At a recent address to investors, the former BP chief executive Lord John Browne urged them to consider Aesop’s fable of the rider who stops feeding his horse in peacetime, only to find it lame when war comes.
The soldier in the analogy represented the companies who are pulling back on climate action, creating more long-term risk for all concerned as the ever-greater effects of the climate crisis loom.
“The story is a good reminder that if we want something to serve us longer, we need to take care of it constantly,” he said. “The hard truth is that we’ve done a poor job of reconciling corporate actions with the interests of society and the planet in a balanced way. Yet the urgent need to do so is undiminished.”
The remarks by Browne, the chair of the $3.5bn General Atlantic BeyondNetZero fund who has become a vocal advocate for robust climate policy, reflect a sobering reality. This year, corporate leaders in a range of sectors have acknowledged they cannot meet their greenhouse gas emissions targets set, in some cases, several years ago.
Large corporations, including Unilever, Bank of America and Shell, have in the past year dropped or missed goals to cut emissions or to shrink ties with the most polluting sectors. Others have simply skipped over their promise to improve.
Most have justified the failure to keep up the effort with a common complaint: political and regulatory factors outside companies’ control are slowing progress. These include a failure of standard-setting and clear regulation, insufficient government support, and delays in the rollout of new technologies.
But it’s not just companies finding it hard to hit climate targets — some governments are, too. Scotland’s devolved government ditched its 2030 decarbonisation target in April, saying it was “out of reach” following delays to its draft climate change plan. Germany’s climate adviser said on June 3 that it believed the country’s own 2030 goal was likely out of reach.
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The missed targets matter because ambitions were for the most part relatively low to start with. The median goal of 51 major companies was to cut emissions just 30 per cent by 2030, the non-profit groups NewClimate Institute and Carbon Market Watch concluded in a joint study this year.
This compares with the need to cut global emissions by 43 per cent by the end of the decade, which is what the UN body of scientists, the Intergovernmental Panel on Climate Change, says is needed to keep within the boundaries of ideally 1.5C of global warming above pre-industrial levels that was set down in the Paris agreement in 2015.
The unrelenting climb in emissions and average global temperatures since then, fuelling extreme weather events, has made the issue even more pressing. Yet even if they do hit their goals, some executives have said, they may not be able to prove it, because of the frustrating guesswork built into relatively new carbon footprint measurement techniques.
Many companies set their goals without realising how much work it would be to meet them, says Rachel Whittaker, head of sustainable investing research at Dutch asset manager Robeco, likening it to the feel-good effect of buying a puppy at Christmas.
“Everyone got swept up in a wave of enthusiasm,” she says. “The reality is not so easy.”
There was no shortage of lofty corporate climate targets in the wake of the Paris agreement. The pronouncements reached a peak during the pandemic and the COP26 climate negotiations in Glasgow.
More than 10,000 companies globally committed to cut emissions under the auspices of a United Nations campaign, the Race to Zero.
In March, hundreds of these companies, including Microsoft, Unilever and Brazilian meatpacker JBS, were removed from a validation process by a global standard-setter for corporate climate goals, the Science-Based Targets Initiative. They had failed to set sufficiently meaningful targets, the watchdog found, as they had promised they would several years earlier.
Unilever, whose former chief executive Paul Polman was one of the first corporate leaders to argue that multinationals could play a role in addressing climate change, places sustainability prominently in its investor communications.
The company still aims to reach net zero emissions across its value chain by 2039. But in April, it announced it would scrap its flagship goals to cut plastic pollution and preserve biodiversity. In some cases the group was “simply not ready”, recently appointed chief executive Hein Schumacher said.
“When the initial targets were set we may have underestimated the scale and complexity of what it takes to make that happen,” he told journalists after a first quarter trading update. Not long after he spoke, fatal floods devastated parts of Brazil, a key source of soyabeans for Unilever.
Fears of legal threats by regulators or by consumer groups may also be driving the change of tone. A few months before Unilever’s green rollback, the UK’s competition regulator launched an investigation into whether its environmental claims about its cleaning products and toiletries met with reality.
In some industries, technology is cited as a barrier to action. Barend van Bergen, chief sustainability officer at Roche, says that heating buildings and powering manufacturing processes in a clean way remains a “challenge” for the Swiss healthcare group. Its engineers and suppliers are exploring the potential of biomass, biogas and other fuels.
Geopolitical and trade factors are also at play for some multinational groups. A surge in electric vehicle exports from China to Europe has meant automakers planning to shift away from combustion engine production have, in some cases, slowed their efforts.
Europe’s largest carmaker Volkswagen no longer refers to its previous voluntary target to cut CO₂ emissions from passenger cars and light commercial vehicles by 30 per cent between 2015 and 2025.
Instead its new — delayed — goal aims to cut these by the same amount between 2018 and 2030. This means it no longer has a group-wide binding emissions commitment to meet until the end of the decade. “Due to long development and implementation cycles in our industry, shorter-term targets are not useful to us,” the carmaker said.
Its new target is more ambitious, it added, as it does not rely on carbon offsets — tradeable instruments meant to represent one tonne of carbon removed, avoided or reduced in projects around the world.
The availability of clean energy is another problem. The International Energy Agency warned this year that the global rollout of renewable energy capacity is being undermined by policy uncertainty, investment gaps in grid infrastructure, and barriers to obtaining permits.
Kimberly-Clark, the US maker of Kleenex tissues and Andrex toilet paper, says “chronic grid delays” are slowing its transition to clean energy. This could make its goal of powering its UK production facilities with only renewables by 2030 more difficult to reach
The company has been told not to expect a grid connection for a planned solar project meant to help power its factory in Barrow-in-Furness, in the north-west of England, until 2037.
