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How are G7 companies actually performing against Paris Agreement goals?

Sep 12, 2022 | Public | 0 comments

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During COP26 last year, as a flurry of fresh green pledges was announced, there were plenty of predictions as to what kind of climate the world was heading for under current decarbonization trajectories.

Based on national net zero pledges made through to November 2021, the International Energy Agency (IEA) concluded that a global average temperature rise of 1.8 degrees Celsius above pre-industrial levels this century could be on the cards if countries delivered on their promised climate plans.

That assessment was criticized as too optimistic by some, and just days later Climate Action Tracker, an independent network of climate scientists, said that despite a wave of new targets in recent years the world was on track for 2.4C of global warming by 2100 at best. Other projections were similarly varied with analysts predicting that current emissions reduction strategies will put the world on track for anywhere between 1.8C and upwards of 3C of warming.

As evidenced by the breadth of temperature scenarios, the accuracy of predictions based on exceedingly complex modeling of national climatic, political and economic factors should always be taken with a pinch of salt. But for a decent picture of the economic trends already taking place and the general direction of decarbonization trajectories, you could scarcely find a better barometer than the actual climate plans of corporates and their supply chains over the next 30 years.

The accuracy of predictions based on exceedingly complex modeling of national climatic, political and economic factors should always be taken with a pinch of salt.

That is what CDP and management consultant Oliver Wyman have sought to provide in a new joint analysis today, which assesses the climate targets — or lack thereof — of more than 4,600 major companies and their value chains across the G7 that disclose their environmental data to the carbon disclosure non-profit.

Overall, it concluded that based on the emissions targets set by thousands of major companies across the US, UK, Canada, Japan, France, Germany and Italy, the private sector across G7 still remains far off track for limiting global average temperature increases to 1.5C.

On aggregate across the G7, the report estimates current corporate emissions goals are aligned with 2.7C of global warming, which marks an improvement on 3C+ projections from a few years ago but would still blow a hole in the Paris Agreement’s target of 1.5C or ‘well below’ 2C by the end of the century.

As ever, the report points to significant geographical variation. The worst corporate performers are in North America and Asia, with Canada’s private sector aligned with 3.1C of warming, just ahead of the US and Japan which are both on a 2.8C trajectory, the findings indicate.

The worst corporate performers are in North America and Asia, with Canada’s private sector aligned with 3.1C of warming.

As a result, Europe leads the G7 pack, with the report finding that companies in Germany, Italy, and the Netherlands have the most ambitious corporate climate targets, where they are all aligned with 2.2C of warming. French companies sit just behind on 2.3C of warming, several steps ahead of the warming trajectory of the UK at 2.6C.

Clearly, European companies stand way out ahead of those in North America and Asia in terms of ambitious climate target setting, according to the analysis. Yet none of the world’s most advanced and powerful economies boast a private sector aligned with the Paris Agreement.

Laurent Babikian, global director for capital markets at CDP, warned the lack of climate ambition across the economies of G7 countries and beyond threatened to put the Paris Agreement goals out of reach, and urged investors and governments to demand more from high-impact firms.

“The most important driver of rapid emissions reductions in line with the Paris Agreement is ambitious target setting,” he said. “It is not acceptable for any country, let alone the world’s most advanced economies, to have industries displaying so little collective ambition. Armed with this information, governments, regulators, investors, and the public must demand more from high-impact companies without climate targets.”

It is worth noting that the trends appear to be tracking in the right direction. The report shows that, on the whole, the European corporate sector has seen a rapid improvement in its temperature trajectory over the past couple of years. In 2020, European corporates disclosing to CDP were aligned with 2.7C world, but that has now dropped to 2.4C, it said.

In 2020, European corporates disclosing to CDP were aligned with 2.7C world, but that has now dropped to 2.4C.

Why? It all comes down to target setting, according to CDP — namely those assessed and approved by the Science-Based Targets initiative (SBTi), which is regarded by the non-profit as the “gold standard”.

Collectively, companies across the G7 that have set SBTs have collectively managed to reduce their emissions by 25 percent since 2015, the research notes. That compares to a 3.4 percent increase in global emissions from energy and industry over that same timeframe, it said. Companies that set ambitious emissions targets take steps to deliver on them and unlock multiple commercial benefits as a result; companies that don’t, don’t.

