Net Zero Tracker: Listed companies must reduce carbon intensity 10 per cent a year meet Paris Agreement goals

The world’s listed companies must each reduce their carbon intensity by eight to 10 per cent every year until 2050 if the 1.5C target set out in the Paris Agreement is to be met, according to the latest Net Zero Tracker report from investment research firm MSCI.

The latest edition of the report, which was released late last week, also found that only 39 per cent of listed companies reduced emission intensity by the recommended amount between 2019 and 2020.

As such, listed companies are on track to put nearly 10.8 gigatons of direct Scope 1 greenhouse gas emissions into the atmosphere this year, according to MSCI. Emissions from the corporates analyzed in the report are set to climb 0.7 per cent compared to last year, but the report will still fuel hopes that corporate emissions may have peaked given overall emissions from listed firms are down 5.6 per cent from the pre-pandemic high .

The latest Net Zero Tracker report follows a similar warning from MSCI in June this year, when it found that the world’s listed companies have just 57 months based on current emissions trends before they deplete the emissions budget required to limit warming to 1.5C.

The report also warned that the while a growing number of listed firms are setting net zero targets, just 45 per cent of the 2,900 companies in the MSCI ACWI Index have committed to a decarbonisation target.

Overall, less than half of listed companies align with a 2C temperature goal, putting them at the high end of the Paris Agreement goal. Meanwhile, just 11 per cent have targets in place that align with a 1.5C temperature rise, although this marks a slight increase from the 10 per cent of companies aligning with 1.5C scenarios in the October edition of the Net Zero Tracker.

MSCI’s report incorporates an Implied Temperature Rise, which calculates the temperature trajectory that companies’ decarbonisation plans equate to. It found that the energy sector has climate strategies that currently align with the highest temperature rise of 6.8C. Similarly, the auto industry is aligned with 4.4C of warming, the materials industry with 4.1C, and utilities with 3.4C. Globally, MSCI said that no region yet aligns with the Paris Agreement target, highlighting “the vast action required by the world’s listed companies, policymakers and investors” to deliver on global climate goals.

In October last year, MSCI calculated that the world’s publicly listed companies were on a trajectory to cause global temperatures to rise by 3C. However, the latest Net Zero Tracker reveals some progress has been made, with the projected increased falling by a tenth of a degree to 2.9C thanks to more listed companies publishing emissions targets.

In addition, MSCI estimated that listed companies will burn through their share of the global carbon budget three months later than previously projected based on their current greenhouse gas output.

The budget for limiting warming to 1.5C will be depleted by February 2027, instead of November 2026, as MSCI data had previously indicated, the report said.

“Listed companies are emitting greenhouse gases into the atmosphere at a rate that would make the planet 2.9C warmer by 2100 and 1.5C alignment will only be viable if these companies cut their total carbon intensity by 10 per cent each year until 2050,” said Sylvain Vanston, executive director for climate change investment research at MSCI.

“A planet that is 2.9C 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.”

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