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Public company emissions must fall 8-10% to meet Paris goals

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The latest research shows that the global carbon budget will run out in February 2027 without emissions reductions from public companies.

The Net-Zero Tracker is warning that all listed companies must each reduce their total carbon intensity by 8-10% every year until 2050, if the 1.5°C target under the Paris Agreement is to be met.

BAU will run out the carbon budget within a few years

In terms of the global carbon budget, there are 57 months under business as usual operations until the emissions budget (allowable emissions limiting warming to 1.5°C) is fully depleted. Today only 11% of listed companies are aligned with a 1.5°C temperature rise, and only 39% of companies reduced emission intensity by that amount between 2019 and 2020.

There are a growing number of regulatory and voluntary frameworks and standards about reporting on climate risk. The UK and Europe have already implemented mandatory standards based on the TCFD recommendations, and voluntary frameworks such as the proposed standards from the ISSB means the need for carbon intensity reductions of 10% or more could have major operational implications.

According to MSCI, a provider of critical investment decision support tools and services,  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, up approximately 0.7% from last year but down 5.6% from the pre-pandemic high.

Despite increase in net zero target announcements, less than 50% have committed

This warning comes in the latest edition of MSCI’s Net Zero Tracker, a quarterly report on corporate progress in addressing climate risk. Despite the rise in companies setting net-zero targets, only 45% of the 2,900 companies in the MSCI ACWI Index have committed to a decarbonization target.

Using MSCI’s Implied Temperature Rise, analysis shows that less than half (46%) of listed companies even align with a 2°C temperature rise, putting them at the high end of the Paris Agreement goal.  While the number of those aligned with the lower end, at 1.5°C, remains small at 11%, it is a slightly higher number than tracked in the October 2021 edition, which was only 10%.

In October 2021, MSCI calculated that the world’s publicly listed companies were on a trajectory to cause global temperatures to rise by 3°C. However, the latest Net-Zero Tracker reveals this has been cut by a tenth of a degree to 2.9°C, based on additional listed companies publishing targets, although it remains significantly above the Paris goals.

Energy sector leads emissions, followed by cars and components

When analysing by industry group, the energy sector aligns with the highest temperature rise of 6.8°C. This is followed by automobiles and components (4.4°C), materials (4.1°C), and utilities (3.4°C). Once again this reaffirms the importance of supply chain collaboration in addressing emissions reductions. Globally, no region yet aligns with the Paris Agreement target, highlighting the vast action still required by the world’s listed companies, policymakers and investors.

Sylvain Vanston, executive director of Climate Change Investment Research at MSCI, said: “While we acknowledge more listed companies are taking climate responsibilities seriously, the amount of action is still insufficient.” On current trajectories the temperature increase of 2.9°C by 2100  means  not just a more volatile world, it is likely to be a more dislocated and disorderly world.

Vanston added, “‘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.”

As it stands, the budget for limiting warming to 1.5°C will be depleted by February 2027, instead of November 2026, as MSCI data had previously indicated.

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