G7 corporations can align with Paris goals through science-based targets

Green corporate pledges are everywhere. Companies are rushing to announce plans to fight climate change and cut their greenhouse gas (GHG) emissions to net-zero by 2050. Yet none of the market indices of the G7, the world’s largest advanced economies, are currently on track to meet the Paris Agreement goals of limiting global warming to well below 2°C above pre-industrial levels, preferably to 1.5°C.

This is at odds with the ambitions of the G7 nations, who recently vowed to accelerate efforts to meet the Paris Agreement goals and explicitly called for businesses to increase ambition using science-based targets in their communique.

The UK plans to reduce emissions by an impressive 78% by 2035, in line with a 1.5°C pathway. While 35 of the FTSE 100 companies have already committed to align with 1.5°C, some of the largest emitters still do not have ambitious climate targets, resulting in an overall index temperature rating of 3.1°C according to new research by the United Nations Global Compact and CDP on behalf of the Science Based Targets initiative (SBTi). According to the study, the leading indices of G7 countries are on an average temperature pathway of 2.95°C.

National climate goals will not be met if the world’s largest listed companies don’t play their part. Major corporations are benchmarks for their domestic economies – which collectively account for 40% of global GDP and 25% of emissions.

The best way for companies to make credible climate goals is to use scientific criteria. Targets are considered science-based if they align with what the latest climate science deems necessary to meet the goals of the Paris Agreement. The SBTi helps companies calculate how much carbon they must remove from their productive processes to meet the Paris Agreement goals. Businesses also need to back up their long-term pledges with short-term targets. A recent report from the New Climate Institute shows that only 8% of company net-zero targets have interim goals. How then can current bosses be held accountable for targets that are 20 or 30 years into the future?

The good news is that momentum is building toward science-based standards ahead of this year’s COP26 climate conference in Glasgow. More than 1,500 companies across 60 countries have committed to set targets with the SBTi. These companies represent over 20% of the global economy in terms of market cap. Recent analysis shows that the science works: companies with science-based targets have collectively reduced their annual emissions by 25% between 2015 and 2019. With an average 70 new companies joining the SBTi every month there is huge potential to unlock breakthrough mitigation through science-based targets in G7 countries and beyond. And these numbers continue to grow.

To achieve these goals, companies are switching to renewable energy sources and reducing energy consumption wherever possible, to sustainable sourcing and reducing water consumption.

There are several levers to pull to get companies to step up their ambition, starting with the finance sector. The G7 have recognized this in their welcome call for banks and companies to disclose their exposure to climate-related risks. Initiatives such as the mandatory climate-related financial disclosures can help mobilize the trillions of dollars of private sector finance needed, and reinforce government policy to meet net-zero commitments. Over 61% of investors will not put money into companies that do not have a net-zero plan, according to a survey by Standard Chartered. Investors have the ability to demand rigorous science-based standards from their invested companies.

While financial markets are starting to witness a movement towards science-based targets, banks should incorporate science-based targets to sustainability-linked bonds or loans. The SBTi calls on banks, investors, insurance companies, pension funds and others to align their lending and investment activities with the Paris Agreement using the new target setting methodology for financial institutions. Combined, incorporating these measures would have a domino effect through all sectors of the economy.

Second, corporations can look beyond their own operations and work with their supply chains on decarbonization, measuring and reducing what are known as Scope 3 emissions.

Finally, governments can work with the private sector to reinforce an “ambition loop” such as the US government’s executive order that federal suppliers set science-based targets. Recognizing the importance of net-zero innovation, the G7 has announced tangible actions for a technology driven transition of the most polluting sectors and activities. These include increasing energy efficiency, accelerating investments in renewable energies and scaling up zero emission transport technologies.

The largest companies urgently need to lead the way, because there is no time to waste. Businesses must draw up decarbonization plans, set ambitious, short-term science-based targets, and report on their progress.