More than a third of companies in the S&P 500 have monetary incentives in place linked to company emissions reduction, although a lower proportion have climate-related compensation incentives for senior executives, and even fewer at the top executive ranks, according to a new study released by S&P Global.

The study, which included data from the S&P Global Sustainable1 Net-Zero Commitments Tracker dataset, as well as the S&P Global Corporate Sustainability Assessment (CSA), also found that less than half of large listed companies in the U.S. have set net zero targets, and that the companies’ climate goals focus primarily on Scope 1 and 2 emissions, with much lower ambitions on Scope 3 value chain emissions, which represents the majority of most companies’ carbon footprints.

According to the S&P’s 2023 CSA data, 35% of S&P 500 companies have compensation for employees linked to emissions reductions, up from 30% in 2021. The study found, however, that fewer senior executives have emissions-related incentives place, including 27% of named officers, and only 15% of CEOs, although these have also increased from 19% and 9%, respectively, since 2021.

Notably, several emissions-intensive sectors stood out in the results, with 48% of energy companies linking CEO compensation to emissions reductions – up substantially from 22% in 2021 – as well as 29% of materials companies and 27% of utilities.

The Net-Zero Commitments Tracker database indicated that 45% of the companies studied have any kind of net zero target in place, with net zero targets most common in the Utilities sector, at 81% of companies, and least common in the materials sector, at only 25%.

Net zero commitments are much more common across sectors targeting Scope 1 direct operational emissions and Scope 2 purchased electricity emissions than for Scope 3 value chain emissions. While Scope 3 emissions, which occur in areas outside of companies’ direct control, such as supply chain or use of products, are typically the most difficult to measure and manage, they also make up the vast majority of most companies’ emissions impact. Scope 3 net zero targets were most common in the Communications services sector, at 37%, and Financials, at 34%, and least common among Energy companies at only 11%, and Materials at 14%.

The study also examined companies’ emissions reduction targets regardless of their net zero plans, finding that overall, companies are aiming to cut Scope 1 and 2 emissions by an average of 51% on either an absolute or emissions intensity basis, but only have targets to cut Scope 3 emissions by an average of 11%.

The report also found that companies’ net zero commitments are often not supported by ambitious near-term goals, with interim targets aiming for 2035 or sooner at these companies covering only 33% of their emissions. In the energy sector, only 5% of emissions were found to be covered by net-zero commitments supported by interim targets, which the study noted could present challenges to rapidly decarbonize between 2035 and the sectors’ targets’ longer-term horizons.

In the report, S&P Global said:

“As investors obtain more climate-related information and more transparency into corporate emissions, companies could face more market pressure to build transition plans that include decarbonization or a net-zero goal. Less than half of the leading US companies have committed to reaching net-zero so far, even among some of the most carbon-intensive sectors. If pressure on the top companies continues to grow, net-zero target-setting could evolve to become the norm.”

Click here to access the report.