National 2035 climate targets are becoming clearer, but will they help the private sector?

The EU’s climate head insisted this week that it will have a 2035 emissions reduction target in time for COP30, despite major delays.

The bloc risks losing its leadership status after failing to submit an updated Nationally Determined Contribution (NDC) by the UN’s September deadline, which had already been extended by seven months.

There is now less than six weeks until the start of the international climate negotiations in the Brazilian city of Belem, and the EU is one of around 130 states that hasn’t published to a new interim target as required under the Paris Agreement.

But Europe’s climate commissioner, Wopke Hoekstra, said on Tuesday that, while the EU will “take a bit more time”, “in all likelihood, before we move into Belem, we will have basically the NDC we need.”

What might the EU’s 2035 target look like?

The EU issued a statement of intent last month saying the indicative range for its 2035 target would be between 66.25% and 72.5% of emissions reductions, compared to 1990 levels.

The final figure is likely to depend on whether the EU signs its 2040 climate target into domestic law, explains Anton Jaekel, a climate diplomacy and foreign policy specialist at the think-tank E3G.

If rule makers stick with the current plan, they will commit the EU to net emissions reductions of 90% by 2040.

Working backwards, that would mean a headline reduction of 72.5% by 2035 – the upper limit of what was suggested in the recent statement of intent.

“But if the NDC is developed without that 2040 target being agreed, it would be derived from the EU’s 2050 net neutrality target instead,” Jaekel explains.

“Which is likely to put it closer to 66.25%.”

European leaders are expected to meet later this month to discuss the 2040 proposal, and may pass the final decision to the bloc’s environment ministers in order to approve it in time to inform the new NDC.

If the 2035 target ends up being on the lower end of the estimate, Jaekel believes it would “further harm the EU’s already-damaged reputation as a leader on climate”.

It would certainly weaken its leverage in demanding high ambitions from other countries, like the US (which withdrew from the Paris Agreement completely under President Trump, despite having submitted a 2035 NDC in the final days of Joe Biden’s presidency) and China.

China

President Xi Jinping told the UN last month that China will cut its net greenhouse gas emissions by between 7% and 10% against peak levels over the next decade.

The commitment has been widely criticised for being unambitious, but Jaakko Kooroshy, global head of sustainable investment research at the London Stock Exchange Group, says it’s still hugely significant.

“This is the first time the world’s largest emitter has set an absolute target,” he notes, referring to the fact that China has previously opted for carbon intensity targets that allow it to keep growing its real-world emissions, as long as it becomes more energy efficient at the same time.

Kooroshy also points out that “China has a history of exceeding its own climate targets” – it met its 2030 wind and solar target six years ahead of schedule, for example.

So, unlike most jurisdictions, its 2035 NDC can be seen as the floor for its national ambition, not the ceiling.

Everyone else

For now, the UK’s NDC is among the most robust.

Submitted early, and based on science, it promises emissions reductions of 68% by 2030 and 81% by 2035.

“Keep in mind that 2030 is only five years away, so it’s a big goal,” says Kooroshy, although Kemi Badenoch, the leader of the UK’s opposition party, pledged this week to rip up the UK’s Climate Change Act, which commits the country to net-zero by 2050, if she wins the next election.

Japan’s 2035 target, meanwhile, is on the surface the result of drawing a straight line between its 2030 commitment and its 2050 goal: a 60% reduction in emissions over the next 10 years.

At the time of writing, Australia, Canada and Brazil were among the other countries to have published revised NDCs, while India, Indonesia and South Africa are among those still to submit.

What does it all mean for business?

“These NDCs are going to be quite decisive, because they give us an understanding of what governments think the real-world transition will look like over the next decade,” Kooroshy says.

“And they tell companies just how much transition and physical risk they’re likely to face.”

They also tell financial institutions.

Antonina Scheer is a policy fellow at the London School of Economics, where she helps convene the Transition Pathway Initiative, a project that works with large investors to establish how aligned their portfolio companies are with the goals of the Paris Agreement.

“Investors have typically assessed a company against 1.5°C, which is a normative pathway,” she tells REP, referring to the fact the temperature goal has been broadly accepted by society as the right one.

“But they’re becoming increasingly conscious of whether the company is aligned with its country’s NDC – which is not necessarily 1.5°C-aligned – because that gives them a sense of whether it will be on the right side of national policy.”

In reality, though, those national policies aren’t emerging at the pace needed to achieve most of the 2035 commitments.

Unilever’s chief sustainability and corporate affairs officer, Rebecca Marmot, wrote recently that “NDCs should act as a strategic compass for policy implementation, unlocking investment and accelerating the transition to a low-carbon economy”.

More links needed between transition plans and NDCs

Her comments were part of a report about the relationship between the national pledges and corporate transition plans, in which Unilever called on its peers to push for stronger NDCs.

“When national climate ambition is low, businesses lack a compelling reason to plan and act within their national sphere of influence to innovate, invest or collaborate with government,” argues the report, which Unilever co-authored with environmental consultancy ERM.

It points out that NDCs rarely specify the role of the private sector, and when they do, the focus tends to be limited to the highest-emitting sectors.

To help companies, governments should include granular, sector-specific pathways as part of their commitments, and explain the impact of climate policies on key sectors and commodities, such as agriculture and chemicals.

In return, firms should support the NDCs by using them as the basis of their climate transition plans, and by talking about how their own efforts support specific national targets.

But for now, it’s all eyes on Belem and the remaining 69% of signatories to the Paris Agreement who have yet to submit a revised commitment.

As Unilever says, the “timely submission of updated NDCs is necessary to signal to the private sector a sustained commitment to the Paris Agreement”.