World’s largest companies are failing on climate action, new report shows

The Corporate Climate Responsibility Monitor (CCRM) 2024 released by non-profit New Climate Institute on April 9, 2024, assessed climate targets put forth by 51 of the world’s largest companies. These 51 companies had a collective revenue of $6.1 trillion in 2022 and self-reported greenhouse gases (GHG) emissions of 8.8 gigatonnes of CO2 equivalent in the same year — roughly equal to the total annual GHG emissions of India, Russia, and Brazil combined. That is 16 per cent of global GHG emissions in 2022.

Their improvement with regards to climate action, however, have been slow.

Emissions reduction and net zero

Based on their 2030 targets, the 51 companies together are set to reduce emissions by only 30 per cent, compared to 2019 levels. Moreover, only 7 companies have targets poised to reduce their emissions more than 50 per cent by 2030.

Source: Corporate Climate Responsibility Monitor 2024

Beyond emission reduction targets, the CCRM evaluates the approach taken by companies to meet their targets and the transparency of their progress. The result of this is an Integrity score on a 5-point scale ranging from “High” to “Very Poor”. In this year’s assessment, not a single company was classified under High Integrity.

Danone, Ibendrola, Mars, and Volvo Group were identified to have reasonably good emission reduction plans. Conversely, H&M, Nike and Inditex were seen to be lacking in plans to achieve their targets. Walmart has not updated its targets since setting them in 2016 while Volkswagen dropped its interim 2025 target and has not replaced it yet.

Along with this, the report finds that many countries depend on contentious solutions to meet their targets. These include carbon capture, utilisation and storage, transitional fuels, bioenergy and carbon dioxide removals. Altogether, while companies are slowly progressing on their climate targets, they are not on track to achieving the emissions reduction required to limit global temperature rise to 1.5 degrees Celsius (°C).

Instead, there is a risk of them shirking accountability through carbon offsets. A proposed framework on offsetting Scope 3 emissions may make this easier.

The offsets loophole

Broadly, Scope 1 emissions occur from sources directly controlled by a corporation, such as the emissions from its own production processes. Scope 2 emissions are associated with a corporation’s use of energy, such as its source of electricity. Scope 3 emissions are those resulting from all other sources across the supply chain that are not directly under the control of the corporation, such as emissions from the use of the product by its consumers. Scope 3 emissions account for a majority of emissions across sectors. Take the 4 key sectors covered by the CCRM for example: 

Given that a majority of companies do not transparently report on Scope 3 emissions or have specific targets to tackle them, building accountability is essential. Upcoming mechanisms, however, may provide a loophole for companies to bypass the Scope 3 question altogether.

The Voluntary Carbon Market Initiative (VCMI) recently proposed a “beta Scope 3 Flexibility Claim” which would allow companies to offset up to 50 per cent of their Scope 3 emissions. On April 9, the Science Based Targets initiative (SBTi) — the largest validator of corporate targets — announced that it would accept the use of carbon offsetting as a tool for companies to tackle Scope 3 emissions. Whether the VCMI mechanism would have a link to the SBTi is unclear at this moment.

Testing out the potential use of flexible offsetting, CCRM found that such a move would effectively erase accountability for Scope 3 emissions for companies. This means the only real targets the companies would have would be on their Scope 1 and 2 emissions. As noted in the figure below, this immediately pulls the rating of companies down to “Poor” given the large share of Scope 3 in their value chains. The Scope 3 emissions targets themselves are already insufficient to align with a 1.5°C pathway, according to the report.

Source: Corporate Climate Responsibility Monitor 2024

Over reliance on voluntary reporting

The climate targets set by companies are voluntary. These are then assessed under validation frameworks led by standard setting bodies who determine whether the targets and efforts are robust. This certification lends legitimacy to company targets. Examples of validator bodies include SBTi, Transition Pathways Initiative and MSCI Net Zero Tracker. While the SBTi remains the largest validator of corporate climate targets, limitations of its framework have been voiced.

Maintaining a voluntary ecosystem to encourage companies to set out emission reduction targets has proved useful, with reports stating that more than 1,000 companies have outlined plans. However, when it comes to progressing towards these targets and holding accountability, this system has obvious gaps. For starters, there is no direction on identifying baselines for emission reduction. Many companies have announced ambitious targets, voiced their support of a low-carbon world and then either backtracked or silently abandoned them. The SBTi recently removed hundreds of companies including Microsoft and Unilever from its database for failing to update their plans. However, beyond bad press, there is little consequence for failing to meet a target.

The CCRM opines that in this critical decade, we may have overshot the importance of voluntary climate pledges from companies. A more stringent accountability system for corporations is needed for targets to translate into true emissions reduction from private corporations.