A new report from investment data and research provider MSCI has revealed a significant rise in public companies disclosing Scope 3 emissions.
Over a third of these companies are now sharing this vital information, which pertains to indirect emissions throughout the value chain, and usually represents the bulk of a company’s climate footprint. This marks a substantial rise in transparency, which is reflected in an accompanying increase in corporate decarbonisation commitments.
Despite these improvements in disclosure and climate pledges, the study uncovers an unsettling trend: direct emissions from these companies have not dropped this year and are on track to substantially surpass the levels required to keep global temperature increases to 1.5°C.
This report is the latest instalment of the MSCI Net-Zero Tracker, which evaluates the climate change progress of companies within the MSCI All Country World Investable Market Index (ACWI IMI). The assessment incorporates data from the “Implied Temperature Rise” metric, an innovative tool introduced in 2021 that converts current and future greenhouse gas emissions to an estimated rise in global temperature. This accounts for each company’s specific emissions reduction targets.
The study arrives at a time when Scope 3 emissions reporting and climate plans are likely to become more prevalent, especially as major regulatory reporting systems – in Europe, the U.S. and other global standards – are gearing up to enforce mandatory climate disclosure systems in the next few years. One such initiative is the IFRS Foundation’s new climate and sustainability reporting standards, which will come into effect in 2024, and will include Scope 3 reporting.
The report indicates that 35% of listed companies are now reporting on at least some Scope 3 emissions, up from roughly 30% only seven months prior. Moreover, 44% of these companies are setting decarbonisation targets, marking an increase of 8 percentage points over the same period.
However, these commitments are varied in quality and comprehensiveness. Only 30% include net zero goals, and just 17% align with a 1.5°C pathway. Alarmingly, some net zero targets do not account for the entire scope of value chain emissions, and others rely on carbon offsets without third-party validation.
Furthermore, the report found that public companies continue to emit at record levels, with a projected 11.2 gigatonnes of CO2e this year, unchanged from 2022.
According to the Implied Temperature Rise metric, only 19% of companies currently align with a 1.5°C pathway, a modest increase from 16% seven months ago. Meanwhile, 51% align with the Paris Agreement’s upper limit of keeping temperature increases to under 2°C. In summary, the report suggests that the average listed company is aligned with a trajectory towards a 2.7°C increase.
MSCI’s executive director of climate change investment research, Sylvain Vanston, commented: “Investors must address transition risks today or face severe and irreversible physical risks tomorrow. They have a role to play in driving the existential change required. Investors can use their strategic levers, including asset allocation, green investments, and engagement with boards and policymakers, to not only put companies on a net-zero path but also encourage the regulatory changes needed to level the business playing field.”
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