Listed companies set to exceed 1.5°C emissions budget by 61%

Based on their current climate transition plans, listed firms representing three quarters of global market capitalisation are set to exceed a 1.5°C emissions budget by 61%, according to new research by the Transition Pathway Initiative.

The organisation’s sixth State of the Corporate Transition, published this week, finds that the climate transition plans of over 2,000 publicly listed companies largely lack credibility and ambition, and too often rely on unproven technologies such as carbon capture and storage.

These companies collectively represent US$87 trillion in market capitalisation across 24 sectors, and approximately three-quarters of total publicly listed equities worldwide. 98% are yet to disclose plans to shift capital away from carbon-intensive assets or to align spending with their long-term decarbonisation goals.

Transition planning gaps

Almost all of them also have a significant gap in transition planning and implementation, with an average management quality score of 3 out of 5, meaning most companies are integrating climate into operational decision-making but not strategic planning.

Overall, the report finds that net zero ambitions are rarely supported by convincing transition planning and implementation, and would require emissions reductions beyond those that companies have recently achieved.

David Russell, Chair of Transition Pathway Initiative, said: “Investors want evidence of transition, not just rhetoric. By connecting management quality scores with emissions data and decarbonisation levers, this report provides a clearer view of whether companies are delivering the emissions reductions required to meet their climate targets.”

Targets are more common, but action is still delayed

Most companies (81%) now have set a quantitative emissions target covering Scope 1, 2 and/or 3, and a similar share (78%) have a long-term emissions target, but just like last year, too many continue to “defer making substantial emissions reductions into the future”, with few setting ambitious intermediate targets to match their long-term ambitions.

This is reflected in the proportion of companies leveraging effective governance mechanisms for climate action: only 45% are incorporating climate into executive remuneration, a similar percentage is incorporating climate risks or opportunities into their strategy, and just 29% disclose an internal carbon price.

Ali Amin, Policy Fellow, TPI Centre at LSE, added: “At a time of increasing transition headwinds, rigorous and transparent analysis is more critical than ever. Our analysis shows that companies are making some progress, but the vast majority remain off track for the Paris Agreement temperature goals. Companies need to accelerate emissions cuts and strengthen transition planning to give investors the confidence they need to invest.”