18-09-2024 09:37

How are Nordic companies progressing on their climate goals?

In a new analysis, Nordea Equities’ ESG Research team has assessed whether around 300 Nordic listed companies are aligned with and delivering on the Paris Agreement’s 1.5°C global warming limit.
Clouds reflected in lake

Many companies have set emissions-reduction targets and net-zero commitments. But how are they stacking up against the Paris Agreement pathway to limit global warming to 1.5°C above pre-industrial levels?

Our ESG Research team in Nordea Equities set out to track Nordic companies’ progress in a new analysis. The team examined the 1.5°C alignment of roughly 300 Nordic companies’ targets as well as how companies are delivering against their goals.

Marco Kisic, Head of ESG Research and a co-author of the report, sums up the findings: “Many Nordic companies have ambitious targets and are delivering well against them. But several still don’t have 1.5°C alignment in their targets and/or are not tracking well, especially on scope 3 emissions.”

Committed to the SBTi

The Science Based Targets initiative (SBTi) remains the go-to validation source for companies’ emissions-reduction goals. The SBTi rubber stamp is an important gauge used by many investors, explains Kisic. 

In 2024 alone, 32 companies in Nordea’s coverage universe acquired the approved status and more became committed to developing targets, although a few also have had their commitments removed. 

“SBTi is focusing more and more on progress tracking. So while at this stage it’s mainly about setting ambitious targets, soon the pressure will increase on showing delivery,” says Kisic. 

 
 

It’s good to see that several of our large scope 3 emitters have scope 3 targets in place. But not enough of them are sufficiently ambitious.

Marco Kisic, Head of ESG Research, Nordea

 

Assessing the 1.5°C alignment of targets

Of the ~300 Nordic companies analysed, Kisic and his team found that 25% still do not have any targets. Only 35% have scope 1 and 2 targets aligned with the 1.5°C pathway. One positive note is that the largest emitters tend to have ambitious scope 1 and 2 emissions targets.

For this report, the ESG Research team introduced an implied temperature increase metric to make the results of their analysis more intuitive. Using that metric, they estimate, assuming companies fully deliver on their scope 1 and 2 targets, a temperature increase of 1.5°C for Nordea’s coverage universe. 

However, adding in scope 3, or value-chain, emissions radically changes the picture. It can be difficult to target scope 3 reductions, due to challenges around measurement and responsibility. Many companies are still at the beginning of their scope 3 target-setting process. Around 50% of companies still have no scope 3 targets, and only an estimated 11% of companies have scope 3 targets aligned with the 1.5°C limit.

“It’s good to see that several of our large scope 3 emitters have scope 3 targets in place. But not enough of them are sufficiently ambitious,” says Kisic. 

When taking scope 1, 2 and 3 targets into account and assuming full delivery, the analysis found an implied temperature increase of 2°C, although the range of uncertainty is large.

“This is concerning in our view,” says Kisic. 

Delivering on emissions targets

A target is only as good as the delivery on that target. As of today, only 30% of the sample companies report on their progress. The report estimates that 15% of companies are not on track to meet their scope 1 and 2 targets. At least 30% are off track on their scope 3 targets.

 

Source: Nordea estimates

 
 

Source: SBTi and Nordea estimates

Kisic expects target-tracking to become increasingly important, especially with the overhaul of the Sustainable Finance Disclosure Regulation, which will sharpen the focus on companies’ transition plans. He notes that failing to deliver on emissions targets could have multiple implications for companies, including:

  • For SBTi-approved companies, it could mean losing SBTi status
  • Undermining management credibility
  • Higher capex needs 
  • Exclusion from ESG funds

“In our view, these results point to higher capex needs in the future, especially as SFDR brings renewed focus on transition plans,” Kisic concludes.

 
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