Listed Firms Exhausting Carbon Budget as Emissions Rebound

Global businesses named and shamed and told to step up carbon emissions reductions ahead of COP26.

Investors have been urged to step up the pressure on companies and industry sectors in their portfolios who are failing to act decisively to reduce their carbon emissions.

The latest MSCI Net-Zero Tracker warned that the Paris Agreement climate targets were increasingly out of reach as publicly listed companies are set to cause global temperatures to rise by three degrees Celsius.

With less than 10% of public companies aligned to a 1.5°C temperature rise threshold, the report said the global carbon budget to limit global warming to 1.5°C will be exhausted by November 2026. This timeframe has moved forward by five months since the launch of the Net-Zero Tracker in July.

Best and worst performers

The Net-Zero Tracker, a quarterly gauge of climate change progress across a global universe of 9,300 public companies based on the MSCI All Country World Investable Market Index (ACWI IMI), found that company emissions are set to rise by 6.7% this year.

The Saudi Arabian Oil Company, Gazprom PAO and Coal India were the top three listed companies with the largest carbon footprint. China’s Shaanxi Coal Industry Company was the largest emitter to not disclose any of its greenhouse gas emissions.

However, GlaxoSmithKline, H&M, and Électricité de France were listed in the top 10 companies that have published the most thorough emissions-reduction targets.

The Net-Zero Tracker found that less than half of listed companies are aligned with a 2°C temperature rise. Even low emitting industries such as health care, information technology and financial services have outliers consuming a disproportionate share of their industry’s remaining budget, the report noted.

From a regional perspective, although companies in developed economies are projected to become more carbon-efficient this century, every region is still emitting in excess. The problem is most extreme in ‘Emerging Markets EMEA’, said MSCI, where the implied temperature rise of listed companies is 4.8°C, followed by EM Americas and EM Asia, which are set to rise by 3.8°C and 3.4°C, respectively.

To address this, companies need to cut their absolute carbon emissions by 10% a year on average. However, from 2016 to 2020, less than a quarter of the world’s publicly listed companies managed this feat.

Henry Fernandez, Chairman and Chief Executive Officer, MSCI, said the findings should “dramatically increase” the world’s sense of urgency to reduce greenhouse gas emissions.

“What we do over the next half-decade — and especially at COP26 in Glasgow — could make the difference between avoiding or experiencing the worst climate impacts. We urge firm action rather than words at COP26 to divert the world from an imminent crisis and chart a path toward a sustainable future,” he added.

“Impact orientated” approach required

More pressure was put on corporates by a new European Sustainable Industry Barometer on the ESG performance and maturity level of European industry sectors and federations.

The report from V.E, part of Moody’s ESG Solutions, and CSR Europe found that industry federations have set foundations for progress on Europe’s sustainability goals but suggest an acceleration is required in a number of sectors. A transformation towards being more “hands-on” and “impact orientated” is needed if the objectives of the European Green Deal and UN Sustainable Development Goals (SDGs) are to be met, the report claimed.

Climate action is currently fragmented, the barometer said. It found that across sectors, many companies continue to appear silent on their initiatives to transition their business models in line with a low carbon economy. This includes players from high emitting sectors such as chemicals and building materials as well as in the banks sector.

On the positive side, there are clear champions of climate action at corporate level across all sectors. Many have set net-zero targets that align or in some cases anticipate the 2050 target of the European Green Deal. However, it said that the substantial gap between leaders and laggards means that individual champions alone are insufficient in leading Europe to its 2050 net zero targets.

Six years from their launch, a strategic approach to meeting SDGs remains hard to determine, the report said. It found that not all industry federations appear to have integrated them within their roadmaps and activities and that progress remains uneven and is not moving fast enough.

Stubbornness of the status quo

Also, ahead of COP26, the International Energy Agency’s World Energy Outlook 2021 warned key decision makers that every piece of data showing the speed of the globe’s embrace of clean energy “can be countered by another showing the stubbornness of the status quo”.

It said 2021 was seeing a large rebound in coal and oil use given the strains on the energy system leading to the second-largest annual increase in CO2 emissions in history.

It urged COP26 leaders to take four key measures to help to close the gap between today’s pledges and a 1.5 °C trajectory over the next ten years – and to underpin further emissions reductions post-2030.

These include a massive additional push for clean electrification that requires a doubling of solar PV and wind deployment and a major expansion of other low-emissions generation, including the use of nuclear power where acceptable.

There should also be a relentless focus on energy efficiency, together with measures to temper energy service demand through materials efficiency and behavioural change.

In addition, a big boost to clean energy innovation is needed as was a drive to cut methane emissions from fossil fuel operations.



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