ANALYSIS: Strong stick of regulation will be needed to commandeer big business into hitting new climate targets

Joe Biden’s ambitious pledge last month to halve U.S. greenhouse gas emissions by 2030, and the EU’s move to raise its 2030 target for cutting emissions from 40% to 55%, appear to be two leaps forward for humankind by pushing for urgent action to turn the tide on disastrous climate change.

ANALYSIS: Strong stick of regulation will be needed to commandeer big business into hitting new climate targets

The question, however, is whether the politicians who attended Biden’s climate summit will be able to commandeer the companies that produce the vast majority of climate destroying emissions into action to deliver their targets.

Policymakers are critical in that they have the power to turn progressive voluntary action by a small group of companies to cut their carbon footprint into mandatory requirements governing entire sectors, rewarding early adopters, levelling the playing field, and scaling up impact.

It’s why Ford, Volkswagen, Honda, BMW and Volvo supported California in its battle with the Trump administration, which sought to reverse rules set by the state a decade ago requiring automakers to reduce CO2 emissions by around 30% between now and 2025.

Others, including GM, Nissan, Toyota and Subaru in the Coalition for Sustainable Automotive Regulation – a case of double-speak if ever there was one - backed Trump’s lawsuit, though GM and Nissan pulled out just after Biden’s election, and the rest left in February.

The same dynamic is playing out at the moment in the EU, where Europe’s automakers are due to find out in July what their contribution to the EU’s new climate target will be.

Reuters reports that Volkswagen, which owns Porsche, Audi, VW, Seat, and Skoda, is telegraphing to policymakers that it would support even more ambitious cuts in emissions, upsetting smaller rivals who want Brussels to give them more leeway.

But just how prepared are even the most ambitious companies to follow where policymakers have said they will lead?

In partnership with Signal Climate Analytics, Reuters has been exploring the extent to which the top 250 publicly traded emitters, which together account for more than a third of global CO2 emissions, are bringing their operations in line with the global agenda of keeping global temperature rises to well below 2C.

Looking at the biggest greenhouse gas emitters in the transportation sector, which accounts for about a fifth of global CO2, in the accompanying chart we see the following pledges, with the final dark green bar awarded to firms that have made a commitment similar to the new country-wide U.S. goal, with a target over the next decade committing to over 40% decarbonisation.

Among the 27 names on the list, only five of them, AP Moeller-Maersk, Daimler, Delta Airlines, General Motors and Volkswagen, have made a sufficient commitment in line with a sub 2C world, according to Signal Climate Analytics.

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Another 11 have set targets in line with science, but have not set targets for action in their dominant emissions type, those from their product use and supply chains, known as their scope 3 emissions, in the next nine years. Looking more broadly at the 250 largest emitters, only 10% have committed to meaningful decarbonisation in the next decade.

There has been a lack of guidance for how companies can set credible net-zero goals, and, equally importantly, a mechanism to hold their feet to the fire and ensure they follow through.

The Science Based Targets Initiative, which was set up in 2015 ahead of the Paris Climate summit, has until now only set rules for decarbonisation of companies’ direct operations in line with a 2C world.

Net-zero carbon target-setting by both countries and companies is a more recent phenomenon, in the wake of the 2018 IPCCC report that stressed the need for emissions to fall to zero by 2050 to keep global warning to 1.5C.

SBTi is in the process of developing a global standard for net-zero businesses, which will have to align with a below 2C world, but it will not be published until later this year.

The new standard will have requirements for monitoring, verification and annual reporting of progress towards targets, something that has until now been missing.

Tim Nixon, CEO of Signal Climate Analytics, says there should be far more data disclosure from companies about their environmental impacts, including their capacity:

• To deliver progressively larger emissions reductions over time through specific product and operational innovation

• Of renewable energy sources to fill the energy gap in their value chain

• To eliminate human rights abuses, particularly in sectors like metals, mining and consumer goods

• Implement circularity of their products and processes

Regulators are already moving to force their hands in this direction. Internationally, the London-based International Financial Reporting Standards Foundation (IFRS) has been asked by governments and financial regulators to establish a consistent, single set of global standards on how listed companies should disclose risks from climate-change in their operations.

This will replace the current patchwork of public and private-sector approaches that make it harder for investors to compare companies, and has allowed for the proliferation of greenwash. In April officials leading the project said it aims to publish its first batch of standards by the middle of next year.

In Europe a new proposed Corporate Sustainability Reporting directive was published in April that will require companies to publish information on how their strategy aligns with limiting global warming to 1.5C, and to the EU’s own climate transition benchmarks.

And such action now looks likely to be replicated in the U.S, where there are currently no mandatory standards for disclosing climate risks, following the Biden Administration’s new Executive Order on Climate-Related Risk.

According to Mindy Lubber, CEO of ESG nonprofit Ceres, Sen. Elizabeth Warren and Rep. Sean Casten are expected to re-introduce Senate and House bills soon that would require companies to disclose climate risk, while for the first time, publicly traded companies including Apple, HP, Salesforce, and Uber have announced public support for regulatory action by the SEC to mandate climate disclosure rules.

But Nixon says he doesn’t think companies should be let off the hook from taking action now. “There will not be agreement in our lifetime on the perfect standard, and competing regional claims for a new ‘global’ standard will likely extend the debate,” he says. “Companies know where their emissions are concentrated, and they can choose to report and reduce, starting today, and progress meaningfully and transparently over the next decade.”

He adds: “We desperately need a new Protocol like that agreed in Montreal for ozone which was completed in less than 18 months once the severity of the problem was agreed,” Nixon said. “Such a treaty would build on current regional proposals and bind all nations together on a unified corporate framework for reporting and targets. ”

In absence of such an instrument, he said, we are left looking largely to the heads of global businesses for change in the very near term.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Reuters Professional is owned by Thomson Reuters.