Oliver Balch talks to CDP and the Science Based Targets initiative about a recent study showing that corporate climate pledges are falling far short of the mark

Antonio Guterres could not have been clearer. The inability of the world order to curb the planet’s trajectory towards irreversible climate change represents a “damning indictment of failed leadership”. 

The United Nations Secretary-General’s comments came in response to the latest update from the Intergovernmental Panel on Climate Change, released at the end of February, which urgently warns of a “narrowing window for action”. 

For brands that have so far failed to wake up to the challenge of climate change, the time is now. So warns Nicolette Bartlett, chief impact officer at the corporate transparency specialist, CDP. 

Swiss Re published a widely cited study last year suggesting that up to 18% of global gross domestic product could be wiped off the balance sheet by 2050 if climate threats are ignored. 

Inaction is a foolish business risk no company can afford

Aside from the material risks to physical assets, compliance costs and brand reputation, Bartlett warns that laggards face an increasing probability of climate-related litigation, which has “soared in recent years”. 

“Inaction is a foolish business risk no company can afford,” she adds. “The reality remains that companies need to halve emissions by 2030 if we are to have any chance of limiting global warming.” 

Given the level of consumer attention now centred on the climate crisis, fewer and fewer brands remain resistant to calls for climate action. Around three-fifths of FTSE100 companies have now put their name to the U.N.’s Race to Zero campaign, for instance, up from just one-third this time last year.

The problem that brands encounter, instead, is one of credibility. The recent Corporate Climate Responsibility Monitor 2022, by the NewClimate Institute and Carbon Market Watch of the climate strategies of 25 global companies concluded that many policies are “ambiguous” while others “fall well short” of the required ambition. 

“Corporates are under intense pressure to demonstrate their climate ambition (yet) companies’ net-zero pledges are not what they may seem,” said one of the study’s co-authors, Thomas Day. 

More specifically, the study maintains that the projected emission reductions by the companies under analysis amount to more like 40%, a far cry from the 100% implied by claims of “net zero” or “carbon neutral”.

So what is causing the credibility gap? Greenwashing cannot be ruled out, but brands that make public commitments with no intention of following through, or that dress up weak actions as feats of ambition, are playing a risky game.

Far more common is for brands to set themselves underwhelming targets. These have the advantage of providing the appearance of action, while ensuring targets can be achieved without a major alteration to business as usual. 

To meet SBTi's Net-Zero Standard, companies must prioritise rapid, deep cuts to emissions, and have a plan to cut emissions by 90%-95% by 2050

To distance themselves from such a position, ambitious brands have taken to linking their sustainability commitments to the latest science. The independent Science Based Targets initiative (SBTi), which currently counts 1,211 certified companies among its network, exists precisely to facilitate such an assurance. 

Aligning individual company targets with global sustainability issues is an evolving field, however. The NewClimate Institute’s Corporate Climate Responsibility Monitor study included 18 brands that were SBTi-compliant, and for all the protocols SBTi puts in place, said a majority had targets it deemed “either contentious or inaccurate”. 

In response to the study, SBTi said it, too, was concerned about gaps in transparency and integrity in net-zero target setting by companies, and had developed a Net-Zero Standard, which launched in October, to address this discrepancy. To meet the standard, companies must prioritise making rapid, deep cuts to emissions across their value chains, and have a plan to cut emissions by 90%-95% by 2050. 

Of the 25 companies in the Corporate Climate Responsibility Monitor study, it said, only one, CVS Health, had had its target validated against the new net-zero standard.

Alberto Carrillo Pineda, SBTi’s managing director, says he advises brands to spell out in clear language what it is that they are committing to and, equally importantly, how they intend to deliver it. 

No single organisation has the answer to complex systemic issues such as climate change, economic inequality and biodiversity loss; to be effective, brands’ delivery strategies must inevitably involve measures designed to positively influence other relevant institutions.

“It is important for companies to be clear about the barriers they face and what type of transformations are needed in the wider ecosystem.”

One obvious area where brands influence the systems in which they operate is through government relations. Nothing creates greater dissonance, Pineda notes, than a company that publicly commits to a progressive sustainability goal and is then found to be lobbying policymakers for the precise opposite. 

A credible commitment today is one that explains in depth how a company will deploy its resources across its value chain to deliver the desired outcome

Another area of influence is procurement. A recent study by CDP found that fewer than two-fifths (38%) of brands that report to the transparency organisation encourage their suppliers to take action on climate change. Even fewer (16%) seek to mobilise their supply chains around water security. 

This supply-side inaction is even more concerning given that carbon emissions in companies’ supply chains are estimated to be 11 times higher on average than those from firms’ direct operations. 

Partly this is due to the daunting nature of the challenge, says Sonya Bhonsle, global head of value chains at CDP. Yet, CDP’s analysis also identifies a small number of brand “trailblazers” that “are building this (climate action) into the way their procurement staff work and the way that processes work”, she says. 

Mike Barry, a specialist sustainability consultant and former head of Marks & Spencer’s Plan A programme, cites the example of Nestle’s recently unveiled plan to eradicate child labour as a proactive, well-resourced, and clearly articulated delivery plan. 

Among other measures, the recently launched strategy involves a 1.3 billion Swiss franc ($1.4 billion) investment over the next eight years in regenerative agriculture schemes, gender-equality programmes, and cash incentives for child school enrolment and other welfare activities. 

“A credible commitment today is one that explains in depth how a company will deploy its resources across its value chain to deliver the desired outcome, rather than wishfully hoping for change to ‘just’ happen,” says Barry. 

Rory Sullivan, a responsible investment expert and co-founder of advisory firm Chronos Sustainability, says it is not surprising that brands are daunted or confused (or both), given the complexity of achieving sustainability goals, and the fact there are few successful precedents to follow. 

If brands are frank and up-front about the complexity, external stakeholders should begin to accept this as “the state of play”, argues Sullivan. It won’t excuse inaction. But it might just lead to a more supportive, less critical attitude to brands that are genuinely intent on addressing some of the toughest challenges of our times. 

Main picture credit: James Akena/Reuters

This article is part of the April 2022 Sustainable Business Review: See also:

Brand Watch: In the face of war, companies need to both act and advocate

ESG Watch: War in Ukraine sheds harsh new light on sustainable finance

Policy Watch: Why more energy storage is key to turning renewables targets into reality

Society Watch: The rise of employee climate activism

IPCC  CDP  UN Race to Zero  SBTi  Corporate Climate Responsibility Monitor