Investors: Push companies to set 1.5-degree aligned goals for Scopes 1, 2 and 3 emissions and to move away from offsetting
Our key takeaway: An “overwhelming majority” of 55 large U.S. corporations are falling behind on their climate approach and failing to set GHG emissions goals in line with the Paris Agreement’s 1.5-degree limit. As a result, many companies are not significantly reducing their GHG emissions (especially Scope 3 emissions, which tend to be the highest in many sectors) while relying too much on offsetting to contribute to their overall targets. Investors have a unique role to play by considering company climate progress in their investment decision-making metrics, engaging with companies and leveraging shareholder voting to shape company behaviour on climate.
As You Sow published a ranking of 55 U.S. companies across sectors on their progress towards reaching net zero emissions:
- Actual emissions reductions: In terms of actual emissions reduction, six companies received an “A” grade for reducing their Scopes 1, 2 and 3 emissions and emissions intensity in line with limiting global average temperature rise to 1.5 degrees Celsius. These companies include Microsoft, PepsiCo and Ecolab (the only three companies to receive an “A” grade across all categories assessed), as well as Alphabet, Prologis and Abbott Laboratories. The report explains the low scoring among other companies: reduction of “Scope 3 emissions, which often are made up of supply chain and product emissions, are particularly lacking.” For this reason, “[w]hile many companies are demonstrating reductions in Scope 1 (operational) and Scope 2 (purchase power) emissions, these emissions often represent just a fraction of total emissions, leading to low performing grades.”
- Emissions reduction goals and target-setting: “While seven companies received “B” grades in the GHG reduction target setting category, no company received an “A” grade, which requires a net zero by 2050 goal applicable to all emissions Scopes with limited use of offsets.” Based on the findings of the report, many companies appear to be relying on offsets to reach their goals—an approach that is not encouraged under existing target-setting initiatives like the CA100+ Net Zero Benchmark and the Science-Based Targets Initiative (SBTi). To reach net zero emissions by 2050, “offsets should be used only for residual emissions where reductions are not feasible due to technology limitations (which generally should represent 10 percent or less of total reductions).” Nonetheless, none of the companies assessed has clearly committed to follow these guidelines. What’s more, “nearly 2/3 of companies fail to align any GHG reduction goal with 1.5 degrees” and “only two companies have Scope 3 targets aligned with 1.5 degrees.”
- Disclosures: According to the report, a majority of companies received “C” grades or better for their GHG disclosures, “demonstrating forward momentum.” However, many companies continue to “miss the mark on disclosing critical metrics, such as full value chain emissions (Scope 3) or clear disclosure on use of carbon offsets.” In particular, 90% of companies report on their Scope 1 and 2 emissions, but “only 20 companies reported all relevant Scope 3 emissions.” Others did report their Scope 3 emissions but did not include where the primary sources of emissions come from, which As You Sow says can be confusing for investors looking to assess a company’s overall climate impact and goals. Disclosures on carbon offsets, in particular, “lack clarity”: “Only 11 companies disclosed the number of carbon offsets purchased, a description of the types of carbon offsets projects, and the verification status of these offsets.”