Risky business: why A LOT of companies aren’t on track to meet net-zero by 2050 and how they can catch up
Is your organisation on track to hit net-zero carbon emissions by 2050?
Most would answer yes, or point to a sturdy sustainability plan highlighting how the company will transition towards a more carbon-free future. Bonus points if the plan references the Paris Agreement – the international treaty on climate change that established the net-zero targets.
However, global research from The University of Queensland (UQ) Business School has paused those pats on the back after discovering businesses aren’t on track to meet net-zero emissions by 2050. In fact, a lot aren’t even close.
Using a new framework to analyse compliance against the Paris Agreement goals, the national and international study assessed 10 Australian electric utility companies and 10 global cement companies. The research revealed only one lonely business – Engie – is on track to meet the Paris Agreement goals, thanks to closing all coal-fired assets at the start of 2017 and a commitment to retire its remaining gas plants by 2037.
Origin is the only other energy retailer on a Paris Compliant pathway if the company replaces its entire fossil fuel-based fleet with non-emitting energy generation as planned.
UQ Business School’s Assistant Professor Saphira Rekker, an expert in sustainable finance who led the three-year international study with Oxford and Princeton Universities, says the research revelation poses a significant risk for investors and the environment.
“These results are alarming and show the stark reality of how businesses continue to operate inconsistently with the Paris Agreement goals for decarbonisation,” Saphira says.
“Stakeholders and investors want to know about their business’s climate impacts, and we need to have an accurate way of tracking progress; otherwise, the globe will fail to stay within carbon budgets.
“It also highlights how much change is still required to keep climate change below 2 degrees.”
Collaboration with a one trillion-dollar investment fund confirms a lot of companies are missing the mark
The researchers confirmed the companies found to be missing the mark for decarbonisation progress in their original study weren’t alone.
Working with Norges Bank Investment Management – the largest sovereign investment fund in the world – the researchers also examined emissions data from 25 steel production companies. They discovered most enterprises had already emitted a lot more carbon emissions from 2014 to 2019 than allowed under a Paris Compliant Pathway – a stark discovery.
“Funds are naturally concerned about minimising foreseeable investment risk, and climate risk is high on the list,” says Saphira.
“Ensuring companies align with their Paris Compliant Pathways is vital to combat climate change, but it’s also crucial for companies and investors who need to know their exposure to transition and litigation risk and the devaluation of a company’s assets.”
Why is everyone so badly off track?
Under the Paris Agreement, international governments have agreed to limit global warming to below 2°C – compared to pre-industrial levels – by 2050 to avoid the worst climate impacts.
However, Saphira and her colleagues discovered discrepancies in existing methods used to measure companies’ compliance with the Paris Agreement. Some of these discrepancies included not requiring businesses to outline an explicit below 2°C decarbonisation pathway – or not requiring them to start measuring emissions in line with a Paris-aligned decarbonisation pathway.
“This allows organisations to make commitments that don’t reflect what their carbon budget should be to achieve the Paris goals and ignores their actions until several years after the global agreement was signed in 2015,” says Saphira.
“For example, when a company setting a starting baseline in 2020 is compared to an organisation with a decarbonisation pathway starting in 2014, it essentially ignores six years of their emissions.
“In our study, we used a decarbonisation pathway based on a modelling framework devised by the International Energy Agency. This pathway commenced in 2014; therefore, we set a baseline of 2014 for the companies we evaluated.”
The research team’s new Paris Compliant Pathways (PCP) framework aimed to improve transparency around science-based targets and quantify how companies perform against climate goals to allow informed decisions.
They found the evaluation of sustainability within enterprises and organisations is often disconnected from the actual science, potentially leaving businesses vulnerable to ‘greenwashing’ accusations if stringent protocols aren’t followed.
“That’s why we developed the new PCP framework, to improve transparency,” says Saphira.
“Our mission is to translate the science into metrics and pathways people can understand.
“What companies do within the next few years will determine whether we can still meet climate goals.”
How can businesses align to a Paris Compliant Pathway?
Adjunct Associate Professor Belinda Wade was part of the UQ research team and is also Principal of Sustainability and Climate Change at Aurecon, a design, engineering and advisory company where she leads climate transition strategy consulting in Australia and New Zealand.
Belinda helps companies understand their transition-related risk and develop integrated strategies to decarbonise and adapt business practices to climate mitigation changes. These strategies accommodate challenges such as new technology, governance and regulation, societal changes and market preferences.
“Companies across sectors from energy and aluminium to water and resources are working on how they can meet their net-zero commitment on an accelerated timeframe,” she says.
“It has been amazing to work with people in these companies to understand the desire for change and the complexity of progressing an executable decarbonisation strategy – it really does affect all aspects of a business.”
Consequences of inaction
Belinda warns that without substantive integrated plans for action, non-Paris Compliant companies risk exposure to climate litigation as well as technical risks, loss of investors and market share.
“Without transparency, investors and stakeholders can’t make informed, climate-safe decisions. What matters for climate goals is the actual emissions, not the pledges for action further down the track. We have a limited lifetime carbon budget that we’re spending year on year,” says Belinda.
Both Saphira and Belinda encourage companies, investors and stakeholders to adopt the PCP framework to understand their contribution to climate change and make strategic and operational decisions to become Paris Compliant.
“If I’m allowed to think big, we want to enter the global conversation and contribute to the definition and specification of what it means to be ‘Paris Compliant’, ultimately leading to the increased decarbonisation of companies in line with true Paris Compliant Pathways,” Saphira says.
“Decarbonisation is important for businesses to mitigate the risks associated with not aligning with the Paris Agreement. And if we don’t limit global warming collectively, we all lose.”
4 tips for your organisation to get back on track to net-zero by 2050
Saphira and Belinda share the main considerations for businesses and organisations to align to a Paris Compliant Pathway:
1. Accurately measure and disclose your company’s carbon emissions.
Using the Paris Compliant Pathways tool, which is currently available for the power generation, cement and steel sectors, calculate your Paris Compliant Pathway. For other industries, set a science-based target based on the Science Based Targets initiative (SBTi).
2. Design an executable strategy to meet a Paris Compliant Pathway, taking into account all aspects of the company operation.
A well-constructed roadmap will present a clear path toward decarbonisation. This strategy should also account for wider climate transition changes to make sure it sets your company up for success over the long term.
3. Develop a change management approach and communication plan.
Emission-intensive companies are complex to decarbonise. The process will require communication and change management programs focused on both internal and external stakeholders (community, shareholders, government, regulators, suppliers, customers etc).
4. Start executing your strategy as soon as possible.
The path to net-zero needs to start now, as the longer we delay action, the harder it will be to transition. Implement the low-regret actions straight away while initiating the more complex decarbonisation actions, which will require time to implement. Considerable resources will need to be mobilised across the business, with capabilities engaged from every department, from HR to finance, to asset management, to procurement.
Find out more about UQ's Business Sustainability Initiative research hub
Assistant Professor Saphira Rekker
Saphira is a Senior Lecturer in Sustainable Finance at UQ Business School and part of the School’s Business Sustainability Initiative research hub. Saphira's research focuses on tools to measure and verify the efficacy of decarbonisation commitments by corporations. As part of the Princeton-led Rapid Switch initiative, she leads UQ's Corporate Climate MAP program, which evaluates the alignment of companies and investment portfolios with the Paris Agreement.