More than half of the companies who set measurable net-zero targets are failing to meet them, according to research by FTSE Russell, a subsidiary of the London Stock Exchange Group.
The stock market index specialist found despite companies increasingly publicising net-zero commitments, and investors using these corporate targets to test companies’ alignment with 1.5°C or 2°C pathways, companies’ bespoke target metrics and “poor” follow-on disclosures make robust tracking impossible.
The research discovered more than half of the companies that had set measurable targets had failed to achieve at least one of these. It also demonstrated that almost a third of the companies set their targets using hard-to-compare, bespoke metrics, based on net emissions, production-based intensity metrics or a decarbonisation index, then failed to report on these metrics in subsequent disclosures.
FTSE Russell said the research focused on the FTSE Europe Developed Index, as it has the highest rate of companies disclosing a carbon target for 2020 or prior. A subsample of the 130 companies that represent more than 99% of the index emissions was examined. More than two-thirds of the companies had set an emissions reductions target in 2020 or before then.
To address the issues identified, Jaakko Kooroshy, global head of sustainable investment research, and Felix Fouret, sustainable investing research lead at FTSE Russell, emphasised the importance of setting clearer emissions reductions targets and the need for a greater focus on short-term emissions reductions, with a two-five-year focus.
They also said better ongoing disclosures were required, with historical datapoints, to enable consistent tracking of corporate emissions against reductions targets and they advocated clearly laid out transition plans, for enhancing the credibility of emissions-reductions commitments.
The researchers added that these plans are key for investors to understand whether companies have “set out coherent 2050 pathways or if their proposed emissions reductions are based on vague plans and unproven assumptions”.