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Part 3

U.S. Companies - Challenging Path to Net Zero

Published

February 2023

Author
Ian Stannard Headshot
Ian Stannard
Sustainable Finance
Business Development

Using ICE’s extensive database of granular company level emissions data for 2021 (Emissions Dataset) and climate transition models developed with banks for climate stress testing, we conducted analysis to provide some preliminary insights regarding the climate transition challenges facing U.S. companies.

To conduct our analysis, we used the ICE Emissions Dataset to construct a sample portfolio comprised of U.S. listed companies weighted by market capitalisation.

A Good Starting Position…

Using our Climate Transition Analytics tool, first we conducted carbon footprint analysis of the U.S. Portfolio. Using the Task Force on Climate-related Financial Disclosures (TCFD) aligned functionality of the tool, we produced a carbon intensity measure (tCO2/$m revenue) for the U.S. Portfolio covering Scope 1, 2 and 3. We performed the same analysis for a portfolio of global companies in the Emission Dataset and then we compared the results for the U.S. Portfolio to the Global Portfolio. The results suggest U.S. companies are in a relatively good starting position, with a carbon footprint below the Global Portfolio. This is the case for Scope 1, 2, and 3 emissions (See Figure 1).

Figure 1: Portfolio Carbon Intensity (tCO2/$m revenue, Scope 1,2&3) of U.S. Portfolio vs Global Portfolio

Source: ICE - Chart as of 25 January 2023

This relatively positive starting position of the U.S. Portfolio is further highlighted by the alignment analysis we conducted using our Climate Transition Analytics Tool, where the current carbon footprint of a portfolio is compared to various global decarbonisation pathways. Here the U.S. Portfolio is also currently deemed to be in a relatively favourable position compared to many global climate scenario decarbonisation pathways, including the Intergovernmental Panel on Climate Change (IPCC) 1.5 degrees Celsius Low Energy Demand scenario (See Figure 2).

Figure 2: Current Alignment of U.S. Company Portfolio (%) Relative to Various Global Climate Scenario Emissions Decarbonisation Pathway (IPCC)

Source: ICE - Chart as of 25 January 2023

The reason for this initial positive result appears to be a function of the relatively high exposure to high tech companies in the U.S. Portfolio, where carbon intensity tends to be lower than many traditional industries, such as heavy manufacturing. However, this does not mean there is room for complacency. Indeed, bank stress tests typically are not focused solely on current emissions, but also scrutinize projected emissions over the coming years, paying particular attention to how individual companies compare to various climate scenarios, such as the Network for Greening the Financial System (NGFS) Net Zero 2050 scenario.

…But More Work to be Done

Using our Net Zero analysis feature we can also project future emissions compared to various global decarbonisation pathways to generate a more enhanced emissions picture by taking account of other factors, such as the historical emissions trends and future emission reduction plans (climate targets) of individual companies, alongside the current carbon footprint. The Net Zero analysis feature allows us to project future emissions through the year 2050 and even 2100. The projections generated from the Net Zero analysis for the U.S. Portfolio provide a far less favourable picture (see Figure 3).

Figure 3: U.S. Company Portfolio Emissions Projections (%) Relative to NGFS Net Zero 2050 Scenario

Source: ICE - Chart as of 25 January 2023

While the current alignment snapshot in Figure 2 may suggest a relatively positive starting position for the U.S. Portfolio, the forward projections generated by our Net Zero Analysis feature indicates companies in the U.S. Portfolio work to do. If U.S. companies continue down the same path, they will not likely be able to achieve net zero emissions by 2050 (see Figure 3).

Climate Ambition Matters

The increase in projected emissions for the U.S. Portfolio appears to be partly due to the relatively low number of U.S. companies setting temperature targets or publishing carbon emission reduction plans. Only 12.1% of the U.S. Portfolio is covered by a temperature or emissions reduction target, according to our assessment of publicly disclosed emission reduction plans. This is an important factor.

Our research has found there is a positive link between temperature target setting and the rate of emissions reduction. Analysing all companies within our Emissions Dataset, we have found that companies which set a temperature target tend to reduce emissions at a much faster pace, on average 3 times faster for Scope 1 and 2, than companies that do not set reduction targets. For Scope 3 emissions, the divergence is even greater, with companies not setting a target slightly increasing emissions, on average.

Contact our team to learn more about how we can

support your climate stress testing needs.