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Understanding ESG
Current carbon cuts below Paris target needs
Marginal improvements insufficient to meet goal, 8% to 10% annual reductions needed
The Asset 29 Jun 2022

All listed companies must each reduce their total carbon intensity by 8% to 10% every year until 2050 if the 1.5 degree Celsius target set by the Paris agreement is to be met, yet only 39% of companies reduced emission intensity by that amount between 2019 and 2020, according to a recent report.

Listed companies are on track to put nearly 10.8 billion tons (gigatons) of direct Scope 1 greenhouse gas (GHG) emissions into the atmosphere this year, up approximately 0.7% from last year but down 5.6% from the pre-pandemic high, states Net-Zero Tracker published by MSCI.

Setting a target is the first step towards emissions reductions. However, the report found that 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.

Less than half (46%) of listed companies align with a two degree Celsius temperature rise, putting them at the high end of the Paris agreement goal, the report’s analysis shows. Significantly less, 11%, align with a 1.5 degree rise, although this figure is a slight increase from 10% of companies that aligned in the previous quarter.

When analysing by industry group, the energy sector aligns with the highest temperature rise of 6.8 degrees. This is followed by automobiles and components, 4.4 degrees; materials, 4.1; and utilities, 3.4.

Globally, no region yet aligns with the Paris agreement target, highlighting the vast action required by the world’s listed companies, policymakers and investors.

In October 2021, MSCI calculated that the world’s publicly listed companies were on a trajectory to cause global temperatures to rise by 3 degrees. However, the report’s analysis reveals this has been cut by a tenth of a degree to 2.9, based on additional listed companies publishing targets.

In addition, listed companies, the report notes, will burn through their share of the global carbon budget three months later than previously projected based on their current GHG output. The budget for limiting warming to 1.5 degrees will be depleted by February 2027, instead of November 2026.

“While [the report] acknowledges more listed companies are taking climate responsibilities seriously, the amount of action is still insufficient,” says Sylvain Vanston, executive director, climate change investment research, MSCI. “Listed companies are emitting GHGs into the atmosphere at a rate that would make the planet 2.9 degrees warmer by 2100. And a 1.5 degree alignment will only be viable if these companies cut their total carbon intensity by 10% each year until 2050.”

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