The following content is sponsored by MSCI.
Evaluating a Company’s Net-Zero Carbon Target
A net-zero carbon target is a climate essential.
Companies from Apple to Microsoft are making commitments to halve their emissions by roughly 2030—and eliminate them altogether by 2050. These targets follow the recommendations set forward by the Paris Agreement in order to avoid devastating climate conditions for future generations.
However, not all targets are rigorous, let alone feasible. To shine a light on this problem, MSCI developed a Net-Zero tracker that helps investors analyze the strength of company targets.
What is Net-Zero?
Net-zero refers to driving down greenhouse gas emissions (GHG) to zero by mid-century.
To achieve this, processes such as carbon removal, carbon reduction, renewable alternatives, and energy efficiency will aid in the transition to carbon neutrality. To date, at least 50 countries and 21% of the largest corporations worldwide have set net-zero targets.
Net-Zero Carbon Analysis
MSCI developed a framework centered on two primary criteria:
|Description||Does the target focus on the majority of a company’s emissions?||How much and how quickly does a target aim to reduce emissions?|
|Key Components||% of company footprint covered by targets|
|Projected target emissions against net-zero trajectory in 2030 & 2050|
Intention to use carbon offsets
Thanks to its standardized framework, the analysis helps investors evaluate all companies’ net-zero targets on the same components.
The Net-Zero Dataset
Where is data drawn from, and what determines the net-zero score?
Using MSCI’s Climate Target and Commitments dataset, the drivers of carbon emissions fall into scope 1,2, and 3 emissions. Here is a hypothetical example of how these emission are analyzed:
|Drivers of Emissions||Description||Reported/ Estimated||Emissions (Mega tCO₂e)|
|Scope 1||Direct emissions||Reported||0.04|
|Scope 2||Indirect emissions from purchased energy||Estimated||0.18|
|Scope 3||Value-chain emissions*||Estimated|
* Both upstream (supply chain) and downstream (use of a company’s products)
For investors looking to sincerely address climate change and reduce their portfolio emissions, the Net-Zero Tracker lets investors compare commitments with other companies, informs their climate risk profile, and report portfolio emissions according to frameworks such as the Task Force on Climate-Related Disclosures.
The Net-Zero Scorecard
The Climate Target and Commitments dataset tackles two key issues:
- Identifies disparities in a company’s net-zero carbon target
- Identifies the main sources of carbon emissions for a company
Sometimes, companies will set lofty net-zero pledges without having systems of short-term accountability. In other cases companies will set targets that exclude segments of their business.
Let’s consider the following hypothetical leading company, whose net-zero carbon target covers 100% of their business and has 3.8% projected emission reductions annually.
|Net-Zero Scorecard||Key Components||Value|
|Comprehensiveness||% of company footprint covered by target|
|Ambition||Projected reduction per year to meet stated target|
Intention to use carbon offsets
With a target year of 2030, the company’s net-zero commitment covers all scope 1, 2, and 3 emissions. For these reasons, the company’s net-zero target is credible and has short-term accountability.
As the year 2030 closes in, there is hope that business as usual will become even less viable.
Companies who refuse to acknowledge the climate crisis will likely face greater pressure from shareholders. Financial markets may reward those with achievable climate strategies. The net-zero carbon target tracker allows investors to think critically as they play a part in this transition.