Carbon disclosure is becoming mainstream thanks to both market trends and a bracing dose of regulation. However, disclosure is not the same thing as action. Two recent reports show that the gap between targets and action remains problematic for property and its value chain, and overall, some corporates are scaling back their ambition.
Gotta love a rosy view of data, for example, the PwC State of Decarbonisation report released this month, which applauds the fact 74 per cent over 4000 companies participating in CDP reporting have not publicly scaled back their climate targets or emissions reduction ambition.
That’s all well and good, except the flip side of that statistic is that 16 per cent of corporates are scaling back.
Back to good news – 37 per cent of companies have increased their targets. On the other hand, of all disclosed targets, less than half are Science Based Targets initiative approved or some other form of science-based target. There is a group described as having “science-aligned” targets but no clear explanation of what that entails.
The report used generative artificial intelligence to analyse published information including CDP reporting, SBTi disclosures, corporate websites and other public domain material.
“Unlike reports that measure decarbonisation against scientific targets for saving the planet — goals that may not be practical for many companies — we focus on each company’s own ambitions and progress,” the report notes.
So, there’s no common yardstick in play for what constitutes effective or meaningful progress on emissions, the report is more about looking at the disclosure trends.
The trends to watch
One interesting trend is more smaller companies are making climate commitments. This is attributed to a push factor from their own customers or clients taking hold. The median revenue of companies making commitments decreased from $US3.6 billion in 2020 to $US1.3 billion in 2024.
The impetus for smaller companies partly comes from larger entities starting to address scope 3 emissions, and “leaning on their suppliers to set targets as well” according to the report.
“Over time, this should cause a ripple effect as those suppliers lean on their suppliers to set targets and so on. We expect to see this trend strengthen in coming years, creating a tipping point and having a profound impact on global value chains.”
R&D investment in low carbon products and services was reported by 83 per cent of companies, with reports also showing revenue increases of between six to 25 per cent for products with sustainability attributes.
Scopes 1 and 2 remain the big focus area. 51 per cent of the reductions achieved by businesses stating they are on track for their targets have come from scope 1 emissions reductions in the mining, metals, energy and construction sectors. Less fossil fuels or other direct emissions being generated on site, whether through fuel switching, energy efficiency, process efficiency or other measures is paying off.
Outside those sectors it is scope 2 emissions reductions from switching to renewable energy through either on-site or offsite renewable energy procurement delivering the emissions reduction win.
The authors note this is not a long term fix, and that “overreliance on this strategy could also present future challenges to maintaining momentum after all scope 2 reductions have been realised.”
Electrification is gathering momentum, with manufacturers and facilities managers replacing legacy fossil fuel reliant plant with electric alternatives at end of life or even ahead of schedule.
“Thinking about this sooner than later is critical – building and industrial equipment can have 10–30-year lifetimes, so installing new fossil fuel equipment now can lock in scope 1 emissions for decades,” the report states.
Generating value instead of emissions
Scope 3, which PwC states is generally 11 times larger in terms of quantity of emissions than scopes 1 and 2 combined remains the big challenge. Only 54 per cent of companies appeared on track to meet their own targets, and industrials, construction, shipping and logistics, and agriculture/food/beverage sectors are the most behind.
Where businesses are achieving reductions, more than 80 per cent of reductions are being achieved through reducing emissions associated with the use of on-sold products. In layperson terms, that might look like providing your building’s tenants with renewable energy, for example.
Many businesses are seeing opportunities for growth from climate action. In the construction sector, over 40 per cent of projected revenue by 2030 is expected to be associated with the climate transition. For financial services, it’s tipped to be close to 50 per cent of revenue.
What the CDP had to say
CDP in its Corporate Health Check report released in January this year wasn’t sugar-coating the state of things, calling out an overall failure to step up.
“Just one in 10 companies are embedding Earth-positive decision-making across their business. Most companies are falling behind what the most robust regulation and the planet demand,” CDP stated.
Only one in three companies are on track to meet their targets, according to the report, which is based on all the reporting received in 2024. Viewed on a regional level, Oceania – which includes Australia – is one of the relative laggards, while European companies are ahead of all other regions.
Globally, only 49 per cent of disclosing companies met the minimum for CDP level 2 reporting across climate and nature indicators. Level 2 requires disclosing operational (scopes 1 and 2) emissions data, setting targets and integrating climate change in some manner within corporate governance.
CDP noted that the big progress globally is in transparency, however 45 per cent of companies are not disclosing data on their most material scope 3 categories, “even though countries like the United Kingdom, South Korea, Canada, and others are moving toward mandatory disclosure of Scope 3.”
Alignment of business goals and climate transition planning is still mostly a non-starter, with only nine per cent of companies reporting they have aligned at least five per cent of their capital expenditure with their climate transition plan.
The report notes that for some key sectors, the financial incentives are still weighted towards business as usual, rather than decarbonisation.
“In the case of the fossil fuels and power generation sectors, the economic case is bolstered further by continuing government subsidies, the limited adoption of carbon taxes and pricing schemes across the globe, and the high cost of capital in the current climate for transition solutions,” the report states.