Two years ago, the Paris Agreement fired the gun in the race to a low-carbon economy.
Picking up the pace – the second annual edition in CDP’s Tracking progress on corporate climate action series – reveals how over 1,800 companies are responding to the historic Paris Agreement, signed by nearly 200 nations, and the recommendations of the Task Force for Climate-related Financial Disclosure.
Last year, we started tracking the climate action of a representative sample of 1,829 corporates, chosen for their significance in terms of market capitalization and environmental impact. By doing this we can consistently track progress by the companies of the implementation of the Paris Agreement. We found that many companies had begun the transition to a low-carbon world, but their actions were lacking long-term vision and ambition. This year’s follow-up analysis shows how global business is already starting to pick up the pace.
It confirms the low-carbon transition is happening, now, and it’s being driven by companies around the world that realize climate action represents a huge opportunity not to be missed.
Mapping out the transition
Firstly, this year we are seeing that more companies are setting climate targets. Those targets are extending further in time – showing companies are planning for a low-carbon future. And most importantly, there is a growing understanding that corporate targets and action plans need to be in line with the emissions reductions that are needed to prevent dangerous climate change.
Fourteen per cent of responding companies in our sample have now joined the Science Based Targets initiative, thereby committing to setting emissions reduction targets aligned with the level of decarbonization required to keep global temperature increase below 2 degrees Celsius and deliver on the Paris Agreement. That’s an increase from 94 to 151 companies in the last year, including AkzoNobel, EDP and Unilever. An additional 30% – that’s 317 companies – anticipate setting a science-based target within two years.
This is an important shift for companies, from doing what they think they can easily manage, to stepping up to do what’s needed. This is responsible – and smart – business in the age of climate change.
Take the Portuguese energy company EDP, for example, which joined the initiative earlier this year. EDP has committed to reduce scope 1 and 2 emissions from electricity production by 55% per TWh by 2030, from 2015 levels, and to cut absolute scope 3 emissions by 25% over the same period. The company says that adopting a science-based target gives it a competitive advantage by clarifying its position to investors and key stakeholders, who expect companies – particularly those that are large emitters – to clearly elaborate how they are positioned for the low-carbon transition.
Thanks to this rising ambition, our sample is getting ever closer to being on track for a climate-safe world.
Achieving their current targets would take the companies in our sample 31% of the way to being consistent with a 2 degrees pathway. That’s a notable improvement on the 25% reported in 2016.
We’re not there yet, but these global companies are closing the gap – making significant headway in just one year. That is progress to be celebrated. And it bodes well for the kind of acceleration that’s required to bend the curve.
Innovating the next economy
As companies work to meet their goals, they are turning to innovative ways of doing business. Sweden’s first zero-energy neighbourhood, Solallén, is a perfect example of climate-smart innovation. Developed by multinational construction company Skanska AB, it is designed to generate more energy than it uses, saving both carbon and energy costs.
Since last year, there’s been a 20% increase in companies from our sample offering low-carbon products and services. From Nissan selling electric cars, to San Diego working with GE Current, AT&T and Intel to upgrade 25% of the city’s streetlamps to adaptive LEDs with data-collecting sensors, companies are capitalizing on the opportunities from the transition.
In fact, 75% of companies in the sample now say their products and services help others to reduce emissions – whether it’s from selling greener products or providing low-energy buildings. That’s up from 64% last year.
More and more companies are embracing renewable energy. The number with a renewable energy consumption target has increased by 23% in the last year, with companies like BT and Unilever committed to sourcing 100% renewable energy by 2030 as part of the RE100 initiative.
One of the things driving this shift in energy procurement is carbon pricing. While carbon pricing at the national policy level is on the horizon or already underway in many places, a growing number of corporates are storming ahead and setting their own internal price on carbon.
For example, AkzoNobel has an internal carbon price set at the level needed to drive the global transition to zero-net emissions. At a significant €50/tonne, the price is used to assess the company’s investment decisions. And it’s working: the carbon price has forced a rethink of proposed carbon-intensive investments.
As explored in our recent Putting a price on carbon report, this is a key lever for change. It internalizes the hidden cost of carbon pollution, making it show up on the balance sheet. This corrects a key market failure and naturally drives climate action.
Rising to the top
Underpinning this activity is enhanced accountability. Climate change is now firmly on the boardroom agenda. Nearly all companies in our sample – a huge 98% – have responsibility for climate action at board- or senior management-level. 90% have financial incentives tied to corporate climate progress.
And this board-level engagement is likely being driven by more and more investors asserting that climate risk is now a matter of mainstream fiscal responsibility.
“The burden of proof to explain why climate risk isn’t an issue has shifted to companies” explains Aviva Investors’ chief responsible investment officer, Steve Waygood. “The new norm is that companies should be considering climate risk at the board level”.
All this means we are on the cusp of a tipping point that is beginning to mainstream environmental action.
The transition is picking up pace. Winners and losers are already emerging, with the 112 companies on our 2017 Climate A List leading the charge. CDP’s vision – of a thriving economy that works for people and planet – is well within reach. But while many of the companies in this sample are acting ambitiously on climate, there are many that risk being left behind. To close the emissions gap and peak emissions by 2020, we need to move even faster. Ongoing measurement, transparency and accountability will be vital to tracking progress.
Now, it’s time to accelerate.