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New analysis shows G7 firms failing on Paris target with trajectory of 2.7°C

© Shutterstock / Postmodern StudioOliver Wyman's website.

Current corporate emissions reduction targets across the G7 place the current net zero trajectory toward 2.7 °Celsius rather than the 1.5 °C goal of the Paris Agreement, according to Oliver Wyman analysis of CDP’s temperature ratings analysis.

Oliver Wyman’s analysis shows emissions reduction of 25% but the trajectory remains 2.7°C by 2050.

Clarity about the impact of targets and implications for corporates and countries can drive action.

High ambition, policy and investment support will be necessary to change the direction of travel.

Is the Paris Agreement working?

Some of the key findings of the report include the fact that analysis of corporate climate targets suggests that the Paris Agreement is currently unachievable; that progress on target-setting since 2020 has ‘cooled’ the European economy by 0.3°C, to 2.4°C; Asian and North American companies come off the worst, on trajectories of 3.1°C and 2.9°C respectively.

The analysis shows that 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.

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.

He continued: “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.”

What does the analysis tell us about country and corporate climate trajectories?

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.

Science-based targets (SBTs) are generally seen as the gold standard for targets, as they are independently assessed against scientific pathways and are considered a key driver of lower temperature targets.

Corporate targets since 2015 have cut emissions projections by 25%

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. CDP for example sets a default 3.7°C target for those companies without targets.

In Canada, under half (43%) of all reported emissions are covered by a target, compared to France and Germany, for example, where over 90% of reported corporate emissions are from companies with disclosed targets.

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.”

What are CDP’s temperature ratings?

Temperature ratings were developed for financial institutions’ forward-looking corporate climate risk analyses and portfolio temperature assessments. The dataset contains detailed analyses of targets, including science-based targets, for various emission scopes and time periods, as well as current performance indicators.

Jean-Jacques Barbéris, Member of the Executive Committee & Head of Institutional Clients Coverage and ESG, Amundi has said: “Mobilisation and concrete action can only be achieved through a common understanding of the target impacts set by companies, and a recognition of the remaining required efforts.

He continued: “CDP’s … temperature ratings support this collective journey as the economic and financial ecosystem develops new methodologies and data. By being better equipped, investors can future-proof their investment universe from the impact of climate change and improve corporate dialogue.

Understanding CDP’s temperature ratings methdology

CDP temperature ratings draw on its disclosure system and expert Data Analytics team for its ratings. CDP holds the world’s largest and most detailed corporate environmental dataset, which contains uniquely detailed information on company targets and GHG data.

The process uses a public, expert-reviewed and open-source protocol developed by CDP and WWF for interpreting corporate emission targets under key climate scenarios. This protocol translates individual targets of varied formats into consistent and comparable temperature ratings.

The temperature pathways used in CDP temperature ratings are derived from the UN Intergovernmental Panel on Climate Change (IPCC) 1.5°C report and the Integrated Assessment Modelling Consortium (IAMC) database of climate scenarios.

CDP temperature ratings systematically assess companies’ entire emissions, producing separate °C temperatures for operational (scope 1 and 2) and complete value chain (scope 1, 2 and 3) emissions, including across short, medium, and long-term timeframes. Those companies without any targets are automatically allocated a 3.7°C ‘temperature’.

The data is supplemented with current temperature scores from the Science Based Targets initiative as well as from GHG emissions trend analysis, resulting in almost 4,000 unique company ratings.

The analysis of the temperature ratings was released by management consultant and strategic advisor Oliver Wyman. It is part of Marsh McLellan, one of the world’s largest professional services groups.

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