Less than a fifth of listed firms have plans for emissions reduction in line with 2°C or below pathway by 2050.
Transport industry firms are not responding quickly enough to climate-related transition risks and investor calls to reduce carbon emissions, says a new report by the Transition Pathway Initiative (TPI), leaving the sector exposed to a risk of significant losses through stranded assets.
TPI’s research on 62 of the world’s largest transport companies by market capitalisation found that less than one in five (18%) have plans for emissions reduction in line with 2°C or below pathway by 2050.
With its high levels of fossil fuel demand, the transport sector accounts for almost one quarter of global energy-related carbon dioxide emissions. Yet, the report highlights that even the most significant companies in this sector have not even aligned with the “least ambitious goals” set by countries under the Paris Agreement.
Data from the report shows that only 39% of transport firms have aligned with the Paris Agreement and other international pledges in 2030, and just 23% have aligned with a more ambitious well-below 2°C benchmark in 2030.
The transport sector “has not yet woken up” to the need to reduce global emissions through lower demand for fossil fuels, nor the “radical changes” to the transport landscape brought about by the coronavirus pandemic, said TPI Co-Chairs Faith Ward and Adam Matthews.
“From an investment perspective, it is clear that the transport sector has a massive exposure to the risks of the low carbon transition, and a significant risk than many of its assets will be stranded. It is also clear there are huge opportunities in low carbon transport and that governments are willing to invest to support this transition,” they said.
Only modest improvement on carbon performance
TPI data suggests that while the ‘carbon performance’ or the emissions reduction plans of the transport sector has improved modestly compared to 2019, the airlines sector has the worst carbon performance score of all sectors assessed by the TPI.
Overall, 91% of airline companies failed to align with the Paris targets by 2050 – almost double the proportion in the automobile sector – where 48% failed to align with the Paris goals.
The airline sector’s dependency on offsetting has been labelled as the main reason behind its poor performance. However, the report notes that six airlines this year – including British Airways owner IAG, EasyJet, United Airlines and Turkish Airlines – have committed to gross emission targets that exclude the use of offsets.
“Transport assets including vehicles, factories and infrastructure are in danger of becoming stranded,” said Emma Howard Boyd, TPI Co-Founder, and Chair of the Environment Agency.
“At the same time, increased public understanding of climate change and targeted public policies, such as the phase out of petrol cars, are driving greener opportunities for the sector. The UNFCCC (United Nations Framework Convention on Climate Change) has launched a race to zero emissions ahead of COP26 next year, but the reality is that this race is already on and no one can afford to be left behind,” she said.
The transport sector’s ‘management quality’, covering company governance of greenhouse gas emissions and risks and opportunities of low-carbon transition, demonstrated little change on the previous year.
The shipping sector had the worst performance in the entire transport industry, with an average score of 1.8 out of 5. But it had the best carbon performance, with more than half the shipping companies aligned to a ‘below 2°C’ pathway by 2030.
In automobiles, there was a hint of improvement, with an 11% increase in the proportion of companies aligning with at least the Paris pledges by 2030. German manufacturer BMW was the only transport company to achieve the top 4* ranking for Management Quality, meaning it had satisfactory responses across all 19 indicators assessed.
In a recent report, the TPI fund that none of the 59 large, publicly listed oil, gas and coal energy companies are yet on track to align their greenhouse gas emissions, despite efforts at active engagement by investors.
The research for the transport report was carried out for TPI by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. It studied 23 automotive manufacturers, 23 airlines, and 16 shipping companies.
TPI is a global initiative, assessing companies’ preparedness for the transition to net-zero, led by asset owners and supported by asset managers. It is backed by 90 investors with a total US$23 trillion in assets under management.