A third or less of companies from high-emitting sectors have science-based climate targets

Targets provide the market with a signal of a company’s climate ambitions and intent to decarbonise, and are a critical element to any transition plan. However, there needs to be rigor in the target-setting process to ensue that companies are genuine in their ambitions with plausible plans, including short-term goals to keep the company on track and accountable, in order to reduce the risk of perceived greenwashing.

Investors are looking for companies to set 1) a longer-term net zero ambition consistent with the Paris Agreement (i.e. aiming for 2050 or sooner), and 2) a medium-term interim target consistent with a Paris-aligned climate pathway (e.g. a 2030 target consistent with a fair share of the 50% emissions reduction required by the IPCC 1.5C scenario).

BUT while 21% of the largest 2,000 companies have now set net zero targets only 8% of companies with net zero goals have set interm targets .

Three stages for setting decarbonisation targets

1. Analyse the historical emissions profile across the value chain. Companies need to understand the magnitude of their emissions exposures across the full value chain (Scopes 1, 2, and 3) to both understand their starting point and determine where the most action and focus is required.

2. Use climate scenarios to understand the required emissions reductions through time that are consistent with Paris-aligned net-zero pathways and analyse the feasibility of achieving the required reductions. Use science-based pathways to model plausible pathways for companies to achieve net-zero, considering different climate risks and the associated financial implications.

3. Set time-bound, granular, and measurable targets, informed by the results of the first two steps. A longer-term net-zero goal should align with the Paris Agreement, with a target date of 2050 or sooner. An interim target should also be set (e.g. 2030) aligning with a science-based net-zero pathway (aiming for 1.5C), to keep companies on track and accountable in the nearer term. Targets should encompass all emissions scopes across the value chain where possible (Scopes 1-2 at minimum), with strategy focused on reducing actual emissions before relying on carbon offsets as a primary strategy. Targets should be regularly reviewed and adjusted where required, particularly given the rapidly changing technological landscape.