Stay the course or admit defeat? The looming reality of missed climate targets
Some firms are coming clean about missed targets, while others are rethinking them. But, right now, most are just keeping quiet.
At what point should a company give up on its sustainability targets?
It’s a question many firms – especially the most ambitious ones – are having to grapple with as their 2025 and 2030 deadlines loom.
At a gathering of around 80 corporate sustainability leaders in London last month, just two said their firms intended to report publicly on their failed targets.
One panellist at the event, which was hosted by consultancy SB+CO, said companies needed to be “more explicit about the limits of our role within the wider system” and to “sit down and write a list of what you need others to do if you’re going to reach your targets”.
Some firms are already taking the plunge and coming clean about their limitations.
Australian tour operator Intrepid Travel announced recently that it had left the Science Based Targets initiative (SBTi) in recognition that it won’t hit the decarbonisation goals it set itself in 2020.
“We are not comfortable maintaining a target that we know we won’t meet,” wrote CEO James Thornton and chair Darrell Wade in a joint statement.
JPMorgan said this week that it would ditch “time- and percent-bound targets” and instead focus on the most cost effective ways to have an impact on decarbonisation.
US supermarket giant Walmart has also warned of delays in achieving its 2025 and 2030 emission reduction goals.
Others are being quieter about what their slow annual progress means for their official targets.
Just last week, Dunelm revealed a major disconnect between the SBTi-approved climate ambitions it markets to its customers, and the progress it’s making in reality.
The UK retailer continues to pledge to halve its Scope 3 emissions by the end of the decade (versus 2019), but its latest sustainability report shows that, so far, it’s increased them by 66% instead.
The leap is “driven mostly by the 61% increase in sales over the same period,” it noted.
Real Economy Progress contacted Dunelm to ask if it would review the viability of its Scope 3 targets and update its public communications accordingly, but had not received a response at the time of publication.
Sustainability Linked Bonds shed more light on progress
For companies that have embedded sustainability goals into their borrowing programmes, there is little choice about transparency.
Switzerland’s largest energy producer, Axpo, had to confirm with the local stock exchange recently that it had missed its renewables goals by 34%.
Like Intrepid and Walmart, it attributed the failure to factors beyond its control – including geopolitical instability and slow approval processes for new projects.
Nonetheless, Axpo had to pay a higher coupon on its sustainability-linked bonds (SLB) as a result of missing the target.
Josephine Richardson heads up research for climate thinktank the Anthropocene Fixed Income Institute (AFII), where she monitors which SLB targets are being met, and which aren’t.
There are 245 SLB targets with 2025 deadlines, she explains, making it a good year for a broader stocktake on progress.
But there are also financial implications. AFII research shows 19% of last year’s targets were missed. If that proportion remains the same, around 50 issuers will see their borrowing costs increase this year.
Richardson and her team have published research suggesting French firms Accor and Air France are among those likely to join Axpo in missing 2025 targets.
But, she tells REP, this isn’t necessarily a bad thing.
“It doesn’t mean you didn’t try, or that you’re not still trying to be a more sustainable company. For a target to be ambitious and material, it can’t be easy to achieve, or exclusively within the issuer’s control.”
Richardson describes SLBs as an “incredible tool for accountability”, because they include a commitment to report on progress within the bond prospectus.
“It may be cynical to say, but I expect lots of other companies [without SLBs] who are going to miss targets will just stop reporting on them,” she predicts.