Changing firm behaviour, trade, and global decarbonization

It is easy to become despondent about the failures of global cooperation on climate action. However, many firms have already committed to working towards net zero emissions, and a variety of standards have emerged to support them. In this report for the BSI, Organizational standards, trade and the net zero transition, we find that such standards, in conjunction with emerging regulatory requirements, are set to reshape firm-level trade strategies and international supply chains. These standards support global decarbonization, but will only be globally effective if integrated into regulatory requirements, verified through robust conformity assessment and set through inclusive processes.

1) Organizational standards’ focus on changing firm behaviour is both a strength and a risk

Organizational standards that focus on the low carbon transition, and in particular net zero, are a relatively new phenomenon. Our report focuses on a public international standard, the greenhouse gas accounting standard ISO 14064-1, and a private certification scheme, B Corp. We also provide recommendations for the forthcoming ISO Net Zero standard. These, like other organizational standards, are defined by an emphasis on changing firm-level behaviour and integrating principles (rather than imposing more measurable requirements like particular emissions thresholds or use of low carbon inputs).

At their best, organizational standards are more than just compliance tools—they are strategic drivers of change. Achieving net zero on a firm level is a multifaceted challenge that requires strategy. In this sense, the fact that organizational standards focus on behavioural change is useful and appropriate. Implementing such standards requires firms to step back from day-to-day operational necessities and think more deeply about their future decisions.

But this emphasis can also be a weakness. For example, while ISO 14064-1 helps organizations account for their emissions, it faces criticisms due to flexible calculation methods, which can lead to variations between firms, and difficulties in gathering accurate data. B Corp Certification, granted by B Lab to firms that meet high environmental and social standards, offers a toolkit for encouraging incremental improvements in sustainability. However, it lacks mechanisms to ensure that improvements are sustained.

For the forthcoming ISO Net Zero Standard, the breadth and strategic nature of the requirements risks that different firms might be verified as having met the standard while exhibiting different levels of ambition. The moving target nature of attaining net zero makes specific targets elusive, contributing to this risk.

2) Success relies on regulatory signals and the standards themselves

This raises the question – what makes organizational standards effective in inducing behavioural change toward lower emissions? Relevant literature shows that success is contingent on external (market and regulatory) and internal (firm-culture driven) factors, as well as the characteristics of the standards themselves.

Regulatory requirements can either help or hinder the uptake of organizational standards. ISO 14064-1 complements existing regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD), as the EU has specified that firms can use the standard to help establish their compliance with the regulation. In contrast, B Corp, and some other private standards, such as the Global Reporting Initiative (GRI), duplicate the requirements of CSRD. This risks disincentivising firms to adopt the standard, with potential sunk costs and making trade more complex and costly through the coexistence of overlapping standards and regulatory requirements. As more regulation is introduced, standards must evolve and find ways to balance ambition with accessibility.

Also, organizational standards are more effective when subject to accredited conformity assessment processes that require third parties to be involved – rather than, for example, firms certifying compliance themselves. ISO verification processes are relatively robust when compared to some private certification schemes. To support the net zero transition, national standards bodies like BSI can help to ensure more effective collaboration between public and private actors that supports the development of complementary rather than competing standards. They can also help to ensure that organizational standards align with regulatory requirements to support conformity assessment processes. This integration can help cut down on compliance costs for firms and streamline the requirements they must meet.

3) Organizational standards can facilitate trade – but there is work to be done to ensure that they are inclusive

A major trend affecting trade is the emergence of new regulation, notably the EU CSRD, that requires firms to report emissions not only from direct operations but also supply chains (Scope 3 emissions). This seems set to influence global supply chains, though more research is needed on how firms respond and how these responses influence global trade patterns.

Organizational standards such as ISO 14064-1 play an important role in providing methodologies for firms to report such emissions. However, significant difficulties remain in obtaining accurate and robust data. Firms can tackle some of the methodological challenges by embedding reporting processes into firm culture, digitizing data collection, and building strong relationships with suppliers to improve data quality.

There is a body of academic evidence supporting that international organizational standards, such as ISO 14001, help to facilitate trade and increase exports. The World Trade Organization (WTO) plays a central role in addressing trade concerns related to technical trade barriers, including the role of environmental standards. The WTO encourages countries to base their national regulations on international standards. While some legal ambiguity still exists about the definition of international standards, ISO standards such as ISO 14064-1 seem likely to qualify. The involvement of national accreditation bodies and their assurance systems gives international standards more process legitimacy than either unilateral regulations or private standards. The emergence of CSRD and other EU unilateral regulatory requirements supporting net zero has helped to give the EU first-mover advantage, but the open approach of such international standards holds the promise of inducing more widespread participation. Discussion in relevant WTO Committees is important to address the challenges posed by the proliferation of standards and ensure that trade remains open and equitable, even as firms adopt more stringent environmental practices.

'Organizational standards, trade and the net zero transition' Report