Net Zero Progress: World’s Biggest Companies Fall Behind

A report by Morgan Stanley Capital International (MSCI) highlights the alarming pace at which major companies are falling behind in the race to net zero.

According to the MSCI Net Zero Tracker, 84% of listed companies have yet to commit to decarbonisation in line with net zero goals, posing challenges for investors navigating the climate landscape.

Barriers to decarbonisation

MSCI, under the leadership of CEO Henry Fernandez, assesses the progress of listed companies on a 'maturity' spectrum, ranging from 'not aligning' to 'achieving net zero.' The report also points out obstacles that hinder significant investment in climate solutions and companies that are decarbonising.

MSCI evaluates corporate climate progress using three key indicators:

1. Decarbonisation Maturity: Where companies stand on their journey based on the Net Zero Investment Framework (NZIF) by the Paris Aligned Investment Initiative.
2. Science-Based Targets: The number of companies that have adopted science-based decarbonisation targets, as defined by the Science Based Targets initiative (SBTi).
3. Climate Goal Alignment: The alignment of companies with global climate goals, measured by temperature metrics from SBTi and MSCI ESG Research LLC.

The Net Zero Investment Framework categorises companies as follows:

• Not aligned: No commitment to decarbonisation.
• Committed to aligning: A long-term goal to reach net zero by 2050.
• Aligning to a net zero pathway: Science-based targets and a decarbonisation plan in place, but not yet aligned with a net zero pathway.
• Aligned to a net zero pathway: Companies with current emissions in line with net zero.
• Achieving net zero: Companies with emissions already at or near net zero.

The performance of top global companies

Among the top 10 largest listed companies by market value, the majority are lagging behind in their net zero commitments. The breakdown is as follows:

• Not aligned: Apple, Nvidia, Saudi Arabian Oil Company, Berkshire Hathaway, Eli Lilly
• Aligning: Microsoft
• Committed: Alphabet, Amazon, Meta Platforms

For the top 100 companies, the situation slightly improves, with 43 not aligned, 30 committed, 12 aligning, and 15 aligned.

"Emissions from listed companies represent about 20% of global GHG emissions," states the report. However, progress has been made, with listed companies on track to produce an estimated 10.9 billion tonnes of Scope 1 GHG emissions this year, a 7.7% reduction from 2023.

Stark realities and modest progress

The report reveals sobering facts about the climate commitments of global companies:

• Nearly two-thirds of listed companies are on a trajectory to warm the planet by over 2°C above pre-industrial levels.
• While the number of companies setting science-based targets has increased, the overall share remains low.
• 22% of listed companies have set decarbonisation targets aiming to reach net zero by 2050, up 8% from the previous year.
• 40% of companies have set decarbonisation targets to reach net zero, a modest increase of 2%.
• 56% have disclosed a GHG emissions-reduction commitment, up from 54%.
• 69% disclosed their Scope 1 and/or Scope 2 emissions, a 19% increase.
• Nearly half (47%) disclosed some of their Scope 3 emissions, up 10%.

The report warns that to limit warming to 1.5°C, companies must cap future Scope 1 emissions at 26.7 gigatonnes of CO2e by 2050. Without changes, their emissions budget would be exhausted in just over two years. For a 2°C limit, companies would need to cap emissions at 198 gigatonnes by 2050, with the budget depleted in just over 18 years.

The role of major investors in climate transition

The MSCI report acknowledges the significant barriers preventing companies and investors from making climate-friendly decisions. It stresses the need for new measures, analysis, and trillions of dollars in investment, along with consistent policies and new climate finance frameworks.

It states, "The largest investors increasingly find that positioning their portfolios to take advantage of the transition to a clean-energy economy demands an intricate juggling act: investing in companies that are decarbonising and allocating capital to climate solutions, all while financing the replacement of carbon emissions-heavy assets like coal-fired power plants and monitoring their portfolios’ carbon footprint."

With 70% of the estimated $70 trillion required to achieve net zero over the next 25 years expected to come from the private sector, the report underscores the importance of private capital in the climate transition. It also notes that even the most refined climate investment strategies may fall short without supportive policies that create a level playing field in the real economy.

The report highlights the complexity of the path to net zero, emphasising that both corporate commitments and substantial investment are crucial for achieving global climate goals.

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