30% of the biggest corporate emitters have long-term climate targets aligned with 1.5°C

30% of the biggest corporate emitters have long-term (2050) climate targets aligned with 1.5°C, according to analysis published today (10 September 2024) by the TPI Centre based at the London School of Economics and Political Science.

Since 2020, the share of companies with long-term (2050) emissions targets aligned with 1.5°C has increased from 7% to 30%. However, the credibility of long-term climate ambitions is often unclear, with many companies lacking intermediate targets and clear quantifications of the key elements of their climate strategies.

The ‘State of Transition Report 2024’ bases its analysis on the Carbon Performance Assessment of 409 companies and the Management Quality progress of over 1,000 of the world’s highest-emitting public companies, which is tracked across 23 indicators ranging from Level 0 ‘unaware’ of climate change to the newly added ‘transition planning’ Level 5. These are the key public companies for both investors and the climate, collectively worth around US$39 trillion.

Carbon Performance

• The sectors most aligned with 1.5°C or below 2°C are diversified mining (50%), steel (46%) and electricity (41%). The least aligned are food producers (8%) and oil & gas companies (6%).
• By region, European, Australasian and Japanese companies’ climate targets have the highest alignment with 1.5°C or below 2°C in 2050, at 66%, 64% and 56%, respectively. In China, 82% of companies are either not aligned or lack suitable disclosure of relevant information; while for those headquartered in other Asian countries this figure is 70%.

Management Quality

• The majority (57%) of the companies analysed operate at Level 3, which specifies that companies moved out of the laggard range and “have recognised climate change as a relevant business risk and/or opportunity, developed a policy commitment to act, set some kind of emissions reduction target, and disclosed their Scope 1 and 2 emissions.”
• This degree of alignment places the majority of companies still well short of having a strategic approach to climate as represented in Level 4.
• No company satisfies all Level 5 indicators, highlighting that none of those assessed has created a detailed, actionable transition plan that aligns business practices and capital expenditure decisions with decarbonisation goals.

Integrated analysis

• The authors note that Carbon Performance and Management Quality should be treated as complementary since they cover different aspects of companies’ decarbonisation efforts.
• Companies headquartered in high-income countries were found to have better Management Quality and Carbon Performance than companies in middle-income countries, which may be explained by differences in regulation, availability of resources and corporate governance norms.
• The report also overlayed TPI company data with the new Assessing Sovereign Climate-Related Opportunities and Risks (ASCOR) tool, adding a regulatory and regional dimension to its analysis.

Simon Dietz, TPI Centre Research Director and Professor of Environmental Policy, Department of Geography, LSE, said: “This report also gives investors the opportunity to closely examine the concrete plans of the highest-emitting public companies for translating net zero ambitions into actionable steps. This analysis offers unique and in-depth insight.”

“The regulatory environment in host countries is likely to influence how well companies manage climate-related risks and opportunities. If regional nuances are not addressed, investors may withdraw capital from high-emitting emerging markets and developing countries.”

David Russell, Chair of Transition Pathway Initiative, said: “TPI’s analysis shows that many companies in high emitting sectors failing to implement adequate transition processes and targets.  It also identifies a clear interdependency between local climate policy and company states of transition. 

“Investors therefore need to redouble their efforts to engage with both companies and policy makers to encourage appropriate and urgent responses to the systemic risk that climate change poses.”