The state of the transition into a zero-carbon economy
April 12, 2021
Our key takeaway: On track to a low-carbon economy? What track? 85% of companies do not align with the Below 2°C benchmark in 2050, and no company in any sector is reducing emissions fast enough to meet 2050 targets.
Transition Pathway Initiative (TPI) finds in its latest State of Transition Report (based on data from 401 of the world’s highest-emitting public companies representing 16% of global market cap):
Vast majority of companies do not align with what is needed, and no company in any sector is reducing emissions fast enough to meet 2050 targets. 15% of companies align with the Below 2°C benchmark in 2050 and 2% align with 2°C, while 20% align with the least ambitious Paris Pledges benchmark, 47% do not align with any of the benchmarks and 16% provide insufficient disclosure. Further, in no sector are companies reducing emissions fast enough to meet their 2050 targets. Oil and gas companies have hardly reduced emissions, and diversified mining companies with targets and aluminium producers have actually increased their carbon intensities. TPI provides some helpful recommendations for investors (p. 35 of the report)
Net zero targets is on the rise, but miss scope 3 emissions. We see an encouraging momentum behind net zero targets. A year ago, 14 companies had genuine net zero targets covering their most material emissions. One year later, this number has more than doubled to 35 companies. At the same time, they often fail to cover the most significant emissions (e.g. downstream emissions from the use of companies’ products in oil and gas; emissions from the use phase of sold vehicles in the automotive sector)
Some progress on carbon management practices, but no strategic approach. Most companies now have basic carbon management practices in place (e.g. a policy commitment to act on climate change, disclosure of operational GHG emissions), but most companies are still not taking a truly strategic approach to the issue of climate change. Specifically, companies are struggling in terms of support for climate policy and disclosure of climate lobbying by trade associations (whereas this involvement is important, because climate change is a problem replete with market failures that require government intervention in the form of regulations, taxes and subsidies).