The ESG “gold-rush” has led to a three-fold increase in the number of companies setting net-zero targets’ but looking at the global universe most companies still do not have a clear path to carbon neutrality.
The Bloomberg Intelligence Global ESG 2021 Outlook report, written by head of ESG and thematic investing Adeline Diab and exclusively seen by ESG Clarity, said although an increasing number of companies have set “ambitious GHG-reduction strategies and calling for regulation” it is still only a smaller proportion of listed entities despite net-zero targets now being a shareholder expectation.
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She added the cap on European emissions is continuing to decline so companies will need to make adjustments to ensure they keep up, even amid the coronavirus pandemic.
“As the cap on European emissions declines, we believe this will tighten the supply-demand balance for European carbon credits, but this gradual tightening may be no match for the pandemic induced drop in emissions in 2020-21, in our view. The cap on emissions is poised to drop about 27% between 2020 and 2030, which compares against our estimate for a 20% drop in emissions in 2020 with an uncertain recovery in 2021.
“To comply with the tighter emissions limits in the long-term, companies may need to invest in energy efficiency, renewables and goal-to-gas switching, and the cost of such carbon abatement options may eventually drive prices higher. In the near-term, however, we believe such investments are not needed due to the unprecedented drop in emissions caused by the pandemic.”
The Covid-19 lockdowns contributed to a decrease in local greenhouse gas (GHG) emissions in 2020, yet atmospheric concentrations of CO2 increased to record levels, according to the World Meteorological Association, further increasing pressure on companies to reduce emissions and not surpass the 1.5 degree threshold established by the Paris Agreement, the report said.
“Companies that fail to take action are likely to experience legal, regulatory and consumer challenges,” Diab added.
While it has been encouraging to see asset managers, asset owners and banks continue to increase the ways in which they engage with or limit exposure to carbon-intensive companies and projects, with institutions responsible for $14trn in assets pledging to divest from coal or other fossil fuels, further investment and action is needed.
Looking specifically at the oil and gas sector, Diab said companies continue to develop strategies to reduce their carbon intensity in response to investor pressure and shifting demand away from fossil fuels, but “these paths vary significantly in ambition and focus”.
The report said for the eight companies in the peer group that announced in 2020 carbon neutral ambitions the use of renewable energy, offsets and carbon capture will be integral.
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Diab highlighted Eni, Repsol and Total announced targets for renewable or low carbon-generating capacity, while Eni plans to have more than 55 GW of installed renewable capacity by 2050. Meanwhile, Shell announced plans to invest up to $200m in natural ecosystems between 2020-21 as a way to generate carbon credits and offset emissions and BP is among those that acknowledge that carbon capture, use and storage will be critical to their transition efforts.
Diab commented: “As the cap on European emissions declines, we believe this will tighten the supply-demand balance for European carbon credits, but this gradual tightening may be no match for the pandemic-induced drop in emissions in 2020-21, in our view. The cap on emissions is poised to drop about 27% between 2020 and 2030, which compares against our estimate for a 20% drop in emissions in 2020 with an uncertain recovery in 2021.
“To comply with the tighter emissions limits in the long-term, companies may need to invest in energy efficiency, renewables and goal-to-gas switching, and the cost of such carbon abatement options may eventually drive prices higher. In the near-term, however, we believe such investments are not needed due to the unprecedented drop in emissions caused by the pandemic.”
