The world will likely overshoot the global warming threshold scientists say will lead to the worst impacts of climate change starting in 2030, according to a new report from the Intergovernmental Panel on Climate Change (IPCC), the taskforce of climate scientists behind the 2015 Paris Agreement. Beyond that temperature limit of 1.5 degrees C above preindustrial levels, climate hazards like tropical cyclones, heat waves, drought and flooding will likely increase in intensity and frequency.
In the new synthesis report released March 20, the IPCC also wrote that achieving net-zero by 2050 and sustaining it could correct that temperature overshoot and bring global warming to below 1.4 degrees C by the end of this century.But hitting net-zero and staying within what the IPCC calls a “very low” greenhouse gas emissions scenario will require action across all aspects of society, including from corporations, according to the IPCC. Net-zero emissions means cutting greenhouse gas emissions as close to zero as possible and offsetting the remainder.
While more of the world’s large companies have set net-zero targets in recent years, they are still the exception rather than the rule, according to the latest data from the S&P Global Corporate Sustainability Assessment (CSA). Only one in four of the 6,416 companies reviewed by the 2022 CSA for their climate ambition have set net-zero emissions targets, showing that the private sector has a long way to go to play its part in combatting climate change.
Not all sectors are on the same pathway
Some sectors are further along than others in pursuing net-zero. Close to half of the utilities sector globally has set net-zero targets, followed by 40% of the materials sector and 38% of the energy sector. At the same time, only 20% of financial services and communication services companies and only 17% of health care companies have set net-zero targets.
The energy, utilities and materials sectors represent some of the most carbon-intensive parts of the economy. Fossil fuels produced by the energy sector were responsible for 81% to 91% of human-caused emissions from 2010 to 2019, according to the IPCC. Electric utilities primarily use natural gas and coal to produce the world’s power, although the portion of electricity produced from zero-carbon renewable resources is growing. The materials sector currently makes up about 25% of global emissions, with the vast majority coming from aluminum, concrete, steel and plastics, according to a 2022 report by the UK-based environmental consultancy Eunomia.
Initiatives are underway to help the materials sector and other hard-to-abate sectors commercialize low-carbon technologies. For example, the public-private First Movers Coalition launched in 2021 is a collection of companies that committed to use their purchasing power to create early markets for innovative clean technologies across eight hard-to-abate industries, including aviation, shipping and steel and cement manufacturing. The coalition currently includes more than 70 companies representing more than $12 billion in purchasing commitments.
More than half of corporate net-zero targets are science based
Many companies that have set net-zero targets are also working to ensure their plans are credible. According to the 2022 CSA, 52.9% of companies reported that their net-zero goal has been validated by the Science Based Targets initiative (SBTi), that they have committed to seeking SBTi validation of their target, or that they believe their targets are science based. SBTi is a widely recognized organization for validating science-based emissions reduction targets and associated plans.
Under SBTi's net-zero standard, a company's 2050 net-zero target must cover "all material sources of emissions across company value chains," have near- and long-term goals, and pursue deep emission cuts before using carbon offsets to net out the remaining emissions down to zero.
About 34% of the companies with net-zero targets — excluding financial services companies, which were not assessed on carbon offsetting — indicated they intend to neutralize their residual emissions via such things as carbon credits and investing in permanent carbon removal technologies outside of the company's value chain. About 79% of those plans would use carbon offsets such as forest restoration to reach net-zero, and about 44% of those plans included permanent carbon removal, the CSA found.
SBTi is working to expand the net-zero standard it launched in 2021 to cover all sectors. For example, SBTi aims to finalize the net-zero standard for financial institutions by early 2024. The organization has yet to establish standards for science-based targets for the oil and gas companies in the energy sector.
Europe continues to lead on net-zero commitments
The EU was one of the first jurisdictions to set a net-zero goal, and Europe continues to be the region where the largest percentage of companies have net-zero targets. In Europe, 47.2% of companies have net-zero targets, followed by 33% of companies in Africa, 23.3% of companies in Asia-Pacific. Only 21% of companies in North America and 18.2% of companies in Latin America have net-zero targets.
According to the 2022 CSA, of all the companies that have set net-zero targets, 99% aim to achieve their goal by or before 2050, in line with the recommendations of the IPCC. As for those that have a later target, most occur by 2060.
All of the companies assessed in the 2022 CSA with a longer net-zero deadline after 2050 are in the Asia-Pacific region, including in China, Thailand and Japan. The government of China has pledged to be carbon neutral before 2060, while Thailand in August 2022 announced it aims to reach carbon neutrality by 2050 and achieve net-zero emission by 2065. Japan aims to reach net-zero by 2050.
Scope of corporate net-zero strategies varies
While more companies are setting net-zero targets, their strategies don’t always cover all aspects of corporate emissions.
A fully developed net-zero strategy includes concrete programs or activities to reduce direct and indirect emissions. Direct emissions produced by a company's operations are Scope 1 emissions, while Scope 2 indirect emissions come primarily from purchased energy. Scope 3 indirect emissions occur up and down the company’s value chain — including when customers use the company’s products or services.
The 2022 CSA shows that 96% of companies with a net-zero strategy have implemented a plan to reduce Scope 1 and/or Scope 2 emissions, while only about half of net-zero strategies include actions to reduce Scope 3 emissions. Scope 3 emissions represent the vast majority of emissions for the energy and finance sectors.
Progress over time
The rate of adoption for net-zero targets is still relatively low, but many more companies over the past five years have announced plans to curb their Scope 1 and/or Scope 2 emissions. In each sector, a majority of companies assessed in the CSA now have some form of emissions reduction target.
Still, more rapid cuts will be needed to align with the Paris Agreement, particularly in the wake of the COVID-19 pandemic. The Global Carbon Project and the US National Oceanic and Atmospheric Administration estimated in November 2022 that global emissions that year hit 40.6 billion metric tons of CO2, rebounding almost completely to pre-pandemic levels. NOAA went on to warn that under current emissions levels, the world could exceed 1.5 degrees C of warming within nine years.
Even small increases in annual global temperatures can make a huge difference in the risks companies and society face from climate change. For example, the IPCC in a 2021 report found that only 0.5 degrees C of warming causes “clearly discernable” increases in the intensity and frequency of climate hazards such as heat waves, heavy precipitation and agricultural and ecological droughts.
Scientists have projected that the world is heading for 2.4 degrees C of warming under current governmental pledges made under the Paris Agreement — far above the warming limit of 2 degrees C, or ideally 1.5 degrees C, that the Paris Agreement targets. Avoiding this level of global warming will require actionable net-zero targets from across the corporate world.