectiveness of voluntary measures.

In its report, the expert group said efforts such as GFANZ can effectively establish best practices in industry norms to form the basis for regulation.

Among other recommendations, the panel said net-zero pledges should include specific targets to phase out fossil-fuel use and reduce financing in line with IPCC and International Energy Agency guidelines. That phaseout should be in line with a fully funded shift to renewable energy sources, and results should be tied to executive compensation. It said the transformation should be done to minimize the impact on workers, communities and consumers, while avoiding the transfer of fossil-fuel assets to new owners.

Ms. McKenna said Canada’s energy companies should be taking the opportunity now being afforded by record profits to invest in the transition to cleaner sources, rather than buying back shares and boosting executive pay.

“They actually have the means and the scale to be able to do big things on the renewables side, but they’re not even investing in these technologies. They ask the government for subsidies and then they say it’s not enough.”