The Australian Council of Superannuation Investors (ACSI) says more of Australia’s largest companies must set emission reduction targets aimed at 1.5°C if Australia is to reach its Paris Agreement ambitions.
ACSI research released today – Chasing 1.5°C: The ASX200 – on the right trajectory? – shows corporate Australia’s current commitments will see a 36% overspend of the ASX200’s ‘carbon budget’ between 2021 and 2050 – meaning it is not on track to help limit warming to 1.5°C. This is because, while there are many net zero pledges from listed companies, concrete and measurable short and medium-term emissions reduction milestones are largely missing, which impedes investors’ ability to understand how companies intend to meet their ambitions.
“Climate change risks – financial and physical – exist right across the economy. They influence, and will continue to influence, the value of ACSI members’ investments and the retirement outcomes of their beneficiaries,” says ACSI CEO Louise Davidson.
“While we welcome the growing number of net zero ambitions from the ASX200, ambitions must be made more credible by accounting for all emissions and implementing measurable short and medium-term reductions targets. If we are to meet the 1.5°C target companies cannot leave cutting emissions to the eve of 2050.”
While the impacts of climate change are already manifesting around the world, the IPCC warns of a significant difference in outcomes between limiting warming to 1.5°C and a 2°C rise. It says adapting to a 1.5°C world is still possible, but options will be limited beyond 2°C.
Earlier ACSI research shows many companies consider targets aimed at “well below 2°C” as sufficiently Paris Agreement-aligned. However, given the urgency of the climate transition, “below 2°C” is now seen only as an entry point, with more ambitious 1.5°C-aligned targets called for.
The new research, with analysis provided by the Climateworks Centre, considers the climate commitments of 187 companies in the ASX200. Climateworks Centre assessed whether net zero and emissions reduction targets are aligned to a 1.5°C trajectory. It found that, while there is reason to be optimistic about the growing corporate ambition towards 1.5°C-aligned net zero targets, overall ASX200 target-setting and the resulting trajectory are not in line with 1.5°C.
“While further climate change is inevitable, decisions made in the next months and years will determine its rate and magnitude. This trajectory, good or bad, will be largely dependent on the pathways adopted now,” Ms Davidson says.
According to the IPCC, “limiting warming to around 1.5°C requires global greenhouse gas emissions to peak before 2025 at the latest, and be reduced by 43% by 2030.” 
As universal owners of capital, institutional investors cannot diversify away from the impacts of climate change and as part of their fiduciary duty need to take action to mitigate risk. The challenge for institutional investors is not just to decarbonise an individual company, but to decarbonise the economy. ACSI members look forward to continuing to support companies as they make this vital transition and to holding them to account where more needs to be done.
Key findings: (note: percentages are as a proportion of 187 companies)
- Many companies are ambitious – 45% of companies have set net zero targets for their scope 1 and 2 emissions. Encouragingly, 73% of these companies are aligning these targets to the 1.5°C
- However only 9% of companies have 1.5°C-aligned net zero targets covering all applicable emissions scopes.
- The momentum towards net zero is not matched by short and medium-term target setting.
Longer-dated net zero targets (for example, net zero by 2050) need intermediate absolute emissions reduction milestones to succeed. Without measurable short and medium-term targets addressing how companies intend to reach their net zero aim, there can be little confidence it will be achieved.
- Only 3% of companies assessed have a net zero commitment in addition to an emissions reduction target for scope 1, 2 and, if applicable, scope 3 emissions. Only 1% of companies has set these targets in line with 1.5°C.
- Predominantly due to this lack of aligned short and medium-term targets, this analysis finds there will be a 36% overspend of the ASX200-specific 1.5°C carbon budget for the period 2021-2050 (an overspend of 741 MtCO2e).
- 48% of companies have not set any absolute emissions reduction targets.
Targets disclosed before 31 March 2022 form the basis of this analysis. This analysis does not test the credibility of a company’s underlying approach to decarbonisation, but instead looks at whether the proposed targets are sufficiently ambitious.
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