Why are only 11% of global companies aligned with the EU Taxonomy

Net zero commitments from corporates and investors have rapidly increased in recent years, with two-thirds of the largest 167 global emitting corporates (responsible for over 80% of global industrial emissions) and over US$88tn in assets having committed to net zero.

Despite significant pressure to develop net zero transition strategies continues to mount, existing frameworks are nascent and still evolving and many investors have been plagued by greenwashing claims.

The Top 4 shortcomings of existing corporate net-zero targets I’ve seen so far

· Time frame: Given the long-dated nature of net-zero targets (e.g. 2050), companies often lack short-term reduction incentives necessary to meet a well-below 2°C future. Existing management teams and boards are less incentivised by longer-dated targets, and are not held accountable to shorter-term milestones.

· Accountability: Net-zero targets often lack any form of interim targets or reporting mechanism by which investors can more regularly measure progress. Some investors also would like to see greater accountability to these targets within management pay packages.

· Scope: The emissions tied to a company’s operational emissions (scopes 1 & 2) tend to be the primary focus of net-zero target, whereas the vast majority of companies’ emissions footprints lie outside of their operations (scope 3).

· Reduction Strategy: Targets often focus on offsetting emissions with tools that are either not yet commercially deployed at scale (e.g. carbon capture and storage) or not viewed as effective in reducing carbon emissions (e.g. carbon offsets). These methods often back-load absolute emissions reductions and do little to effect near-term changes.