Corporate climate promises are growing, but company emissions are not falling: study

A study by global index provider MSCI found that while almost a half of publicly listed firms globally now have decarbonisation targets, the corporate world’s emissions are aligned with a catastrophic 2.7 degrees of warming.

Emissions from a smoke stack
Publicly listed firms are on track to emit 11.2 gigatonnes of direct, or Scope 1 emissions this year, which will put the corporate world on a path to heat the planet by 2.7°C this century, according to MSCI. Image: 

The world’s biggest companies are on track to pump no less greenhouse gases into the atmosphere in 2023 than they did last year, despite an increase in corporate climate pledges.

Nearly half (44 per cent) of public listed companies globally have now set decarbonisation targets – a big jump from 2015, the year the Paris climate pact was signed, when only 8 per cent of listed firms had a climate goal.

Public firms are also declaring their climate exposure in greater detail – more than a third (35 per cent) now report Scope 3 emissions that come from their suppliers or use of their products, up from 30 per cent last year.

And yet public companies are on track to emit 11.2 gigatonnes of direct, or Scope 1 emissions this year, which puts the corporate world on a path to heat the planet by 2.7°C this century, according to MSCI, a financial analysis firm that modelled future emissions based on current climate commitments.

This is the same emissions footprint as last year, according to MSCI’s Net-Zero Tracker, which gauges the climate progress of large corporations.

Scope 1 greenhouse gas emissions of listed companies

Scope 1 greenhouse gas emissions of listed companies since 2013. Listed companies’ direct emissions remain flat year on year, and have not climbed to the levels that preceded the Covid-19 pandemic. Source: The MSCI Net-Zero Tracker

Seventeen per cent of public firms are aligned with the 1.5°C temperature rise stipulated in the Paris Agreement across their full value chain – an increase of 10 percentage points on last year – but a bigger proportion, 19 per cent, are aligned with a global temperature rise in excess of 3.2°C.

Just over a half (51 per cent) of climate pledges are on track to keep warming below 2°C, the outer limit of the warming threshold detailed in the Paris Agreement.

Companies in the industrialised world tend to have more ambitious climate targets. Developed Asia’s climate targets are aligned with a 2.8°C temperature rise – the same as North America – while developing Asia’s targets are aligned with a 3.0°C warmer world, the report found.

Forty-one per cent of Asia Pacific’s listed companies have decarbonisation targets, and 11 per cent have been approved by the Science Based Targets Initiative (SBTi), which assesses climate targets according to their alignment with the Paris Agreement.

Asia Pacific listed firms' emissions trajectory.

Asia Pacific listed firms’ emissions trajectory. Source: MSCI ESG Research and CDP, data as of March 31, 2023

“Achieving climate targets remains a more demanding prospect than setting them,” said Kenji Watanabe, vice president, Asia Pacific ESG and climate research, MSCI. “However, the results of our assessment highlight how rigorous third-party validation processes like those under SBTi offer scope to enhance the transparency of corporate decarbonisation strategies and to improve the likelihood that the companies can achieve such targets.”

South American firms have the least ambitious climate targets, which are aligned with 4.6°C of warming. Developed Europe has the most ambitious targets, aligned with a 2.2°C warmer world.

The leading industries for climate disclosure are utilities and energy – the sectors under the most pressure to decarbonise by regulators – while healthcare is the least climate-committed sector. Only 6 per cent of healthcare firms have net-zero targets, compared to 38 per cent of utilities.

The listed companies with the most comprehensive decarbonisation targets include South Korean oil firm SK Innovation Co and Australian reusable pallets Brambles Limited, according to MSCI. 

The biggest listed firms that haven’t disclosed their emissions are American and Chinese. They include United States finance giant Berkshire Hathaway and petroleum refiner Pbf Energy and China-based Shaanxi Coal Industry Company and China State Construction Engineering.

MSCI’s study concluded that, at the current rate of corporate decarbonisation, listed companies will use up their share of the global carbon budget for keeping temperature rise below 1.5°C by October 2026 – two months sooner than it had predicted last year.

“A 1.5°C-aligned pathway for listed companies remains possible, yet it looks increasingly unlikely that listed companies will achieve this without exceeding the threshold first,” the report’s authors noted.

The research emerges three months after a report by nonprofits NewClimate Institute and Carbon Market Watch found that the combined net-zero targets of 24 industry leaders would reduce their total emissions by 36 per cent by their respective target years, compared with 90 per cent emission reductions needed to meet global climate goals.

Carbon emissions need to fall by nearly half from 2019 levels this decade to prevent the costliest effects of climate change, according to the Intergovernmental Panel on Climate Change. 

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