Global leaders will meet in Sharm el-Sheikh in November to keep the Paris agreement’s 1.5°C target alive, but climate ambition in G7 economies and beyond is putting the COP27 vision out of reach, according to new analysis by non-profit CDP and global management consultancy Oliver Wyman.
Based on current emissions reduction targets set by companies, no G7 country has a corporate sector likely to decarbonize fast enough to meet the 1.5°C goal.
On aggregate across the G7, corporate emissions targets are calculated as aligned with 2.7°C of global warming.[1]
The report shows companies in Germany and Italy have the most ambitious targets to reduce emissions in the G7, where collective emissions are expected to match the pace of decarbonization required to limit global warming to 2.2°C.
The two leading countries are followed by France (2.3°C), the United Kingdom (2.6°C) and the United States (2.8°C).
Canadian companies fare worst in the G7, with targets aligned with 3.1°C of warming on average.
Temperature ratings in the study reflect corporate ambition, rather than national climate policies or Nationally Determined Contributions (NDCs). However, with COP27 approaching, the gap between what is promised by policymakers and the real economy is considerable.
The analysis is based on CDP temperature ratings, which translate companies’ emissions reduction targets into a global warming outcome using scientific pathways. The ratings, which include all emissions in company value chains (Scope 1-3), reflect the likely temperature rise if global emissions would fall at the same speed as the companies’ targets.
For each country’s temperature, ratings for individual companies were aggregated and weighted by total emissions.
The analysis shows a clear and consistent outperformance by European companies over North American and Asian peers across all industries.
The European power generation sector, for example, is ahead of all sectors globally on 1.9°C of warming. That compares to 2.1°C for North American companies and 3°C for Asian companies. Target-setting in the industry in Europe is much more advanced, with around 80% of all emissions covered by a valid 2°C target or better.
On the whole, the European corporate sector improved from 2.7°C in 2020 to 2.4°C in 2022, explained in part by a rapid 85% rise in companies with science-based targets during 2021.[2]
Science-based targets (SBTs), seen as the gold standard for targets as they are independently assessed against scientific pathways, are a key driver of lower temperature targets.
Collectively, companies with science-based targets have reduced emissions 25% since 2015, compared to an increase of 3.4% in global emissions from energy and industry.
The high temperature ratings seen in countries like Canada and the United States are largely the result of companies completely lacking targets, rather than targets that lack ambition.
In Canada, under half (43%) of all reported Scope 1 and 2 emissions are covered by a target, compared to France and Germany, for example, where over 90% of reported Scope 1 and 2 corporate emissions are from companies with disclosed targets.
The Paris climate agreement targets a 1.5°C limit to global warming – a goal that the United Nations Intergovernmental Panel on Climate Change (IPCC) says must be met to avoid even more catastrophic impacts of climate change.
The difference between 1.5°C and 2°C, for example, includes a 10x increased likelihood of ice-free arctic summers, a 2.6x increase in the number of people exposed to extreme heat events, and twice the impact on marine fisheries and crop yields, according to the IPCC. [3]
Laurent Babikian, Global Director Capital Markets, CDP, said:
“The most important driver of rapid emissions reductions in line with the Paris agreement is ambitious target setting. It is not acceptable for any country, let alone the world’s most advanced economies, to have industries displaying so little collective ambition. Armed with this information, governments, regulators, investors and the public must demand more from high-impact companies without climate targets. Momentum is growing, but as we approach COP27, we must get our 1.5°C goal off of life support. High-impact companies, and their investors and lenders, must immediately set and honour targets with credible transition plans to allow us to meet this goal.”
James Davis, Partner, Financial Services at Oliver Wyman, said:
“The analysis highlights big differences in ambition and willingness across companies to take a lead with their targets, and the urgent need to spread best practices further and faster if we are to have a chance of reducing emissions to achieve 1.5°C – a goal whose importance has only been underscored by recent extreme weather. Supportive government policy is crucial, as well as resolving the structural challenges in some sectors and regions. As the financial system commits to net zero and seeks to steer capital towards those pioneering the low carbon economy, there will be growing scrutiny on corporate emissions, targets and transition plans, underpinned by the move towards mandatory disclosures in many key jurisdictions.”
