Many of the world’s biggest businesses are making slow progress on their Net Zero goals and plans to deal with global warming, according to a new analysis.
According to the latest EY Global Climate Action Barometer, while two-thirds of businesses surveyed (64%) have net zero transition plans in place, more needs to be done to guard against the biggest environmental risks.
The study found around one in 10 (12%) of the businesses survered have made strong progress in developing or disclosing plans.
And less than half (48%) have kept their targets in line with scientific guidance on how to mitigate against the worst effects of global warming.
And of the companies which do have Net Zero targets, almost two-thirds (63%) rely on carbon credits.
The report examines the views of more than 850 companies, across 50 countries and 13 sectors.
EY’s global strategy and markets leader for climate change and sustainability services, Dr. Velislava Ivanova, said many companies have become more knowledgeable now about climate risks opportunities, and are setting more realistic goals, in an interview.
Dr. Ivanova added other businesses are really rethinking their goals, based on the changing demands of governance and regulations.
But she said the vast majority (92%) of businesses surveyed have analyzed physical climate risks, even though only 44% of them actually have adaptation measures in place.
“We have not seen the movement towards transition planning in the way we had hoped we would see, meaning having practical actions in place and the right levels for companies to decarbonise,” Dr. Ivanova told me.
She added the transportation sector and the financial sector appear from the survey to be the least committed to publicly sharing their transition plans.
“More and more companies are starting to look at the risks of climate change and the impacts on their businesses again, whether it is pure physical risk or a combination of physical and transition risks,” she said.
“They are recognizing the business impacts, and the need for planning, not from a sustainability perspective, but from a business perspective, and incorporating their sustainability goals into their business strategy and capital allocation practices.”
“The transition needs to happen. We are on the brink of another hottest year on record. Businesses need to think about resiliency and transformation to be able to continue to exist.”
Vladimir Preveden, a senior associate at WU executive Academy, said EY’s latest Global Climate Action Barometer sends a clear signal to businesses, which is the era of “everyone looks the same in climate action”, based on climate reporting, is ending, in an email.
Preveden said businesses are entering a phase where winners will decisively pull ahead of the “laggards”, just as global warming moves beyond 1.5°degrees Celsius and stakeholder expectations shift sharply.
“Gen Z is already treating sustainability as a basic requirement for the products and services they buy and the employers they choose. Planetary and social acceptability is fast becoming a licence to operate,” said Preveden.
And Rodrigo Tavares, full professor of sustainable finance at Nova School of Business and Economics, said climate disclosure has advanced faster than the market’s ability to translate sustainability data into valuation models, in an email.
Tavares added without strong market pressure, firms feel far less compelled to move from plans to execution.
“As long as ESG and climate metrics reward reporting volume rather than financially material indicators, investors will misprice risk and climate ambition will stall,” he added.
“Climate action becomes credible not through more disclosure, but when transition risks and opportunities are reflected in cash-flow expectations, cost of capital, and capital allocation.”
