Public companies globally are increasingly disclosing on their greenhouse gas emissions footprints, with around 60% now reporting direct Scope 1 and 2 emissions, and more than 40% on at least some Scope 3, or value chain, emissions, according to a new report by investment data and research provider MSCI, which also found that U.S. companies are falling far behind their global counterparts on climate reporting.
In addition, the MSCI report found that more companies are setting emissions reduction targets, and while the pace of goal-setting has slowed, the quality is increasing, with a sharp rise in science-backed decarbonization targets.
For the report, the latest edition of the MSCI Net-Zero Tracker, MSCI assessed the climate change progress of companies within the MSCI All Country World Investable Market Index (ACWI IMI), and included data from its “Implied Temperature Rise” metric. The Implied Temperature tool, which was launched in 2021, converts companies’ current and projected greenhouse gas emissions to an estimated rise in global temperature, taking into consideration the emissions reduction targets of each company.
The report found a continued improvement in emissions reporting by public companies globally, with nearly 60% reporting on Scope 1 and 2 emissions, an increase of 16 percentage points over the past two years. Reporting on value chain emissions is growing at an even faster pace, according to MSCI, with 42% of companies now reporting on at least some of their Scope 3 emissions, compared with on 25% two years ago, and around 35% last year.
The report also indicated a sharp divergence in disclosure between U.S. companies and their global peers, with only 45% of U.S. public companies reporting on Scope 1 and 2 emissions, compared to 73% of companies in developed markets outside the U.S., and only 29% of public companies in the U.S. reporting on Scope 3, compared with 54% of their developed markets counterparts.
The emissions reporting progress comes as regulatory requirements mandating climate-related disclosures continue to increase across many jurisdictions, with new disclosure requirements taking effect in the EU, and a growing number of countries proceeding towards sustainability reporting systems based on the IFRS’ International Sustainability Standards Board’s (ISSB) recently released standards, each of which will require Scope 1, 2 and 3 reporting. While the MSCI report noted that the U.S. SEC’s new climate reporting rule may help to close the reporting gap, the finalized SEC rules require Scope 1 and 2 operational emissions reporting only from larger companies, and even then, only when deemed material, and do not require Scope 3 reporting. The SEC also announced that it has paused the implementation of the rules due to a series of legal challenges.
According to the report, companies are continuing to set climate targets, although the pace over goal-setting has slowed. As of the end of January 2024, according to MSCI, 52% of companies have now disclosed an emissions reduction target, and 38% have announced a net zero target, each up one percentage point from last year. While the pace of target setting has slowed, however, the quality of climate targets appears to be improving, with 20% of companies now setting science-based targets aligned with 1.5°C, up from only 12% last year, and only 1% as recently as 2020.
Despite the improvements in disclosure and target setting, however, the report found that listed companies’ greenhouse gas emissions has yet to decline, although they do appear to have levelled off. According to the report, the Scope 1, or direct operational GHG emissions of the world’s listed companies are anticipated to remain flat in 2024 at 11.8 billion tons, representing nearly one-fifth of global GHG emissions. According to MSCI’s Implied Temperature Rise metric, listed companies are currently on a path to 3°C of temperature increase this century, with only 38% of companies on a 2°C or lower pathway, including 11% aligned with 1.5°C. The report notes that the UN’s Intergovernmental Panel on Climate Change (IPCC) estimates that global emissions would need to peak by 2025, and decline by 7% annually through 2030 in order to avoid the worst effects of climate change.
Click here to access the report.