Similar findings play out across the G7. The higher temperature ratings of 2.8C and 3.1C for corporates across the USA and Canada, respectively, are not so much reflective of a lack of climate ambition, but a lack of targets, CDP argued.

In Canada, the worst G7 performer, under half of all reported Scope 1 and 2 emissions are covered by a target, compared to over 90 percent in France and Germany, it said. Germany also boasts the largest percentage of corporate emissions to be covered by SBTs at 76 percent, followed by 58 percent in Italy, and 52 percent in France. Of the over 740 UK companies analyzed, just 23 percent have set SBTs, putting the country behind the USA, where 24 percent of the near 2,000 firms disclosing to CDP have SBTs in place.

High-impact companies, and their investors and lenders, must immediately set and honor targets with credible transition plans to allow us to meet this goal.

With COP27 drawing near in November and the G7 wrestling with a global energy supply crunch and worsening economic headwinds, Babikian urged businesses to step up to the plate with greater climate ambition in order to help accelerate both the economic and political transition towards net zero emissions.

“Momentum is growing, but as we approach COP27, we must get our 1.5C goal off life support,” argued Babikian. “High-impact companies, and their investors and lenders, must immediately set and honor targets with credible transition plans to allow us to meet this goal.”

There is still a long way to go to deliver on the promises made by the hundreds of countries which signed up to the Glasgow Climate Pact at COP26 last year. But today’s report does also point to some pockets of positive movement, particularly in the European electricity sector, which is the only sector across the G7 that falls within the Paris Agreement threshold according to the assessment.

Presumably reflecting the rapid rate of renewables deployment over the past decade or more, companies in the European power sector have set targets that are collectively aligned with 1.9C of warming by 2100, while the USA’s electricity sector is not too far behind on 2.1C. Asia, however, lies badly off track with the industry thought to be in line with 3C of warming, according to the report.

What to make of the findings? In a sense, it is certainly positive that the worst-case climate scenarios – upwards of 3C-4C of global warming by the end of the century — now appear much less likely as political and economic trends have tacked in favor of decarbonization across the G7 and beyond.

The best solutions to troubling economic headwinds, soaring fossil fuel energy prices, rising food cost, and worsening geopolitical risks can also all help accelerate the push toward net zero.

But given the repeated warnings from scientists and the sorts of terrifying weather patterns seen around the world this summer — devastating floods in Pakistan, unprecedented heatwaves in China, drought across much of Europe — the world’s current pathway remains hugely concerning.

As the report points out, the difference between 1.5C and 2C is stark. At 2C, ice-free Arctic summers are 10-times more likely, the number of people exposed to extreme weather events is expected to be around 2.6 times higher, and marine fisheries and crop yields are expected to suffer double the climate impacts.

But businesses — particularly those in the G7 — can have a hugely influential role in accelerating global decarbonization by helping to unlock much-needed green investment, encourage more sustainable market trends, and place pressure on their vast supply chains for action around the world. A warming scenario of well below 2C remains within reach. And for James Davis, a partner in financial services at Oliver Wyman, it all starts with setting Scope 1, 2 and 3 emissions targets aligned with the latest climate science.

“The analysis highlights big differences in ambition and willingness across companies to take a lead with their targets, and the urgent need to spread best practices further and faster if we are to have a chance of reducing emissions to achieve 1.5C — a goal whose importance has only been underscored by recent extreme weather,” he said. “Supportive government policy is crucial, as well as resolving the structural challenges in some sectors and regions. As the financial system commits to net zero and seeks to steer capital towards those pioneering the low carbon economy, there will be growing scrutiny on corporate emissions, targets and transition plans, underpinned by the move towards mandatory disclosures in many key jurisdictions.”

In the run up to COP27 in Egypt, there remains a vast risk of political distraction as a result of a myriad interlinked immediate crises. But as many economists and business groups have been at pains to point out in recent months, the best solutions to troubling economic headwinds, soaring fossil fuel energy prices, rising food cost, and worsening geopolitical risks can also all help accelerate the push toward net zero. Companies seeking a thriving, stable global market to operate in should be setting their coordinates for reaching that greener future as soon as possible.

The post "How are G7 companies actually performing against Paris Agreement goals?" appeared first on Green Biz

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