The Transition Pathway Initiative Centre (TPI Centre) published its latest TPI State of Transition Report 2024 (September 2024). This report reviews the progress that more than 1,000 of the world’s highest-emitting public companies have made on responding to climate change.
Human Level’s Take: The world just experienced some of its hottest months on record, highlighting climate change as a systemic risk. Asset owners and managers play a pivotal role in directing capital for the transition and urging governments to implement effective policies. Investors can now leverage the latest data from the TPI Centre to engage with companies. Assessments of the 1,027 highest-emitting public companies reveal we’re doing better than in 2021, but still far from the target needed to limit warming to 1.5°C. Alarmingly, these companies are projected to exceed their emissions intensity budget by 61% from 2020 to 2050, with oil and gas firms being significant contributors. Positive trends emerge: companies in Australasia, Europe, and Japan score higher, larger companies perform better, and the electricity sector leads the way. Other strong sectors include paper, shipping, and autos. Unfortunately, food, aluminium and oil and gas lag significantly. This report is a call to action for investors to engage these companies on their performance. Companies, it’s time to step up and prepare for action now!
- What are we looking at? Using public disclosure, the TPI Centre looks at two different (but inter-connected) aspects: (1) a company’s management quality, and (2) a company’s carbon performance. Management quality refers to the quality of companies’ governance, including reporting and targets on greenhouse gas emissions, and the risks and opportunities related to the low-carbon transition. This includes a review of the companies’ climate transition plans. Carbon performance refers to companies’ greenhouse gas emissions pathways against low-carbon benchmark scenarios (including National Pledges, Below 2°C and 1.5°C). The delves into companies’ entire pathway over the short (2025), medium (2035) and long term (2050).
- What are the results? In short, there is progress as compared to the last State of Transition report in 2021, but we are still a long way off from where we need to be. From 0 to 5 (with 0 being unaware, and 5 being what we are looking for), most companies are at 3. They have recognised climate change as a relevant business risk and/or opportunity, developed a policy commitment to act, set some kind of emissions reduction target, and disclosed their Scope 1 and 2 emissions. Anything under this is considered to be ‘laggard’ territory. The share of companies aligning with 1.5°C in 2050 is at 30%, which increases to 44% when considering the Below 2°C scenario. Still - companies are cumulatively overshooting the Paris goals - by far. The report finds that the world’s highest emitting companies will cumulatively exceed their 1.5°C emissions intensity budget between 2020 and 2050 by 61%. Oil & gas companies are a major driver of the exceedance.
- What are some trends and next steps? There are a number of trends that can be observed. There are signs of a positive relationship between Management Quality and realised Carbon Performance in the short term. There are regional differences. Companies headquartered in high-income regions (in particular Australasia, Europe and Japan), score better. This could be due to differences in regulation, availability of resources, industry composition, and corporate governance norms. Larger companies in terms of market cap perform better. There are variations in sectors. When it comes to management quality, electricity and airlines are ahead. When it comes to carbon performance, electricity, paper, shipping and autos are ahead. The laggards are in the food, aluminium, and oil and gas sectors. The report concludes with key takeaways for investors: scrutinize transition plans, get up to speed with external factors that include the company’s ability to meet corporate climate targets, and engage with companies constructively and openly.
