The risks of climate change are increasingly apparent. There is broad consensus among global policymakers that the world needs to reach net zero emissions – ideally by 2050. 

Companies recognise the challenge, and the proliferation of corporate ‘net zero 2050’ targets in the last few years has been remarkable. Investors rightly see a net zero 2050 target as a positive company attribute. Committed businesses are lowering their transition risk and should benefit from demand for low-carbon goods and services.

Leaders and laggards

If only picking climate change winners were that easy. Using information from the Carbon Disclosure Project (CDP), the gold standard in climate reporting, 41% of the nearly 5,700 responding companies have a target to reach net zero by 2050. And 81% have some form of decarbonisation target, an increase from 76% last year. So there’s reason for optimism.

Perhaps counterintuitively, companies in sectors that will find it hardest to reduce emissions are more likely to have set targets. Over 90% of the 534 companies responding from the oil & gas, steel, cement, chemicals and transport companies have targets. That’s important, considering the 29 gigatonnes of reported CO2 equivalent emissions between them (albeit with overlapping supply chains). Nearly half of these companies (48%) have set targets to reach net zero by 2050. Conversely, agriculture commodities, one of the largest contributors (and potential solutions) to climate change, have set the fewest targets. This suggests increased transition risk for companies in this sector.

Chart 1: Responding companies with no decarbonisation target

However, headline targets often belie a lack of intention – either in the scope or timing of the company’s plans. While 81% of companies have a decarbonisation target, only 24% have a Scope 3 target. A Scope 3 target relates to supply chain emissions that typically account for over three-quarters of a company’s emissions. Around half (48%) of companies with Scope 3 targets include less than five of the 15 possible categories in their targets. For example, only 8% of fossil fuel companies have a Scope 3 target covering the use of their products (category 11) – where over 90% of their emissions arise. The same can be said for the auto sector. Only 2% of companies target the emissions from the use of their products and prefer to focus on their (smaller) direct emissions. 

Chart 2: How many respondents with Net Zero by 2050 targets have Scope 3 targets?

Actions speak louder than words

Many industries will need to spend to decarbonise, investing in new technologies and supply chains. But having a net zero 2050 target alone allows companies to delay this spending and raises transition risks as peers move ahead. Capital expenditure on decarbonisation is therefore critical to understand the credibility of a company target.


A net zero 2050 target is an unreliable indicator of action

CDP data shows that 81% of companies with 2050 net zero targets reported no capex aligned to that transition. In fact, a net zero 2050 target is an unreliable indicator of action. Today, a third of utilities without one are spending more than 80% of their capex on their climate transition. Actions do speak louder than words.

Don’t avoid avoided emissions

Investor climate change assessments often overlook avoided emissions. These are emissions that are avoided through the implementation of cleaner technologies, energy efficiency measures, and more. Think of the decarbonisation benefits to society of certain products: batteries, wind turbines, and building insulation. A net zero 2050 target may pale into insignificance compared to the positive impact of these products.

Investors too focused on targets will overlook companies who stand to profit most from the energy transition. According to CDP, 183 companies reported more avoided emissions than emissions in 2022. If correct, this makes them arguably already ‘net zero’. Yet, nearly half of these organisations (48%) had no target to reach net zero emissions by 2050. Once again, having a 2050 target isn’t everything.

Final thoughts…

Achieving net zero by 2050 matters. It should be an immovable objective of societies and companies to limit global warming. However, targets must be broad in scope and include interim milestones. Additionally, avoided emissions should be considered for a full picture of a company’s climate activities. That’s why investors must look beyond headline net zero 2050 targets when assessing transition risk.