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Net-zero company targets: A dirty business

Companies that publicly commit to net zero by 2030 need to be held accountable for those commitments. That won’t happen until their carbon footprint becomes publicly available data.

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MSCI’s latest net-zero tracker report is out – and to no one’s surprise, the prognosis is bleak. Listed companies are on track to cause average global temperatures to rise by 2.9°C above pre-industrial levels. That is only marginally better than the 3°C the quarterly tracker predicted back in October 2021.

Even more concerning is the fact that to date just 11% of listed companies align with the 1.5-degree temperature-rise scenario, representing 1,023 out of the 9,300 issuers. That’s a small investment universe to play with for large asset owners who need to consider diversification, volatility and benchmark constraints. It’s no wonder, then, that investment portfolios are not yet aligned with net-zero targets.

Most indicators point to the global economy exhausting its 1.5°C GHG emissions budget by 2027

Admittedly, the bar is low and even a 10th of a degree matters in the business of decarbonization. Greenhouse gas (GHG) emissions are increasing, but the speed at which they are doing so is decreasing. MSCI estimates that direct (Scope 1) emissions of the world’s listed companies will edge up by an estimated 0.7% this year, after climbing nearly 7% in 2021. But the point is that most indicators point to the global economy exhausting its 1.5°C GHG emissions budget by 2027.

To date, too many listed companies still don’t record or make basic emissions data publicly available. MSCI names some of the largest emitters (based on estimates) that have not reported any of their GHG emissions since December. Out of the top 10, three are American, and seven are Chinese energy, financial and industrial companies. These include the Shaanxi Coal Industry Company, the China State Construction Engineering Corporation, PBF Energy and MasTec.

Inadequate data

But even in the EMEA region, the data is incomplete. A report by the Alliance for Corporate Transparency and law firm Frank Bold showed that just under 30% of European corporates include Scope 3 in their GHG emissions reports.

Many companies are not going to voluntarily disclose carbon footprints and commit to specific and quantifiable reduction targets. Direct and indirect emissions reporting must become a legal requirement, so that companies can be held accountable to whatever reduction targets are now showing up in loan key performance indicators (KPIs) and marketing material. This needs to happen now.

The Task Force on Climate-Related Financial Disclosures has only just become a legal reality in the UK, while the Corporate Sustainability Reporting Directive won’t extend to all companies listed on EU regulated markets until October. Even then, these new disclosure laws will have little impact if the penalties for breaking them are inconsequential. Non-disclosure of GHG emissions should carry a real reputational risk. There is simply no time to waste.