Posted in GreenBiz
June 6, 2022

The bar for corporate climate leadership is rising


This article was originally published on World Resources Institute. Read it here.

The latest IPCC report tells us we are at a crossroads between a livable future and one characterized by even greater extreme weather, food and water insecurity, and social inequities. Industry-wide systems change is essential, and certain indicators can help track progress. 

In the context of corporate sustainability, science-based targets have been a leading indicator of whether a company will meet its emissions-reduction commitments. These are targets aligned with the level of emissions reductions scientists say are necessary for limiting global temperature rise to 1.5 degrees Celsius and preventing the worst impacts of climate change.  

According to the 2021 Science Based Targets initiative (SBTi) Progress Report, the 3,000-plus companies taking action with SBTi represent more than one-third of the global economy ($38 trillion) and are cutting emissions twice as fast as what’s needed to limit warming to 1.5 degrees C. SBTi companies have cut their emissions (scopes 1 & 2) by 29 percent since 2015, collectively reducing their CO2 emissions by 53 million tons — equivalent to taking more than 60 million cars off the road.  

This is a far cry from where we were 10 years ago, when very few businesses had targets to reduce their emissions in line with climate science. A company that had committed to setting a science-based target was far more likely to reduce its greenhouse gas emissions than one that had no commitment at all or had set an arbitrary reduction commitment. At the time, it was also a way for businesses to acknowledge the reality of climate change. 

However, as science-based target setting has become a more customary practice, the landscape has shifted in a positive direction — and with it, the expected standard for corporate climate action. We can no longer rely on science-based target setting as our only indicator of progress.  

The bar for corporate climate leadership has risen. Now we need to see the plan of action. 

Why corporations need to publish their climate transition plans 

Today, there are new standards and additional leading indicators for leadership. One is adopting a science-based climate policy agenda. Another critical component is public disclosure of how companies will meet their science-based targets through climate transition plans.  

In some ways, corporate climate transition plans can be thought of as the private sector equivalent of national climate action plans (known formally as Nationally Determined Contributions, or NDCs). Both are intended to be blueprints for action. Corporate climate transition plans serve three purposes: 

  • Stakeholder accountability: Stakeholders (investors, governments, employees, customers and civil society organizations) can see if enough climate action is happening fast enough, or if there are gaps that still need to be plugged by companies or others. We don’t want to realize in five years’ time that a company completely missed its emissions-reduction target because its plan for achieving it was not adequate in the first place. 
  • Policy planning: Civil society organizations, governments and companies themselves can determine how much mandatory climate action will be required. It may well be that many companies’ plans make it evident that they can get part way to their emissions-reduction targets with voluntary action, but need mandatory action through government policy and regulation to get all the way there. 
  • Collaboration: Companies can learn from each other and collaborate where they have similar components in their plans. 

Traditionally, companies have only provided numerical values for how much they aim to decrease their emissions. We now know that targets without a defined strategy are less likely to be implemented. As WWF’s Turning Blue Chips Green report states, “Speculative targets set many years ahead provide sparse guidance or accountability for delivery. […] Action plans put meat on the bones of high-level emissions-reduction targets and support their implementation.”   

And it can be done. One example in action: French bank La Banque Postale paired its emissions-reduction targets with an ambitious fossil fuel phase-out policy, independently assessed by Reclaim Finance as global best practice for restricting financial support to the oil and gas industry.  

Current disclosure of corporate climate action plans is inadequate 

The problem is that few companies actually have climate transition plans.  

CDP’s 2021 Climate Transition Plan Disclosure finds that only 33 percent of 13,100 companies reported developing a low-carbon transition plan in 2021. And of those, less than 1 percent reported on all 24 indicators CDP recommends.  

These results are deeply concerning — even more so when you consider that there is no verification that companies actually have the plans they say they do; and if the plans do exist, we don’t know if they’re credible or stand a good chance of achieving companies’ targets.  

Making climate transition plans a leading indicator of corporate climate action 

Four steps are necessary to mainstream corporate climate transition plans: 

  1. It must become unacceptable to NGOs, investors and customers to work with companies that are not on a route to setting a science-based target.   
  2. Businesses that have set science-based targets need to set new leading indicators by opening their plans up to public scrutiny for meeting their target. 
  3. Acting as an unbiased third-party, NGOs (or a private entity) should then assess these plans and provide research, tools and guidance to address any gaps in companies’ abilities to meet their emissions-reduction goals.  
  4. In turn, foundations must provide financial support to the NGOs doing this work. 

It’s time to make climate transition plans a leading indicator of corporate ambition and action. Simply setting an emissions-reduction target is not enough. Businesses need to get to the next level of transparency for corporate climate action. 

June 6, 2022 at 01:21PM

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