Greenhouse Gas Emissions Reduction Targets: Are Companies Living Up to Their Promises?

A growing number of companies are committing to goals for reducing their greenhouse gas (GHG) emissions. These commitments can be validated by the Science Based Targets initiative (SBTi), a private initiative founded in 2015 by the Carbon Disclosure Project (CDP), the United Nations Global Compact, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF), which encourages companies to set emission reduction pathways aligned with the goals of the Paris Agreement (well below 2°C or 1.5°C) over a timeframe of 5 to 15 years^[1].

The number of companies participating in the SBT initiative has been steadily increasing since 2020: as of January 2022, 2,300 companies had declared their commitment to it^[2], which is double the figure from the previous year. In October 2020, the 1,000 companies included in the index had a combined market capitalization of $20,500 billion^[3].

While we can certainly welcome this momentum, a legitimate question arises: once they’ve made their commitments, do these companies actually follow through on their decarbonization promises? Does the approval of a reduction target imply an actual and sufficient reduction in emissions? This issue is of great concern to all stakeholders in these organizations, from investors seeking to minimize risks and maximize transition opportunities to regulators who define and update carbon reporting requirements.

To answer this question, we examined three studies with different scopes, all of which are based on publicly available data and were conducted by consulting firms or university research institutes.

Table 1 - Background and Scope of the Studies Reviewed

Accenture’s analysis focuses on goals known as “net zero,” a term that refers not only to emissions reductions but also, potentially, to avoided emissions and contributions to the development of carbon sinks. This study considers only Scope 1 and 2 emissions.

Within this scope, over the past ten years, companies with a “net-zero” target reduced their emissions by an average of 10% between 2010 and 2019, while those without targets saw their emissions increase. However, among the European companies studied, only 5% will achieve their “carbon neutrality” goal by the target date if they continue at the same rate of emissions reduction they maintained between 2010 and 2019.

Thus, in the sample studied, companies that have set targets are more likely to reduce their Scope 1 and 2 emissions than those that have not. However, at the current rate, these reductions do not guarantee that longer-term carbon neutrality goals will be met.

The 2020 SBTi Progress Report is also limited to Scope 1 and 2 emissions and covers SBT-validated targets.

It finds that the typical company (i.e., the median of companies that submitted an SBT) has reduced its annual emissions by 6.4% per year, which is faster than the rate required to limit global warming to 1.5°C—a reduction of 4.2% per year.^[4]. The top 50 issuers with approved SBTs saw their emissions decline by an average of 6.6% per year.

Here again, within the scope under consideration, a target is indeed accompanied by a reduction at a pace consistent with the stated ambition.

In the article “Science-Based Targets: On Target?”, researchers from the University of Leeds examine Scopes 1, 2, and 3. The analyses focus on the targets themselves rather than on emissions directly.

They show that 75% of targets that do not include Scope 3 emissions are on track or have already been met. In contrast, this figure drops to 52% for targets that include Scope 3. Furthermore, Scope 3 targets reflect less ambitious reduction goals than those for Scopes 1 and 2. Finally, all companies that were on track or had met their intensity targets (e.g., in tCO2eq per product) had also reduced their absolute emissions.

It therefore appears that, once again, when a company sets a target, emissions are also reduced. Furthermore, these reductions are significant enough to meet the target. In contrast, Scope 3 targets are both less ambitious and less frequently met.

However, the authors of this scientific article qualify their conclusions: on the one hand, the majority of companies that met their targets had already made significant progress before the year the targets were approved by the initiative. One might therefore question to what extent these targets were ambitious and whether the initiative led to additional measures within these companies. On the other hand, the large proportion of the sample that was already highly rated by the CDP or had simply participated in it (96%) would seem to confirm that the SBTi has limited scope for expanding the types of companies participating in voluntary emissions reduction activities.

Table 2 - Findings from the three studies regarding the research question

In conclusion, when we look at companies that have set targets, we also see a significant reduction in Scope 1 and Scope 2 emissions.: This is an encouraging result. Organizations setting reduction targets is therefore a positive development that should be encouraged and carefully considered by the various stakeholders.

However, it is worth noting that significant limitations which temper these conclusions:

• As mentioned earlier, It is unclear whether the targets predate the action plans and the observed emission reductions. : There is no evidence that setting targets has a decisive effect on reducing emissions.
• A sharp reduction in Scope 1 and 2 emissions in the short term does not guarantee a similar reduction in the long term : Companies are first tackling the simplest and most effective opportunities for reducing emissions. There is no guarantee that other, more complex measures can be implemented later on.
• The studies do not allow us to verify the measures companies are taking to reduce their Scope 1 and Scope 2 emissions. However, there are numerous biases in carbon accounting that serve to reduce these emissions 1) without any real decrease in energy consumption and 2) without funding for new renewable energy capacity—two essential conditions for achieving global carbon neutrality. Examples of these biases include:
  • outsourcing : Scope 1 and 2 emissions from the relevant activities are directly reclassified as Scope 3 and are excluded from the reporting scope
  • lPurchase of a Certificate of Origin, such as renewable electricity supply contracts, which make it possible to completely offset Scope 2 emissions without reducing electricity consumption. Furthermore, while companies’ purchase of green power contracts stems from a laudable intention, these contracts do not necessarily guarantee the development of new renewable capacity: the contracts often finance older renewable power plants that have been largely depreciated, as is the case in France with hydroelectric power generation^[5].
• In the only study that addresses targets including Scope 3, these targets are found to be less ambitious and rarely met. However, this scope accounts for the vast majority of GHG emissions for virtually all companies worldwide : Reducing Scope 3 emissions is essential to achieving the goal of global carbon neutrality.

Therefore, these initial studies must be supplemented by an analysis that includes, in particular, an assessment of Scope 3 emissions and the measures implemented to reduce GHG emissions. To this end, comprehensive (across all scopes) and accurate reporting of emissions by companies must be encouraged. However, as of today and for several more years to come, France remains the only country in the world to require reporting of Scope 3 emissions.

And let's never forget that this is an emergency. The latest IPCC report^[6] highlights a record trend over the past decade (2010–2019), the period during which emissions were higher than in any of the previous decades. A scientific study dated March 21, 2022, published in the journal *Nature*, also indicates that at the current rate of growth in global GHG emissions (which rebounded by 4.8% in 2021), the remaining carbon budget to limit anthropogenic global warming to 1.5 °C could be exhausted in just 9.5 years^[7].

Proof that the effort to be provided by all organizations is immense, and vastly underestimated.