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ESG Analyst Survey Calls into Question Reality of Net Zero Targets



The recently released 2024 ESG Analyst Survey by Fidelity International contains some sobering news about the net zero targets set by many companies.


According to the survey, more and more companies are falling behind in their efforts to achieve net zero carbon emissions by 2050. But a growing awareness of climate-related risks is reason to hope they will soon ramp up their efforts.


Fidelity International’s latest survey of its investment analysts finds that 43 percent of companies have a credible net zero goal for 2050 - that’s compared with 57 percent who were on course last year.


In some cases, the difficulty of the task has forced companies to reconsider their goals. According to the report, one fixed income analyst reports that an ‘ESG leader’ she follows has now “narrowed their set of targets to what they believe is more realistically achievable”.

There’s a way to go on the journey to net zero. The analysts surveyed identified three areas that they think will spur improvements in companies’ environmental practices: regulation, government support, and shareholder action. Regulation was seen as the most effective way to spur improvements, with government support about half as popular an answer as regulation. Shareholder action received about one-third of the votes that government support did.


Many companies still promote better ESG credentials than their actions justify.

According to the survey, analysts believe that nearly half of companies (47%) promote better ESG credentials than their actions can justify – essentially greenwashing. One analyst had some sympathy with the plight of companies, noting that in some cases companies are themselves unclear on the correct course of action. Some analysts highlighted the complexity of electric vehicle (EV) production, for instance. 


Other survey respondents acknowledge that an environmentally conscious company is not thinking about social and governance issues. One utility analyst commented: “A lot of the renewables companies present themselves as being very ESG friendly for environmental reasons while not acknowledging their questionable governance and the very significant uncertainty about end-of-life management for many of their products (e.g. batteries and solar panels).”


There is another reason that companies continue to engage constructively about their environmental practices: they know the threat is real and affects their operations financially and, in some cases, physically, with 80% of companies recognizing that climate change is a real threat to their operations. 

 

The question of how to best ‘do’ sustainability.

That we are at this point is not a surprise. As the threat of climate change has been recognized by investors and companies alike, the first thing that companies did was address the “low-hanging fruit” that would disrupt business the least.


As measuring the impacts of climate change has become more sophisticated and companies gain a better understanding of the real threats they face, more challenging climate reduction goals are arising. Harder decisions will have to be made, including discontinuing products or making expensive decisions to hit climate targets.


As time goes on, more of these harder decisions will have to be made. Expect more of this struggle to be reflected in next year’s survey.

 

To whom is this relevant?

Companies that want to avoid being seen as greenwashing.

 

Analysts and investors who want a better idea of how realistic the net zero targets of the companies they cover and invest in.

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