Transition-finance indicators show companies’ misalignment with climate goals

There are multiple ways to measure companies’ alignment with global climate goals. No matter how you look at it though, the world’s listed companies remain largely off track.

That’s the key takeaway from the latest edition of our Net-Zero Tracker, which examines alignment of listed companies with net-zero pathways based on a series of indicators that investors now use to track that progress.

We analyze company progress through three lenses: the Net Zero Investment Framework (NZIF) developed by the Paris Aligned Investment Initiative; the number of companies setting science-based climate targets; and temperature alignment metrics used by investors. Among our findings:

Eighty-four percent of listed companies are “not aligning” with net-zero (meaning they’ve yet to make a commitment to decarbonize in line with achieving net-zero), the least mature of five alignment categories established by the NZIF.

The misalignment of listed companies with a net-zero pathway differs little between companies in sectors deemed “high impact” by the NZIF and those in other sectors, with 83% of companies in high-impact sectors and 85% of companies in low-impact sectors not aligning with net-zero, as of June 24, 2024.

The most-valuable companies tend to be more mature in their alignment than their counterparts. Still, among the 100 largest companies by market capitalization, 43% were not aligning, based on the NZIF maturity scale, as of June 24, 2024, followed by just under a third (30%) that were “committed to aligning,” the second least-mature category.

The consumer staples sector had the largest share (14%) of net-zero aligned companies, while the health care sector had the largest proportion of companies that were not aligned (93%).

No listed company is “achieving net zero,” the most mature category on the NZIF maturity scale.

The findings come as the biggest investors increasingly conclude that positioning their portfolios to take advantage of the transition to a clean-energy economy demands an intricate juggling act. It spans investing in companies that are decarbonizing and allocating capital to climate solutions to financing the replacement of carbon emissions-heavy assets like coal-fired power plants and monitoring their portfolios’ carbon footprint.

A focus on transition finance

Implicit in transition finance, the industry catchall for these levers, is a practical problem: How to allocate capital for decarbonizing the real economy, where greenhouse emissions hover near record highs.

We estimate that listed companies, which contribute roughly one-fifth (20%) of global greenhouse gas emissions, will likely burn through their share of the global carbon budget for constraining warming to 1.5°C (2.7°F) above preindustrial levels by October 2026, just over two years from now.

Though the indicators examined in the report each answer different questions, together they tend to show that the lion’s share of listed companies have yet to credibly begin to reconceive their business for a low-carbon world. The report finds that:

Eleven percent of listed companies aligned with projected warming of 1.5°C, as of May 31, 2024, while 27% aligned with a 2°C (3.6°F) temperature rise.

Just over one-fifth (22%) of listed companies either have a climate target approved by the Science Based Targets initiative or have committed to work on one, as of May 31, 2024, up eight percentage points from a year earlier.

Disclosure has edged up too. Overall, 69% of listed companies disclosed their Scope 1 and/or Scope 2 emissions, as of May 31, 2024, an increase of 19 percentage points from a year earlier. Nearly half (47%) of listed companies disclosed at least some of their Scope 3 emissions, as of May 31, 2024, up 10 percentage points from a year earlier.

You can download the full report, which also summarizes the latest quarterly data on the use of carbon credits in the voluntary carbon market, here.