A new report by the Transition Pathway Initiative, based at the London School of Economics, shines a light on the progress – and the gaps – in corporate climate action worldwide. Titled the “State of Transition Report 2024,” the research examines alignment to the 1.5°C climate goal for 2050 for over 1,000 publicly listed companies, with a total market value of US$39 trillion. Preliminary results indicate encouraging progress and significant chasms in corporate-sector action on climate change.
Progress Since 2020: More Companies Setting 1.5°C Targets
Perhaps the most striking finding of the report is that 30% of the world’s largest corporate emitters now have climate targets aligned with a 1.5°C limit to global temperature rise by 2050. This represents a significant increase on 2020, when only 7% of such companies reported targets. This surge in reported targets brings into stark view the sad reality that most corporations are not acting in line with the global climate agenda.
This study also points to the gap between setting targets and having action plans at a detailed level that are transitionable. None of the companies so far has aligned its business practices with the decarbonization goals, thus showing a huge gap between ambition and execution. Unless the companies have intermediate targets that are credible and quantifiable strategies to complement them, many firms are likely to miss their long-term climate targets.
Sectors Leading and Lagging in Carbon Performance
The report segments corporate progress into two large categories: Carbon Performance and Management Quality. Carbon Performance refers to how companies’ emissions stack up against the levels consistent with achieving the 1.5°C mark, while Management Quality looks at how well companies are integrating climate risks and opportunities into business models.
With Carbon Performance, there are a few industries that fare relatively well. The diversified mining sector leads in the number of companies on target for 2050, at 50%. The second is the steel industry at about 46%, followed by electricity at about 41%. There is, however, partial evidence of progress across companies in heavy-emitting sectors, though it is highly uneven.
On the other hand, there are also a great number of sectors that are considerably behind. Food producers, for example, which from a resource use perspective are very important for sustainability, include only 8% of companies aligned with the 1.5°C pathway. Oil and gas companies show even worse results: only 6% demonstrate significant climate action. These would be sectors needing transformative change if global climate objectives were to be met.
Climate Action Differences by Region
It also throws light on the regional differences in corporate climate action: companies headquartered in Europe, Australasia, and Japan are far ahead of the rest of the world when looking at alignment with the 1.5°C pathway. These economies enjoy more stringent regulations, much higher investment in green technologies, and policies that hand them a significant edge in decarbonizing.
On the other hand, China-being home to a large number of the world’s biggest emitters-will be a formidable challenge. In fact, the report finds that an astonishing 82% of Chinese firms either have a lack of sufficient data on climate alignment or are misaligned with the 1.5°C target. The gulf underlines the crucial role that both regulatory frameworks and resource availability play in shaping corporate responses to climate risks. As Simon Dietz, a research director at the TPI Centre, says, “The regulatory environment of host countries is likely to influence how well companies manage climate-related risks and opportunities.
Management Quality: No Company Has Reached the Highest Level
While Carbon Performance tracks the tangible outcome of climate efforts, Management Quality looks at the internal governance and strategy behind those efforts. The report shows that, for the majority-57%-of companies, the rating in TPI’s Management Quality framework is at Level 3; this means they acknowledge climate change as material business risk but do not have extensive strategies to deal with it.
Most outstandingly, none of these companies has achieved the highest category with regard to Management Quality: Level 5, whereby a company would have fully integrated the consideration of climate into its companywide strategy, hence showing a gap in the translation of climate awareness into an action plan.
This finding underlines the need for more robust corporate governance in respect to climate change. As David Russell, Chair of TPI, explains, “Investors need to redouble their efforts to engage with both companies and policymakers to encourage urgent responses to the systemic risk that climate change poses.”
The Path Ahead: The Need for Urgent Collaboration
The “State of Transition Report 2024” is a call to action for companies, investors, and policymakers. Improvement has been seen largely in high-income countries and hotspots of particular sectors, but most companies are well behind, especially within high-emission industries and developing markets. The absence of credible targets for intermediate goals and company-wide decarbonization strategies presents a very significant risk, not just to the individual company, but to the global effort toward the avoidance of climate change.
This, in return, demands significantly closer collaboration among the private sector, regulators, and investors if finances are to shift at scale. To act more courageously, companies will require braver regulatory signals and better resource access-particularly from middle-income countries, whose companies systematically show worse climate performance because of their structural challenges. Investors also must become more active owners in the execution of corporate climate promises and continue pushing for increased transparency, ambition, and results delivered in measures.
As the world moves closer to 2050, the window for efficient climate action will slowly close. The translation of long-term ambitions into short-term, granular actions is what the next step must be for corporate climate leaders-because literally, the future of our planet depends on that.