Net zero pledges being made by the world’s leading companies are increasing in quality, a new report has found.

The State of Transition 2021 annual report from the Transition Pathway Initiative (TPI) is seen as a gauge on whether high-emitting sectors are on track to fulfil the goals of the Paris Agreement. It is seen as the first measure of progress in what has been called the ‘Decade of Transition’.

It assesses 401 of the world’s biggest companies from the highest-emitting sectors on Management Quality and 292 companies on Carbon Performance. The data also show growing momentum behind net zero targets, with the number of companies committing to credible net zero targets more than doubling in one year (from 14 to 35). These are companies whose targets include the most material emissions of their company and many of which have intermediate targets for significant decarbonisation before 2050.

Electric utilities companies have reduced their emissions the most compared to other sectors. They are on track to meet their 2030 targets, but their ambitious 2050 targets are still well out of reach at current rates.

Nearly half of companies not aligned with Paris Agreement

The study also looked at how a company’s carbon performance aligns with the Paris Agreement, highlighting the need for further action to be taken in combating climate change.

It found that 47% of companies were not aligned with any target; 15% of companies aligned with the most ambitious ‘below 2°C’ benchmark by 2050; and 20% were aligned with the “least ambitious” Paris Agreement benchmark by 2050.

Adam Matthews, Chair of TPI and Chief Responsible Investment Officer of the Church of England Pensions Board said: “The decade of transition has started, and equity and debt investors can now clearly identify those companies who are serious about taking action on climate change and those that are not. These are companies with long-term climate commitments accompanied by clear milestones that don’t kick tough decisions into the long grass, and a comprehensive scope that covers all material emissions in a firm’s supply chain. Although a significant development it still represents only a limited leadership group that needs to expand rapidly. As we enter the ‘decade of transition’ having only 17% of companies with credible net zero commitments is not enough. As investors we need to work with companies to ensure that they are aligned with a pathway to keep global warming at 1.5C.”

Helena Vines-Fiestas, Global Head of Stewardship and Policy at BNP Paribas Asset Management said: “The TPI State of Transition report shows us how much is being achieved. We are seeing companies strengthening their governance and management of climate change, and an increasing number are committing to align with the goals of a net zero economy. But there is a long way to go with particular effort needed in two areas. First, too many high emitting companies have yet to publish a formal climate change strategy or even provide basic disclosures on their greenhouse gas emissions. Second, far too few companies are anywhere near achieving alignment with a 2 degrees benchmark, let alone the 1.5 degrees needed if we are to achieve a net zero economy.”