These challenges are transforming the way companies communicate about climate change. Talk of purpose has given way to pragmatism.
More than two decades after Browne rebranded BP to “Beyond Petroleum”, oil and gas companies increasingly argue that they cannot cut their overall emissions from fossil fuels faster than the rest of society.
When Shell ditched its 2035 greenhouse gas emissions reduction target in March, chief executive Wael Sawan blamed uncertainty over “the shape of the energy transition and the pace of the evolution in different countries”.
Murray Auchincloss, BP’s new boss, echoes Shell’s approach, saying last month that BP was “really, really driven by returns”.
Financial institutions in the US meanwhile have acted after concerns were raised by Republican politicians who say that cutting back on fossil fuel investments is “too woke”.
Bank of America is among a group of peers in North America to have watered down their climate policies following this.
In the run-up to the Glasgow climate conference in 2021, the bank made a flagship pledge to no longer directly finance new thermal coal mines, new coal-fired power plants or Arctic drilling projects.
But in the bank’s latest environmental and social risk policy, dated December, it dropped the explicit ban, saying that the most polluting types of fossil fuel would be subject to an “enhanced due diligence” along with the financing of payday lending, fire arms, and prisons.
“Certain client relationships or transactions that carry heightened risks will go through an enhanced due diligence process involving senior level risk review,” the bank said.
Partly as a result of this shift in tone, building climate targets into debt structures has become less appealing than it was a few years ago.
Sustainability-linked bonds were meant to bring rigour to green claims by tying companies’ borrowing costs to whether they could achieve their climate promises.
Global issuances of this type of bond fell to just $9.2bn in the first three months of 2024 compared to a peak of close to $100bn in the same period in 2021, according to Barclays analysis.
Waning appetite for embedding sustainability targets into financial mechanisms may be a symptom of a reluctance to discuss green promises openly, which could itself have a dampening effect on climate action.
“We know that climate action rests on dialogue,” says Lucie Pinson, head of the French green finance campaign group Reclaim Finance. “The public nature of promises is important.”
For some climate activists, another sign that some companies have given up on making any significant cuts to their own emissions is their continued appetite for carbon credits despite numerous studies raising questions about their effectiveness. Companies used 180mn carbon credits last year, only a slight decrease from 185mn the previous year, data provider MSCI Carbon Markets estimates.
The Voluntary Carbon Markets Integrity Initiative, which has broad corporate backing, has said companies can “offset” up to half of their indirect emissions. The NewClimate Institute report found that this would allow most companies to hit their targets without actually making cuts to their own supply chain and client-related emissions.
The report also highlighted other accounting approaches that it said could disguise low ambition.
Unlike other major multinationals, US retail giant Walmart has no plan to bring down the overall carbon footprint of its supply chain on a percentage basis. Instead it says that it has already met the impressive-sounding “Project Gigaton” goal to reduce, sequester or avoid 1bn tonnes of greenhouse gas emissions.
This goal takes the unusual approach of adding up hypothetical emissions that did not enter the atmosphere compared to a business as usual scenario, known as “avoided emissions”, as well as the difference between some historic emissions linked to suppliers and more recent ones. Direct suppliers can add up emission reductions from across their whole group, even if Walmart is a small client.
Walmart says this approach was approved by the Science-Based Targets Initiative, and that it represents “significant innovation”.
It said last year it would probably fail to hit its target to cut emissions from its own stores and distribution centres by more than a third between 2015 and 2025. “While progress year over year won’t be linear, we continue to make progress toward zero [emissions in operations] by 2040,” it said.
Even with the rollback by some companies, others continue to quietly push ahead with net zero targets.
New data from the Energy & Climate Intelligence Unit, a London-based non-profit, shows that more than two-thirds of annual revenues ($31tn) across the world’s largest companies are now aligned with net zero, representing an increase of 45 per cent in two years.
But large investors who believe that climate change creates long-term risks to financial returns are increasingly pressing for evidence of action, rather than ambition.
For several years, groups such as Climate Action 100+, made up of 700 large investors, have pushed for companies to set net zero targets and outline risks around greenhouse gas emissions. Last year it shifted focus, moving away from what companies are disclosing to how they are actually implementing those climate plans.
But many investors also say that companies have their hands tied by an unstable regulatory environment.
Chris Hohn, the billionaire hedge fund investor who was behind a landmark campaign to force companies to set out transition plans and allow shareholders to vote on these, says policy failures are often to blame for companies failing to cut their greenhouse gas emissions.
“The reality is talk is cheap,” he says. “We can all talk and say we’re all green. But then when [companies] have to make the investments, they can’t justify them without regulation and taxation.”
The inconsistent ways in which progress is measured remains a source of frustration for investors. Calstrs, the California public pension plan which has pledged that its investee companies will produce net zero emissions by 2050, delayed publication of its annual climate report in April due to inaccuracies in the way it was calculating the carbon footprint of its $331bn portfolio. Assessing data from multiple different providers proved complicated, it said.
“[Other companies that publish their carbon footprints] are using an estimate of an estimate of an estimate and publishing that,” Chris Ailman, chief investment officer of the fund, told a Calstrs board meeting in May. “We don’t think that’s intellectually honest. We can’t and we shouldn’t. We need better disclosure.”
Robeco was experiencing similar complications with its own net zero target, says the Dutch asset managers’ Whittaker. Measuring progress against the target and whether emissions cuts are coming from changes in holdings, or “from companies actually decarbonising in the real world” was “really challenging”.
The company is not rolling back on net zero, she adds. “But you can see why other companies do that. Something that seemed like a great idea to start with turns out to be quite tough.”
With additional reporting by Josephine Cumbo and Madeleine Speed in London
Climate Capital
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