Can businesses deliver on their climate promises?

“I’m very much a believer that it’s action that matters much more so than, you know, the flurry of political promises and statements and slogans.” 

Those were the words of Christine Lagarde, some years before she became president of the European Central Bank. Now, with the ECB calling for action on climate change to protect market stability, but banks and energy groups offering only evermore ambitious pledges, her preference resonates.

As Nigel Topping, UN high-level champion for climate action, has noted, there has been no shortage of statements of intent. By March, more than a fifth of the world’s 2,000 largest public companies had “committed” to achieving net zero greenhouse gas emissions.

However, when Climate Action 100+, a group of 575 investment firms managing $54tn in assets, compiled its first benchmark of “corporate ambition” that same month, it found none of the largest emitters had fully disclosed how it would keep its word. According to the investors, “companies still have a long way to go in delivering on these promises”. 

It is to bridge this gap between action and ambition that the FT and Statista have launched their first listing of Europe’s Climate Leaders: those companies that have already achieved a significant reduction in their direct carbon emissions.

Its aim is to indicate which companies have the best chance of meeting their climate pledges, and the targets set by governments. For example, the EU’s recently increased target of cutting carbon emissions by 55 per cent by 2030, compared with 1990 levels, equates to an annualised reduction of 1.98 per cent. All 300 companies in the inaugural listing are well ahead of that rate in their own operations, with annualised emission cuts ranging from 4.4 per cent to 51.9 per cent.

But more companies will need to match this performance if global targets are to be met — as Mindy Lubber, chief executive of sustainable investor network Ceres, noted earlier this year: “There is an urgent need for greater corporate action and higher ambition in accelerating the net-zero economy and ensuring a safe and viable future.” 

Progress made by the companies in the FT-Statista listing has also been acknowledged by international initiatives. Several have met the criteria for credible emission reduction plans required by the UN’s Race To Zero campaign, which aims to build momentum for corporate action ahead of its COP26 climate conference in November. They include businesses whose industries have historically had a poor record on climate: Ørsted, formerly known as Danish Oil and Natural Gas, for example, and Swedish truckmaker Volvo Group.

There is an urgent need for greater corporate ambition in accelerating the net-zero economy

However, they earn their place in the FT list for their emissions cuts and their transparency of reporting, as recognised by the independent Carbon Disclosure Project, or CDP. Several of the once-primarily fossil fuel energy groups in the listing — Drax, Centrica, Engie, Enel, Endesa — achieve an A or A- rating from CDP*. Companies emitting more than 10m tonnes of CO2-equivalent a year had to achieve a CDP rating of A or B to be eligible.

But this initial FT-Statista listing is only a starting point. It will not provide an accurate picture of the companies making the biggest contribution to limiting climate change until it can include all of their Scope 3, or indirect, emissions — which many still fail to calculate and few report in a standardised way.

Campaigners and climate scientists argue that not including Scope 3 emissions — from all parts of a company’s supply chain and the use of its products — renders any assessment meaningless, as they make up the largest component. In food and beverage companies, they can be 10 times the direct emissions; in fashion companies 25 times, or more. Fast-fashion chain H&M estimates that Scope 3 emissions make up 99.5 per cent of its overall environmental impact.

Similarly, the emissions that are, in effect, financed by banks and asset managers need to be added to any calculations of reductions. Johnny White, a lawyer who works for climate charity ClientEarth, says: “It is key for them to set out clearly how they will reduce these financed emissions. No financial institution can call itself a ‘climate leader’ if it is not taking real, credible action to reduce its financed emissions now.”

But, under the standards set by the Greenhouse Gas Protocol — a joint initiative by research organisation the World Resources Institute and the World Business Council for Sustainable Development, a corporate umbrella group — there are 15 categories of Scope 3 emissions. If these are not all disclosed in full, misleading discrepancies can arise.

Scope 3 emissions are a crucial missing factor in other listings, too. Of the 159 company pledges assessed by the Climate Action 100+ benchmark, 83 involved achieving net-zero emissions by 2050 or sooner. But 44 of the pledges “did not cover the full scope of the companies’ most material emissions”.

Future FT-Statista listings of Europe’s Climate Leaders will endeavour to incorporate Scope 3 emissions as soon as there is widespread and consistent disclosure. For now, the listing shows which companies report on Scope 3, and a majority already do: 196 of the 300.

Being able to compare corporate promises with corporate action accurately should instil more confidence not only in investors and central bankers, but also in policymakers as they set their next targets. As Topping, the UN high-level champion, puts it: “The resulting ‘ambition loop’ drives exponential change.”

*This article has been amended since initial publication to reflect the fact that Drax is no longer a fossil-fuel energy group.

Climate Capital

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