Industry

Third of Global Market Cap Covered by Emissions Reduction Targets

SBTi annual progress report marks momentum toward 1.5°C-aligned targets, but flags geographic and sectoral gaps.

The number of firms taking a science-based approach to CO2 emission reductions doubled in 2021, according to a new report by the Science-Based Targets initiative (SBTi). A total of 2,253 companies across 70 countries and 15 industries have approved emissions reductions targets or commitments with the organisation, with 80% of targets approved by SBTi in 2021 aligned with limiting climate change to 1.5°C.

The 2021 Progress Report, ‘Scaling Urgent Corporate Climate Action Worldwide’, found that companies committed to cut emissions in line with climate science now represent US$38 trillion of the global economy, more than one-third of global market capitalisation (up from 20% in 2020). This increase comes against a backdrop of severe economic uncertainty over the past two years due to the Covid-19 pandemic.

While there has been an exponential growth in firms adhering to science-based emissions reductions targets – either committed or already verified – the SBTi acknowledged the need for further progress, noting that peak global emissions and urgent reductions are required before 2025 to keep global heating under 1.5°C.

In Q4 2021, the organisation launched the Net-Zero Standard to provide guidance, criteria, and recommendations in order to drive a shift towards 1.5°C-aligned targets as the new normal for corporates. To date, only 11 companies have had net-zero targets approved under the standard, but more than 1,000 companies have committed.

To stimulate adoption, the SBTi announced it will only accept target submissions aligned with 1.5°C from July 2022, driving companies to go further and faster with their emissions reductions.

Since its foundation in 2015, the majority of SBTi companies with 1.5°C targets have cut emissions twice as fast as required, delivering excess reductions at an accelerated rate compared to their peers, the initiative stated.

The new report also shows that SBTi companies are associated with a 12% emissions reduction across Scope 1 and 2 emissions in 2020 and a longer-term reduction of 29% since 2015.

Grounds for optimism

According to the report a critical mass of high-impact companies globally (i.e. more than 20%) have joined the SBTi, the majority of which from Europe, North America, and Japan. High-impact companies are defined as having among the highest market capitalisation in its country of headquarters (>85th percentile by country) and/or among the highest GHG emissions for its industry (>85th percentile by sector GICS) or above 70th percentile of all samples.

According to the SBTi’s sample, Asia has 884 high-impact companies but only 130 have had approved targets and commitments since 2015, most of which are based in Japan (71). Africa is also below the 20% threshold, with only 6 of 45 high-impact companies signing up with SBTi.

SBTi companies reached or surpassed a critical mass in 2021 in most industries, with five crossing the 20% threshold. A persisting gap remains in infrastructure and power generation, where 24 out of 152 and 36 out of 184 of high-impact companies are approved or committed to the SBTi, respectively.

“The climate action we’re seeing from companies is grounds for optimism,” said Lila Karbassi, Chair of the SBTi board, while warning that the world must go further and faster to close the emissions gap, halving emissions before 2030 in line with reaching the Paris goal.

To help deliver more engagement and emission reduction at scale, particularly in heavy-emitting industries, the SBTi is building detailed 1.5°C pathway sector guidelines, including for the cement, steel, buildings and chemicals industries, all to be finalised between 2022 and 2023.

“Now, to achieve our mission, we must rapidly scale across every geography and sector, especially in high-emitting sectors and emerging markets,” said CEO Dr Luis Fernando do Amaral, who was appointed to the role earlier this year to oversee SBTi’s transition by evolving its governance, technical structure, and operational efficiency.

Along with the 2021 Progress Report, the SBTi will soon launch a measurement, reporting and verification (MRV) framework to provide a standardised mechanism to track organisations’ progress against science-based targets. To be published in early 2023, the ‘Progress Framework’ is set to increase transparency and accountability of companies’ progress against their science-based targets.

The Science-Based Targets initiative (SBTi) is a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF).

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