Assessing the integrity of corporate climate strategies (Corporate Climate Responsibility Monitor)

Our key takeaway: Is your company prepared for the increased scrutiny on climate strategies? The Corporate Climate Responsibility Monitor has assessed the integrity of climate pledges from 24 global companies. Along similar lines to the CDP report that we summarised last week, this report finds that most are “mired by ambiguous commitments, offsetting plans that lack credibility and emission scope exclusions.” The next few years will see a concerted effort – from standard-setters, regulators, civil society, investors, and so on—to ensure the integrity of climate strategies. It is not enough for companies to make climate pledges. These pledges must be backed by detailed, credible plans that align with the Paris Agreement and the scientific imperative for “immediate action towards deep decarbonization.” Among key practices for companies: implementing strategies to reduce emissions across the full value chain, especially Scope 3 emissions; setting short- and medium-term goals towards 2030 in addition to long-term goals beyond 2030; avoiding offsetting and insetting as fundamental elements of emissions reduction schemes; and reporting responsibly and transparently on climate commitments and achievements, taking care not to overstate progress.

The Corporate Climate Responsibility Monitor, produced by the New Climate Institute and Carbon Market Watch, published Assessing the Transparency and Integrity of Companies’ Emission Reduction and Net-Zero Targets (February 2023):

• Assessing the integrity of corporate “climate leadership”: The report assesses the climate strategies of 24 major global companies, across eight high-emitting sectors: automotive manufacturers; electronics; fashion retail; food and agriculture; information and communication technology; shipping and aviation; steel and cement; and supermarket retail. According to the report, many of these companies have “put themselves forward as climate leaders” and have committed to preparing and implementing decarbonisation plans aligned with the objective to limit warming to 1.5°C. Companies’ climate plans are assessed on two factors: transparency, “the extent to which a company publicly discloses the information necessary to fully understand the integrity of that company’s approaches towards the various elements of corporate climate responsibility”; and integrity, “a measure of the quality, credibility and comprehensiveness of those approaches.” (More about the methodology can be found here).  The benchmark finds that no companies achieved a “high integrity” rating; 1 company’s strategy was rated “reasonable integrity”; and 8 companies’ strategies were rated “moderate integrity.” However, the report judges the climate strategies of the remaining 15 companies—the majority of those assessed—to have “low" or “very low” integrity. It finds that only 5 companies demonstrate a “commitment to deep carbonization.” The implication is that companies’ climate pledges cannot be taken at face value. They must be backed up by credible, clear and detailed strategies coupled with a transparent approach to communicating progress.
  

• Common issues with climate strategies: Many companies’ net-zero pledges “break down to only moderate emission reductions alongside offsetting and scope reductions.” The combined commitments from these companies are deemed “wholly insufficient” to align with the 1.5°C trajectory. While 22 companies have 2030 targets, these translate to a median absolute emission reduction commitment of just 15% (or optimistically 21%) of the full value chain emissions between 2019 and 2030. In 2022, the IPCC set out that between 43% and 48% was required to stay in line with the 1.5°C trajectory. Positively, most companies do target emissions across the value chain, however many of these plans lack details of how the targets will be achieved and current progress. In addition, several companies’ plans are undermined by emission scope exclusions (e.g., no or partial commitments on Scope 3 emissions). The report finds that few companies are actively working on technologies to address key emission sources, and nearly half are relying heavily on bioenergy to reduce GHG emissions; importantly, the expanded use of bioenergy is linked with other sustainability issues, including  deforestation, biodiversity loss, GHG emissions, food insecurity, and the underlying human rights impacts that are driven by these issues. Offsetting plans are another area of concern: all but one company has offsetting as part of their climate strategy. On average, the report finds that the companies plan to offset 23–45% of their combined 2019 emission footprint, far exceeding the amount allowed by leading methodologies. Many offsetting strategies are likewise undermined by a technically unrealistic over-reliance on forestry- and land-related offsets. The report also cautions companies that are using insetting; insetting usually refers to the use of biological CO2 removal processes, such as through forestry, soil sequestration and mangrove restoration. Insetting is not yet well-defined or measured as an emissions-mitigation strategy and has been acknowledged by standards-setting bodies like the SBTi as an unequal replacement for simply reducing GHG emissions.
  

• The path ahead: The report states that “2023 is an important year for regulators, companies, and the standard-setting initiatives to step up and align with the requirements set out in the scientific literature for immediate action towards deep decarbonisation.” It advises companies—alongside regulators and voluntary initiatives—to place more focus on evaluating the overall integrity of their emissions reduction strategies towards a 2023 goal. Positively, the report identifies a “solidifying consensus” on good practice for climate strategies. Companies are generally exhibiting a moderate degree of transparency in their emission disclosures, and bad practices are in the minority (though they remain significant). Some key good practices set out by the report include: implementing strategies to reduce emissions across the full value chain, especially Scope 3 emissions; setting “both short- and medium-term climate targets towards 2030 and long-term climate targets beyond 2030”; avoiding offsetting and insetting as central elements of emissions reduction schemes; and taking care not to publicly overstate corporate climate achievements. The report cites good practice from some leading companies taking genuine and innovative action, and these provide examples for others follow. For instance, some companies are pioneering new approaches to securing 100% renewable electricity and taking proactive responsibility for energy-related emissions in the value chain.