Carbon reduction targets: from ambition to impact

12 February 2021

It has been estimated that almost one quarter of global CO2 emissions and more than half of global GDP were covered by Net Zero commitments by June 2020.

Carbon reduction targets: from ambition to impact

However, the gap between ambition and reality can often be very significant, for example, due to a lack of standards. In this report we address that ambiguity.

Global warming and the role of GHG emissions is a well-established fact. In response, carbon reduction efforts in the private sector have been made for decades. Such carbon reductions were reported, for instance, as part of energy efficiency programmes. The goalposts have shifted in recent years due to the urgency of the climate crisis. Global warming has gained worldwide attention not least due to the Paris Agreement in 2015. Countries are now strengthening their commitments through setting Net Zero targets. Six countries have enshrined Net Zero reduction in law, five countries and the EU have proposed legislation, fourteen countries have targets in policy documents, while many more are discussing Net Zero targets.

In the private sector, carbon reduction has since become a strategic objective for many businesses and has evolved well beyond the isolated environmental targets of the past. Today, carbon
reduction is a priority for many companies and their stakeholders – including shareholders and creditors. Yet, the voluntary nature of most efforts means that targets can be set through arbitrary parameters. What is needed to solve the climate crisis are commitments to reduce GHG emissions that are aligned with scientific global warming scenarios. A study of companies with science-based targets shows that these companies reduce emissions at far greater rates relative to emissions trends in the wider global economy.

This report focuses predominantly on non-financial companies covering Scope 1, 2 and 3 GHG emissions. We also take the perspective of the finance sector, where financed emissions (Scope 3) are key. Banks, underwriters, and investors have an intrinsic motivation to manage climate risks in their portfolios. Looking ahead, we expect that a new set of Scope 3 reporting standards will allow the financial sector to catch up with the non-financial sector in setting carbon reduction targets. This will reinforce the pressure on the corporates held within portfolios to deliver realworld environmental impact through carbon reductions.

Chapter 1 introduces the common terminology relating to carbon reduction targets and the implications for investors. Chapter 2 examines the economic benefits for companies that reduce GHG emissions and illustrate the steps they need to take in setting a target. Chapter 3 discusses how investors can assess the different aspects of carbon reduction at the company level and the role of investors in holding companies accountable. Chapter 4 showcases examples from different sectors of companies and their ambition to make a real-world impact.

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