Listed companies breaching net-zero emissions budgets

The latest MSCI Net-Zero Tracker has been published today (31 October). The tracker, which is a quarterly analysis of 9,300 public companies’ climate change progress based on the MSCI All Country World Investable Market Index (ACWI IMI), warns that companies look set to overshoot a collective carbon budget.

The research found that listed companies look set to emit almost 11 gigatons of direct (Scope 1) emissions this year. This, MSCI warns, is a 1% increase compared to 2021 levels, but is still 4.4% lower compared to pre-pandemic levels.

However, the overall message is bleak, listed companies are on track to make the world 2.9C warmer by the end of the century, significantly missing the Paris Agreement targets.

MSCI’s executive director of climate change investment research Sylvain Vanston said: “The MSCI Net-Zero Tracker shows that 1.5C waits for no one and our analysis reveals that not all targets are equal. With major inconsistencies across all sectors and regions, investors are presented with a major challenge at a crucial point where transparency of data is critical.

“While investors need to hold companies accountable, the full burden of the net-zero transition cannot fall solely onto them. Policymakers need to set mandatory reporting of climate data that is consistent across the globe, enabling investors to then drive significant action.”

MSCI notes that listed companies will deplete their share of global emissions budgets for a 1.5C pathway by December 2026, which is two months earlier than previous MSCI estimates.

The report also highlights a lack of standardisation across corporate decarbonisation targets. Despite the ongoing uptake of science-based targets, which can now be aligned to the net-zero trajectory through the Science Based Targets initiative’s (SBTi) Net-Zero Standard, MSCI notes that corporate decarbonisation efforts differ wildly.

The analysis notes that only 36% of listed companies have set a decarbonisation target and less than 46% of those have declared a net-zero ambition. Only 41 listed companies in the Net-Zero Tracker  have set a net-zero target approved by the SBTi, while 577 companies have committed to set one in the future.

Some of these targets focus on balancing emissions through removals and offsets, while others attempt to reduce direct emissions bur are failing to tackle the value chain. MSCI also notes that some sustainability targets merely focus on increasing renewable energy procurement, rather than reducing emissions through efficiency upgrades.

Listed laggards

The MSCI’s previous tracker, published earlier this year, found that listed companies would need to reduce carbon emissions by up to 10% each year if the 1.5C target of the Paris Agreement is to be met, but only 39% of firms are on course to achieve this.

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.

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.