Inequitable tracking of emission levels creates a misleading narrative about environmental impact
### Title: Bridging the Emissions Gap: The Role of Companies in Achieving Decarbonization Pathways and Paris Alignment
In the quest to combat climate change, the terms 'decarbonization pathways' and 'Paris alignment' have gained prominence. These refer to strategies and methods used by organizations to reduce their carbon footprint and transition towards a low-carbon economy, with the ultimate goal of achieving net-zero emissions by mid-century. The alignment of investment strategies, corporate actions, or national policies with the goals of the Paris Agreement is crucial in this endeavour.
Despite significant commitments, the world is not on track to meet the Paris Agreement's long-term temperature goal. The first global stocktake highlighted the need for more ambitious Nationally Determined Contributions (NDCs) to align with the Agreement's goals. Industries like energy, materials, utilities, and industrials pose particular challenges due to their high carbon intensity, requiring innovative solutions to transition towards net-zero emissions.
Companies and governments must adopt decarbonization pathways by setting science-based targets and implementing concrete actions to reduce emissions. This includes investing in renewable energy, improving energy efficiency, and transitioning to less carbon-intensive operations. Asset managers play a crucial role by integrating Paris-aligned criteria into their investment strategies, assessing portfolio carbon footprints, setting net-zero targets, and engaging with companies to ensure alignment with Paris goals. External evaluators, such as MSCI and Sustainalytics, provide critical assessments and ratings of companies' environmental, social, and governance (ESG) performance, including their progress towards net-zero emissions and Paris alignment.
However, the selection of accounting methodology and careful word choice can impact Scope 1 & 2 emissions disclosure. Some companies, such as Equinor, Eni, BP, and Chevron, now report emissions reflecting all operations, whether controlled or not. Scope 1 emissions refer to those from operations, and Scope 2 refers to those from energy imported into operations. Companies are increasingly publishing decarbonization plans, focusing on reducing Scope 1 & 2 emissions.
Shell's net zero targets are based on its owned/directly controlled operations, omitting a significant share of joint ventures (JVs) and associates. The financial contributions from JVs and associates are usually not included in Scope 1 & 2 emissions disclosure. Chevron also reports metrics beyond TCFD emissions, including its own energy efficiency and water management. Chevron uses its influence to make non-controlled JVs and associates adopt reporting and efficiency goals similar to its own.
The concern is that focusing on generating numbers, jargon, and reports may distract from real-world change. Engagement continues with Shell and other issuers around TCFD disclosure based on the equity method of presentation. To find a company's emissions more holistically, one must often go to the investor relations website and download a supplementary information file. The Task Force on Climate-related Financial Disclosures (TCFD) has become the standard for measuring emissions.
As we approach 2030, with only five years left, questions about progress towards net zero are increasing. Scope 3 emissions, which include those from suppliers, customer use of products, and end-of-life recycling or disposal, are not yet systematically counted by most businesses. These emissions, which often represent the largest share of a company's total emissions, will be crucial in the race to zero.
Achieving decarbonization pathways and Paris alignment requires a coordinated effort from issuers, asset managers, and external evaluators. It involves setting ambitious targets, implementing effective strategies, and ensuring transparency and accountability throughout the process.
In the context of the race to zero emissions, asset managers must integrate Paris-aligned criteria into their investment strategies, and external evaluators like MSCI and Sustainalytics provide assessments of companies' progress towards net-zero emissions and Paris alignment.
However, to find a company's emissions more holistically, one must often go to the investor relations website and download a supplementary information file, as Scope 3 emissions, which include those from suppliers, customer use of products, and end-of-life recycling or disposal, are not yet systematically counted by most businesses and often represent the largest share of a company's total emissions.
