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Less than a fifth of listed companies’ climate targets align with 1.5C goal, says MSCI

Smoke billowing over a plant in a suburb of Lille
17 per cent of listed companies’ climate targets match the Paris goal of limiting the global temperature increase to 1.5C. (Photo: DENIS CHARLET/AFP via Getty Images)

Research shows most public companies have weak climate targets and points to the greater presence of high-polluting industries among listed businesses compared to their privately held counterparts.

Almost half of listed companies around the world have now set climate goals but less than a fifth of these businesses’ targets meet the Paris Agreement’s climate goal, according to data provider MSCI.

Forty-four per cent of listed companies had decarbonisation targets as of March, up from 36 per cent in October 2022. But an analysis of the MSCI ACWI Investable Market Index, which covers 9,139 public companies across 23 developed markets and 24 emerging markets, revealed that just 17 per cent of listed companies’ climate targets match the Paris goal of limiting the global temperature increase to 1.5C compared to pre-industrial levels. Thirty per cent of these companies’ have set climate targets to reach net zero. 

MSCI also disclosed that private companies produce lower carbon emissions than their listed peers in four of the five most carbon-intensive sectors.

Listed companies are, however, improving on their disclosure of their Scope 3 emissions. Thirty-five per cent of the analysed public companies publish Scope 3 emissions linked to their suppliers and products, representing a 5 per cent increase from October.

“We are seeing greater progress from public companies towards achieving essential climate goals,” said Sylvain Vanston, MSCI executive director for climate change investment research, who added that “a significant gap remains between their climate commitments and their carbon emissions”.

MSCI revealed that the utilities sector leads the way on self-imposed net zero targets, with almost two-fifths of companies in the sector having adopted goals. The energy and consumer staples sectors followed.

The index provider also found that private companies produced fewer emissions than their listed equivalents.

“Privately held companies skew toward industries such as information technology and healthcare that are generally less carbon-intensive,” MSCI observed. 

IT and healthcare together make up 47 per cent of the aggregate market value of institutional private holdings, yet just 6 per cent of institutionally financed emissions, it said.

In contrast, utilities, energy and materials companies account for 6 per cent of the overall market value of unlisted businesses, but make up almost half of estimated financed emissions.

Companies are reacting to legislative changes that, in certain jurisdictions, are compelling them to release transition plans.

In the UK, more than 80 per cent of listed companies have pledged to reach net zero by 2050, according to EY. However, despite a commitment at the COP26 conference that the UK would mandate UK-listed businesses to publish decarbonisation plans by 2023, only 5 per cent had published “detailed, actionable transition plans”, EY said in April.

Listed businesses also face pressure from their shareholders over their policies to climate change. 

US-listed Amazon faces a resolution at its May 24 annual general meeting asking it to measure and disclose its greenhouse gas emissions, while a resolution calling on US-listed insurance company Chubb to adopt an underwriting policy in line with the International Energy Agency’s net zero scenario has been filed for its May 17 AGM.

A service from the Financial Times