Faced with climate change and based on the principle that only “green” projects now make sense over time, investment funds are pushing large companies to increase their efforts in favor of the climate and to communicate in a transparent manner. Some companies did not wait for this pressure to take initiatives. We can congratulate ourselves. But is this an epiphenomenon or does the trajectory of the commitments made by companies represent a real fundamental movement?
2021 was a record year for the number of companies labeled by the Science Based Targets Initiative (SBTi), an internationally recognized system for companies adopting an approach aligned with science and emission reduction targets in line with the Paris agreements. In 2021, the number of SBTi-certified companies in the world has doubled to reach 2,253. Their market capitalization represents 38,000 billion dollars. Major service brands joined the initiative last year, including Microsoft, Mastercard and Adobe. The industrial sector is represented by companies such as Apple, Unilever, car manufacturers Mercedes Benz, Ford and General Motors. Or the global food giants like Nestlé, Coca-Cola and PepsiCo.
Beyond the emissions produced for their own needs, almost all companies with approved SBTi targets (96%) have committed to reducing their emissions throughout their entire value chain, including with their suppliers and customers. This point is central to the success of the decarbonization of the economy, the large groups having the vocation to lead their entire ecosystem on a virtuous slope. 2021 was also a year of greater corporate engagement in the adoption of environmental, social and good governance (ESG) policies. Compliance with ESG criteria is increasingly taken into account in the variable compensation of Chief Executive Officers and helps to give credibility to the commitments announced.
Lack of transparency
Despite this movement, less than half (46%) of global companies with verified emissions targets are reporting on their progress. The system, based on the declarative, lacks verification and comparability mechanisms to be credible. This erodes confidence in corporate climate goals, leading to suspicion of greenwashing. In response, SBTi plans to introduce measurement, transparency, control and accountability requirements in early 2023. Regulators will play a critical role in this area, as seen recently in the US with the proposed of the SEC – the stock market policeman – to require reports on the risks and climate objectives of listed companies from 2023. In addition, the SEC’s Climate and ESG task force – created last year – has just to announce its first legal actions to sanction omissions on some of its ESG labeled funds.
It’s urgent. At the end of 2021, as the economy began to return to “business-as-usual” after Covid-19, global emissions rebounded above their already record level of 2019. The world is absolutely not on track to halve its emissions by 2030, a necessary condition to limit the temperature increase to 1.5°C. To have a chance of achieving this goal, all companies must now set science-backed targets (SBTi) for the short and long term. The pace of efforts to reduce greenhouse gas (GHG) emissions must be three to five times faster by 2030 than previous commitments.
The effort required to get on the virtuous trajectory recommended by the IPCC is therefore phenomenal. The more frequent occurrence of climatic anomalies with their devastating effects must lead to accelerating awareness that the point of no return risks being crossed soon. As a matter of urgency, companies must quickly seize tools such as the SBTi framework or ESG policies while increasing and aligning their research efforts to bring low-carbon solutions to market. Interestingly, the French Business Climate Pledge initiative stimulates both of these efforts: reducing its emissions and increasing its innovation efforts; 310 French companies have already subscribed and announced 150 million euros for innovation. Let’s hope it spreads elsewhere in the world. And quick.