Breaking down corporate net-zero climate targets

An increasing number of companies are setting “net-zero” climate targets. Broadly, these targets represent a commitment by each company to reduce its greenhouse gas (GHG) emissions to a minimum and to compensate for the remaining unavoidable emissions with carbon removal or offsets.

In this latest guide, MSCI offers an analytical framework to assess companies’ decarbonization goals, including net-zero targets. The framework is intended to help institutional investors answer questions such as: What percentage of total emissions do the company’s targets aim to reduce? How quickly does the company intend to achieve its emissions reductions? How much confidence can one have that a target will be met, given the target’s key characteristics and what we know about the company’s track record and strategy for meeting climate targets?

Understanding companies’ climate commitments, particularly with regard to net-zero, and being able to compare companies’ sometimes-heterogeneous climate promises on a consistent basis are critical for institutional investors seeking to measure or mitigate climate risks in their portfolios. The guide may also be useful for companies designing their climate commitments in line with peers or with best practices in mind.

Key Takeaways

• Companies’ decarbonization targets have multiple dimensions. Assessing them requires breaking them down into individual components: the target types and units, boundaries of emissions they cover, targeted reductions and associated timelines.
• It can be difficult to compare decarbonization targets among companies. Even targets that appear to be similar on the surface can turn out to be quite different when looking at them under the hood.
• This heterogeneity calls for a framework to assess targets consistently. This guide offers an analytical framework — the MSCI Target Scorecard — to help evaluate companies’ climate targets across three key dimensions: comprehensiveness, ambition and feasibility. The framework also plots a company’s emissions trajectory, assuming commitments get met, against a net-zero pathway by 2050.

Read the paper here.

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MSCI spoke at the Sustainable Investment Forum Europe in April. Want to hear from them and other influential speakers on how Europe's sustainable finance market is progressing? You can now watch all sessions on demand here.