Net Zero: How are World’s Biggest Companies Progressing?

A report by Morgan Stanley Capital International reveals how most of the world’s biggest companies are falling behind in the race to net zero.

MSCI’s Net Zero Tracker exposes some alarming signs of inertia, with more than four in five (84%) listed companies not having committed to decarbonisation in line with hitting net zero.

It adds that there are barriers stopping the largest investors from putting the required trillions of dollars into climate solutions and firms that are decarbonising.

MSCI, which is led by CEO Henry Fernadez, judges the progress of the listed companies on a ‘maturity’ spectrum, which ranges from ‘not aligning’ to ‘achieving net zero’.

Setting the parameters

MSCI says it looks at corporate climate progress “through the lens of three indicators of net zero alignment used by investors today”:

1 – Where do the world’s listed companies fall along the spectrum of maturity in their decarbonisation journey, based on the Net Zero Investment Framework (NZIF) developed by the Paris Aligned Investment Initiative?

2 – How many companies have set science-based decarbonisation targets as determined by the SBTi?

3 – How aligned are listed companies with global climate goals, as measured by temperature metrics developed by SBTi and by MSCI ESG Research LLC that evaluate the distance of companies from their sectoral net-zero pathways?

The Net Zero Investment Framework maturity scale ranks companies as:

• Not aligned: Companies without a commitment to decarbonise in a manner consistent with achieving net zero emissions
• Committed to aligning: Companies with a long-term goal of reaching net zero by 2050
• Aligning to a net zero pathway: Companies that are not yet aligned with a net zero pathway but have both a science-based target and a decarbonisation plan that align with such a pathway
• Aligned to a net zero pathway: Companies that have science-based targets, a decarbonisation plan and current absolute or emissions intensity at least equal to a net zero pathway
• Achieving net zero: Companies that have current emissions at or near net zero.

How do the global ‘top 10’ fare?

Of the 10 largest listed companies by market value, five are not aligned, four are committed to aligning and one is aligning to a net zero pathway.

Apple – not aligned

Microsoft – aligning

Nvidia – not aligned

Alphabet – committed

Amazon – committed

Saudi Arabian Oil Company – not aligned

Meta Platforms – committed

Berkshire Hathaway – not aligned

Eli Lilly – not aligned

Taiwan Semiconductor Manufacturing – committed.

The picture improves slightly for the top 100 listed companies, with 43 not aligned, 30 committed, 12 aligning and 15 aligned.

The report says: “Emissions from listed companies represent about 20% of global GHG emissions.”

But it adds that progress has been made: “Listed companies are on track to produce an estimated 10.9 billion tons (gigatons) of Scope 1 GHG emissions this year, down about 7.7% from 2023.”

More key findings from the report

For those looking for signs of hope for the planet, the well is pretty dry. Instead, though punctuated by some shafts of light, MSCI’s report highlights a host of other chastening facts and statistics:

• Nearly two-thirds of listed companies are on a trajectory that would warm the planet by more than 2°C above pre industrial levels
• The number of companies that set science-based climate targets has ticked up but the overall share remains low
• Just over one-fifth (22%) of listed companies have set a decarbonisation target that aims to reduce their financially relevant GHG emissions to net zero by 2050 in line with a science-based pathway – up 8% from a year earlier
• 40% of listed companies have set decarbonisation targets that aim to reach net zero, up 2%
• Just over half (56%) of listed companies have disclosed a GHG emissions-reduction commitment, up from 54%
• 69% of listed companies disclosed their Scope 1 and/or Scope 2 emissions, up by 19%
• Nearly half (47%) of listed companies disclose at least some of their Scope 3 emissions, up 10%.

The report adds that, to limit warming to 1.5°C, companies would need to collectively cap future Scope 1 emissions at 26.7 gigatons of CO2e emissions by 2050.

It says: “Without any change to their current emissions, companies would deplete their remaining emissions budget in two years, five months from May 31, 2024

“Furthermore, to limit warming to 2°C, listed companies would need to collectively cap future Scope 1 emissions at 198 Gt of CO2e by 2050.

“Without any change to their current emissions, companies would deplete their remaining emissions budget in 18 years, 2 months from May 31, 2024.”

The 20 companies with the largest carbon footprint (according to MSCI)

Saudi Arabian Oil Company – total carbon dioxide emissions 2.52bn (Scope 3 2.27bn)

Coal India – 1.34bn (1.31bn)

PetroChina Company – 1.29bn (1.13bn)

Exxon Mobil – 1.17bn (1.05bn)

China Petroleum & Chemical Corporation – 1bn (841m)

Chevron Corporation – 887m (830m)

Shell PLC – 791m (701m)

China Shenhua Energy Company – 759m (583m)

BP PLC – 681m (645m)

SAIC Motor Corporation – 633m (628m)

BHP Group – 536m (526m)

Huaneng Power International – 528m (44.5m)

Equinor ASA – 506m (495m)

Porsche Automobile Holding SE – 503m (500m)

Volkswagen Aktiengesellschaft – 488m (482m)

Toyota Motor Corporation – 477m (470m)

Marathon Petroleum Corporation – 474m (433m)

Vale SA – 452m (443m)

General Electric Company – 452m (450m)

TotalEnergies SE – 431m (392m).

How can the biggest investors make a difference?

The report accepts that there are many barriers stopping companies and investors from climate-friendly decisions.

It says “new types of measures and analysis” are required, alongside trillions of dollars of investment, consistent policies and new climate finance frameworks.

It says: “The largest investors increasingly find that positioning their portfolios to take advantage of the transition to a clean-energy economy demands an intricate juggling act: investing in companies that are decarbonising and allocating capital to climate solutions, all while financing the replacement of carbon emissions-heavy assets like coal-fired power plants and monitoring their portfolios’ carbon footprint.”

The report adds that measuring a company’s carbon footprint or quantifying the carbon emissions of investments is not enough information on where to invest the next dollar to most effectively deliver on commitments to drive global GHG emissions to net zero.

“For that, investors are turning to investment frameworks and climate indicators designed to help them fine-tune their strategies for credibly financing decarbonisation over time.

“Understanding the differences between them is a key part of the transition finance journey.”

With 70% of the US$70tn required to achieve net zero in the next 25 years likely to come from the private sector, the report says: “While private capital is a prerequisite for the climate transition, so is policy.

“As our analysis suggests, even the most finely tuned climate investment strategies may not drive down global emissions of greenhouse gases without policies that produce a level playing field and a mix of activity in the real economy.”

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