Long-term corporate climate targets may be increasingly common, but many leading companies are failing to put in place milestones and detailed strategies setting out how they intend to deliver net zero emissions by 2050, a major new report has warned.

A report published this morning by the Transition Pathway Institute (TPI) Center at the London School of Economics and Political Science reveals how the proportion of emissions-intensive companies with long-term climate targets in line with recommendations from climate scientists has risen from seven percent. to 30 percent over the past four years.

However, The State of Transition Report 2024 warns that the credibility of corporate efforts to reduce emissions is compromised by a lack of milestones that serve as key milestones for these long-term goals.

It also highlights how the credibility of companies’ climate goals varies between different industries. For example, the sectors most likely to have emissions targets aligned to a 1.5C or “below 2C” warming scenario are diversified mining, steel and electricity, with 50 per cent, 46 per cent and 41 per cent of leading companies.

In contrast, food producers and oil and gas companies were found to be the least aligned to the Paris Agreement, with just eight percent and six percent of leading companies found to have emissions targets in line with 1.5C or well below 2C of warming, respectively.

Similarly, the report describes how companies’ ambitions to reduce carbon emissions vary across regions, with companies in high-income countries found to have stronger emissions targets and better management of progress towards those targets than those in middle-income countries.

European, Australian and Japanese companies were found to have the highest proportion of companies with targets in line with the Paris Agreement at 66 per cent, 64 per cent and 56 per cent respectively.

On the other hand, 82 percent of companies in China, and 70 percent of companies in other Asian countries, were found to be inconsistent with the Paris Agreement’s climate goals, or lacking appropriate information on relevant information.

David Russell, president of the Transition Pathway Initiative, said the analysis highlighted the link between regional climate policy and corporate carbon emissions plans.

“TPI’s analysis shows that many companies in high-emitting sectors are failing to implement adequate transition processes and targets,” he said. “It also identifies a clear interdependence between local climate policy and business transitions. Investors must therefore redouble their efforts to engage with both businesses and policymakers to encourage appropriate and urgent responses to the systemic risk posed by climate change.”

To reach their conclusions, the researchers evaluated the quality of more than 1,000 public companies’ management of climate targets across 23 indicators, covering issues such as corporate policy, emissions reporting and verification, emissions targets, strategic risk assessment and executive compensation. They also evaluated the carbon performance of 409 companies.

In terms of management quality, the majority of companies – 57 percent – were ranked at level 3, meaning that the companies had “moved out of the lagging range” and had recognized climate change as a relevant business risk or opportunity, but had not developed a strategic approach to address climate change.

The TPI Center’s ranking system for measuring the quality of companies’ management of climate change ranges from level 0 for being unaware or not acknowledging climate change to level 5 where companies have a detailed, actionable transition plan that aligns business practices and investment decisions with decarbonization goals. No company was found to have met all level 5 indicators in this year’s report.

Simon Dietz, director of research at the TPI Center and professor of environmental policy in the Department of Geography at LSE, said the findings were designed to give investors a better view of companies’ efforts to transition to a low-carbon economy.

“This report also gives investors the opportunity to scrutinize the concrete plans of the highest-emitting public companies to translate net zero ambitions into actionable steps,” he said. “This analysis provides unique and profound insight.

“The regulatory environment in host countries is likely to affect how well companies manage climate-related risks and opportunities. If regional nuances are not addressed, investors may withdraw capital from emerging markets and developing countries with high emissions.”

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