Beyond Companies’ Emissions Target Setting: Tracking Decarbonization Performance

Target setting is a powerful tool available to companies to signal their commitment to transition to a Net Zero world. Combining these company targets with tools such as Scenario Analysis allows investors to project future emissions pathways and assess the necessary levels of decarbonization.

Only 11% of companies in ISS Sustainability’s universe currently have targets on absolute emissions (and thus targets that are compatible with a cumulative emissions approach to scenario alignment). However, this number is much more optimistic when adjusted for Enterprise Value: 57% of companies covered in the ISS universe have at least one emissions target if ranked by Adjusted Enterprise Value (AEV). This result reflects the fact that the largest companies, because of their higher human and financial resources, are most likely to have set targets.

Target setting follows a similar trend to carbon emissions reporting, where more targets have been set for Scope 1 & 2 emissions than for Scope 3. Scope 3 emissions, however, have seen the largest uptick, in absolute terms, of targets set, with targets more than doubling between 2020 and 2023. In contrast, Scope 1 and 2 targets rose more than 60% between 2020 and 2023.

Having targets adds another dimension to an ISS Sustainability scenario alignment exercise. Rather than being restricted to using either historical rates or ISS’ Policies Projected Emissions dataset, ISS Sustainability can project the emissions of an issuer in line with its target. This results in better alignment results: on a macro-level, when the Scope 1 & 2 emissions reduction targets of companies within the universe are being considered, 60% of companies are aligned. When these targets are not considered, roughly 30% of companies are aligned.

Appreciating the challenges faced by different industries and identifying the pathways to achieve Net Zero in each of them is supported by the multi-model alignment metrics that ISS Sustainability offers.