What drives companies’ progress on their emission reduction targets?

Abstract

As the importance of non-state mitigation actions in the transition to a low-carbon economy becomes firmly established, a rapidly growing number of companies are setting corporate climate mitigation targets. Shareholders increasingly value these commitments, conveying the impression of good future carbon performance. However, a critical question emerges: why do some companies progress better than others toward their climate mitigation targets? There is currently a lack of empirical literature assessing companies’ progress against their mitigation targets. Using a new indicator to evaluate the progress against individual corporate climate mitigation targets in a comparable manner, this study presents an explanatory analysis of 120 determinants applied to 4341 climate mitigation targets (scope 1 and 2 emissions) of 2975 companies reporting to the 2020 CDP questionnaire. The target progress assessment shows that 30% of targets have increased emissions since their base year, 15% have reduced their emissions but not at a sufficient pace, while 55% were on track to achieving or had already achieved their targets. In addition, 18% of targets were already achieved the year the target was set, which may be due to choosing a base year with unusually high emissions. The findings reveal 19 key determinants significantly associated with the progress against corporate targets and highlight future research orientation. Our results indicate better progression by companies having absolute targets with longer timeframes and disclosing additional, as well as remuneration links to climate-related issues. Companies with more ambitious targets progress less than others, except when the ambitious targets are approved by the Science-Based Targets initiative. The latter implies ambitious targets from some firms may only be symbolic, and that investors should consider both target ambition and progress. Clear guidance and regulations should be implemented by policymakers to prevent misleading target information. Future research should address limitations related to reliance on self-reported data and exclusion of scope 3 emissions targets, along with the research directions suggested by the findings.