More ambitious targets to reduce emissions

‍Our key takeaway: Companies’ net-zero targets–and performance on those targets—are not ambitious enough for the world to limit global warming to 1.5°C. What’s needed? Clearer pledges and more transparency, collective action and collaboration, increased regulation, and ambitious action and innovation that goes beyond renewable energy certificates and offsetting. Companies can play a central role in finding and scaling up solutions for deep decarbonization, and regulators should push them to do so.

NewClimate Institute and Carbon Market Watch released the 2022 edition of their Corporate Climate Responsibility Monitor, which assesses 25 multinational companies (representing combined revenues of USD 3.18 trillion and collectively contributing around 5% of all global GHG emissions) on the transparency and integrity of their emission reduction targets:

• Many emissions reduction pledges lack clarity: The report points out that “[n]et zero targets commit to reduce the analysed companies’ aggregate emissions by only 40% on average, not 100% as suggested by the term ‘net zero.’” While all 25 companies assessed have a net zero or carbon neutrality goal, only 3 companies (Maersk, Vodafone and Deutsche Telekom) “clearly commit to deep decarbonisation of over 90% of their full value chain emissions by their respective target years of their headline pledges.” Furthermore, while 15 of the companies report interim climate targets until 2030, the report found that the average emission reduction commitment between 2019 and 2030 is only 23%. This is a stark figure compared to the global imperative to cut emissions by 40-50% between 2010 and 2030 in order to limit temperature increase to 1.5°C.
• Few companies demonstrate the ambition needed to significantly reduce emissions: “Companies’ uptake of readily-available emission reduction measures shows little sense of urgency.” Despite evidence of some good company practices, the assessed companies overall lack the ambition to meaningfully reduce emissions: “Scope 3 emissions account on average for 87% of total emissions for the 25 companies assessed in this report, but only 8 of the 25 companies disclosed a moderate level of detail on their plans to address these emissions.” The report also notes that many companies’ net-zero strategies are overly reliant on unbundled renewable energy certificates (RECs) rather than direct purchases of renewable energy. Companies continue to source (non-renewable) energy from local or national power grids while purchasing RECs “from renewable energy producers in potentially different locations.” In short, “[c]ompanies use RECs to claim the reduction of their electricity-related emissions, despite the significant limitations of this construct.” The same concern applies to carbon offsetting and sequestration programmes, which can have significant limitations and may even harm people. Companies would benefit from sharing knowledge and collaborating on climate solutions to reach emissions targets faster.
• Private sector innovation needs to be shored up with regulation: “Mitigation of climate change depends on innovation; companies have, and will continue, to play a central role in finding and scaling up solutions for deep decarbonisation.” That said, the urgency of the climate crisis and the current pace of change suggests that “regulators should not rely on consumer and shareholder pressure to drive corporate action. Companies must be subject to intense scrutiny to confirm whether their pledges and claims are credible, and should be made accountable in the case that they are not.”