Global listed companies’ current carbon reduction targets fall well short of the proposed aggregate emissions target announced in the Paris climate deal, suggesting that countries may impose tougher regulations.
The climate deal struck at the COP-21 meeting in Paris on Dec. 12 set an ambitious goal of limiting the temperature rise to 2 degrees Celsius, with a stretch goal of 1.5 degrees. While legally binding country emission reduction targets appear to be missing, countries agreed to establish a framework for monitoring, measuring and verifying emissions reductions and to update their progress every five years.
Listed large and mid-cap companies that were constituents of the MSCI ACWI Index accounted for approximately 20% of global emissions in 2014, based on MSCI ESG Research carbon emissions data and estimates. (The MSCI ACWI Index contains over 2,400 constituents in 23 developed and 23 emerging markets.)
- We estimate that one-third of the companies in the MSCI ACWI Index have already set carbon reduction targets, which, if extrapolated, would result in 27% lower emissions by 2030 versus 2015. We identify around 550 companies that are ahead of the curve, with reduction targets even more ambitious than their countries’ targets.
- However, gains by these companies would be largely offset by the two-thirds of companies without targets, leaving overall corporate emissions relatively flat.
- Even if all companies were to meet their currently stated targets, on a collective basis they would still fall short of the proposed aggregate emissions reduction commitments submitted by countries.
- The implications of this potential shortfall are significant:
- To meet the commitments made by developed market countries, we estimate that companies in the MSCI World Index (an index comprising 1,643 constituents from 23 developed markets) would need to further reduce their annual carbon emissions by approximately 370 million tons CO2e by 2030, or the equivalent of shutting approximately 100 coal-fired power plants, based on data from the U.S. Environmental Protection Agency.
- We further estimate that emerging market companies could fall short of their targets relative by more than 700 million tons CO2e by 2030, if emissions are left on their current track. This shortfall could leave companies vulnerable to increased regulation as country-level targets ratchet up over the next decade.
- The gap between company targets and country commitments is widest in the Energy sector globally. Our analysis shows that only 16 out of the 146 energy sector companies in the MSCI ACWI Index had targets in line with country commitments; 112 Energy companies lacked reduction targets altogether.
Read the paper, “Implications of COP-21: How do Corporate Carbon Reduction Targets Stack Up?”
Watch the recorded webinar, "COP21 Dissected: What the outcomes may mean for institutional investors"