Listed companies failing to decarbonise at required levels to meet Paris Agreement targets

MSCI’s Implied Temperature Rise, analysis shows that less than half (46%) of listed companies align with the 2C target of the Paris Agreement

New research from the latest quarterly Net-Zero Tracker published by MSCI has warned that all listed companies will need to reduce their carbon intensity by 8-10% every year up to 2050 to realise the ambitions of the Paris Agreement.

MSCI finds that listed companies are on track to put nearly 10.8 billion tons (gigatons) of direct Scope 1 greenhouse gas emissions into the atmosphere this year. While this is a 5.6% reduction on levels recorded prior to the pandemic, it is an increase of 0.7% compared to last year and suggests that list firms will fail to tackle their share of carbon emissions.

Indeed, less than four in 10 firms are on track to reduce emissions by a required 10% annually to help reach the 1.5C target of the Paris Agreement.

MSCI’s Implied Temperature Rise, analysis shows that less than half (46%) of listed companies align with the 2C target of the Paris Agreement, and that only 45% of the 2,900 companies in the MSCI ACWI Index have public, timebound decarbonisation targets.

Only 11% of the analysed companies have targets aligned with a 1.5C trajectory, as such listed companies are aligned with a 2.9C trajectory by mid-Century, with some sectors well overshooting that figure.

The MSCI research found that the energy sector is aligned with a 6.8C temperature trajectory, with automobiles on course for 4.4C, materials at 4.1C and utilities at 3.4C. Worryingly, the research states that no sector or region is fully aligned with the targets of the Paris Agreement.

The MSCI’s executive director of climate change investment research Sylvain Vanston said: “The latest Net-Zero Tracker reinforces the magnitude of the challenge in preventing the worst effects of a warming planet. While we acknowledge more listed companies are taking climate responsibilities seriously, the amount of action is still insufficient.

“A planet that is 2.9°C warmer by 2100 is not just a more volatile world, it is a dislocated world. ‘Disorderly transition’ scenarios are a euphemism for chaos. Every step by companies to cut their absolute emissions and every effort by policymakers to drive momentum is critical because every tenth of a degree matters. The importance of decarbonization targets should not be underestimated. Setting a net-zero target does not guarantee a company will achieve it, but without one a company is not accountable.”

Research warnings

A separate study from Zurich of the decarbonisation plans of 17 of the UK’s biggest sectors found that most are recording either stable or increasing emissions, jeopardising the nation’s chance of meeting net-zero by 2050.

Separate research suggests that listed companies are responsible for 40% of all climate-related emissions, a figure far greater than previous estimates.

Research from investment management firm Generation Investment Management has found that listed companies are accountable for 40% of emissions globally. The Insights 6: Listed Company Emissions report considers the climate impact of listed firms across all three scopes.

Generation claims that previous estimates tend to underplay the impact of listed companies due to only covering Scope 1 and/or 2 emissions. Most previous estimates focus on Scope 1 emissions (direct) and therefore estimate listed companies’ emissions at around 20% of the total.