Achieving the goals set out by the Paris Agreement will be very difficult if the efforts of companies around the world remain as they are. Will the 26th Conference of the Parties to the United Nations Convention on Climate Change (COP26) be able to alter this momentum?
In October 2021, US-based MSCI released its report on recent developments around the world for ESG activities and the progress of corporate efforts to mitigate climate change. Their quarterly report Net-Zero Tracker revealed the results of a large-scale analysis of some 9,200 public companies worldwide. These latest findings reveal that less than half of the companies, 43%, are expecting to meet the Paris Agreement target of keeping the global rise in temperature below 2 degrees Celsius. The ratio of companies on track to meet the 1.5 degrees Celsius target decreases even further, dropping to just 10%. Nikkei ESG had an interview with Mr. Kazuya Nagasawa, MSCI’s head of Asia Pacific Analytics.
Could you describe the latest findings of Net-Zero Tracker as they were recently released by MSCI?
Nagasawa: If companies and governments continue to behave in the same way as they are now, the world will see an average temperature rise of 3 degrees Celsius compared to the pre-industrial climate levels. Although there are actions being taken to achieve the climate goals set within the Paris Agreement, the efforts now underway are still not enough.
Clear Gaps among Companies in Decarbonization Efforts
Net-Zero Tracker provides the outlook on global warming by analyzing the rate of carbon emissions reductions currently being achieved by companies. According to the latest analysis of current corporate activity, 43% of the companies are on track to meet the 2 degrees scenario, but only 10% will be able to meet the 1.5 degrees scenario. Today, activity within the energy economy is increasingly shifting away from fossil-based fuels in favor of clean energy, and the evaluation criteria across various industries and companies will change significantly in favor of this direction in the future. Corporate initiatives by companies toward climate change will define their status as winners or losers. Those that are making slow progress with efforts to counter climate change still have some room to catch up, but the ones lagging far behind are more than likely to face a crisis of business continuity caused by lack of trust and satisfaction. We think that the financial evaluation of the companies falling behind climate targets will begin to deteriorate on a yearly basis which will result in their performances slipping into decline.
What is the focal point of COP26?
Nagasawa: The major focus of discussion is on how much they can unify the rules for climate-related information disclosure and whether such rules will be enforceable. Capital reallocation and asset repricing by financial institutions are important in promoting climate change countermeasures, and the advancement of climate-related information disclosure has a great influence on this.
What issues in ESG will increase importance in future corporate evaluation?
Nagasawa: Governance is of particular importance. The point here is the ethics that drive the company and how these are supervised and managed. For example, the issue of tax avoidance by giant IT companies is currently an issue being discussed, another important criteria for evaluation is how companies behave as corporate citizens.