‘Climate pledges are not backed up by the necessary action. This ‘implementation gap’ illustrates the limits of voluntary action. As the climate crisis worsens, mandatory, legally enforceable rules could help us overcome the obstructionism that is holding back a just climate transition,’ states co-lead author Thom Wetzer, Associate Professor of Law and Finance and Director of the Oxford Sustainable Law Programme, a joint initiative of the Oxford Smith School and Faculty of Law.

‘By aligning economic rules to climate goals, governments can also give business the stability, enabling environment, and level playing field they need to decisively invest in decarbonization,’ states co-lead author Thomas Hale, Professor of Global Public Policy at the Blavatnik School of Government.

Enforceable rules have three advantages over voluntarily initiatives, the authors say. They are harder to reverse, and would help to avoid situations like the public backtracking by fossil fuel companies on net zero following Russia’s invasion of Ukraine. Secondly, mandatory rules level the playing field. ‘If one set of firms begins to decarbonize voluntarily, there is no guarantee that other firms will follow suit,” explains Prof Wetzer. “Instead, we may find that the activities move to a more lightly-regulated part of the economy. For example, privately held companies are immune to some of the scrutiny facing listed companies. Unsurprisingly, these firms have set fewer net-zero targets and pollute more.’

Third, while voluntary systems largely rely on public scrutiny and reputational risk to drive action, mandatory rules can be enforced legally with greater ease.

The research finds that the voluntary initiatives that have so far governed net zero have already set in place a ‘conveyor belt’ to legally enforceable rules. Once firms undertake voluntary decarbonization, they gain an incentive to make sure their competitors also align to net zero to avoid losing a competitive advantage. As such incentives spread across the economy, they create growing political pressure for voluntary pledges on carbon emission reduction to be turned into mandatory ground rules.

‘Similarly, voluntary action and targeted litigation that forces firms to act, such as the 2021 Dutch ruling requiring Shell to reduce emissions (which Shell is currently appealing), can work to erode the obstructionism that has blocked more ambitious climate policy in many jurisdictions,’ explains Prof Wetzer.

The authors argue that voluntarily action has reached its limits, and that it is time for legally enforceable rules to be implemented globally. Wetzer cites the EU’s recent agreement on its Corporate Sustainability Due Diligence Directive as an example of the new ‘rules of the game’ around climate change. ‘The significance of this legislation is that it requires large firms to draft a plan to reduce their emissions and implement that plan. It may surprise people to learn that rules of this type are rare. Given the urgency of the climate crisis, we need to see more of them to spur people into action.’