Published: May 7, 2024
Less than half (45%) of the leading listed companies in the US have a net-zero target, according to the S&P Global Sustainable1 Net-Zero Commitments Tracker dataset.
This analysis also examined the ambition of greenhouse gas (GHG) emissions reduction targets at these companies, regardless of their net-zero plans. For Scope 1, for example, companies in our analysis are aiming to cut 51% of emissions on average. Scope 3 ambitions are much lower, including for sectors where Scope 3 makes up the bulk of emissions. The average Scope 3 reduction target for the financials sector, for example, is just 10%.
Setting interim targets can help companies better understand their long-term net-zero goals and address challenges they identify toward meeting these goals. But S&P Global Sustainable1 data shows that net-zero commitments supported by an interim target cover a low share of emissions in many sectors, including energy and materials.
Establishing incentives tied to emissions reductions at the top of corporate ladders may help drive more effective decarbonization efforts. Only 15% of CEOs in the S&P 500 have some form of monetary incentive linked to emissions reductions at their companies, but that figure has risen since 2021 and is more common in the sectors responsible for the highest direct emissions, data from the 2023 S&P Global Corporate Sustainability Assessment (CSA) shows.
Net-zero commitments are the exception rather than the rule for the top US companies, according to a new analysis of the S&P Global Sustainable1 Net-Zero Commitments Tracker dataset. Commitments supported by interim targets, which can help companies achieve net-zero, cover less than one-third of emissions — meaning the climate ambitions of these leading companies do not appear to match the urgency required for the world to limit global warming.
This analysis examines how common net-zero targets are among leading publicly traded US companies and how effectively they are using interim targets. It includes 434 companies in the S&P 500 identified in the S&P Global Sustainable1 Net-Zero Commitments Tracker database as having GHG reduction targets, representing 95.6% of total index emissions. This sample reflects some of the largest and most successful US companies — those with the resources to develop best-in-class climate disclosure practices and transition strategies. This universe can serve as a bellwether for understanding the direction of climate action in the world’s largest capital market.
Overall, 45% of the leading listed US companies have a net-zero commitment of any kind, and that figure varies widely by GICS sector. Commitments are most common for the utilities sector, where 81% of companies in this analysis have committed to net-zero. Net-zero commitment rates in other carbon-intensive sectors are lower, at 25% for materials companies, 38% for industrials and 42% for energy companies.
Commitments to reach net-zero for Scope 1, or the direct emissions from a company’s operations, and Scope 2, or the emissions linked to purchased electricity, are in lockstep across sectors with a few notable exceptions. The utilities sector, which includes fossil fuel-based electricity generation in which most overall emissions are Scope 1, has a much higher rate of net-zero commitments for Scope 1 than Scope 2 or Scope 3 (those emissions generated up and down a company’s value chain). In contrast, the consumer staples sector, which includes companies with deep value chains that may begin with farms and other agriculture-based suppliers, has one of the highest Scope 3 net-zero commitment rates at 34%. Similarly, the financials sector has a Scope 3 net-zero commitment rate of 34%. The vast majority of emissions for financial firms are in the form of financed, facilitated or insurance-associated Scope 3 emissions. This analysis considered whether a company has a net-zero commitment for any Scope 3 category.
In a handful of sectors, more net-zero commitments cover Scope 2 than Scope 1. That could reflect the high electricity usage in these sectors compared with relatively low emissions generated from their direct operations. The information technology sector’s Scope 2 net-zero commitment rate of 37% (versus a Scope 1 rate of 34%) may reflect the high electricity needs of software companies, particularly as the sector leans further into datacenter and AI development.
Achieving a long-term commitment to net-zero typically involves a mix of eliminating emissions and offsetting any that remain. But regardless of whether a company has set out to reach net-zero, emissions reductions are needed across all sectors of the global economy. In its most recent synthesis report released in March 2023, the UN's Intergovernmental Panel on Climate Change (IPCC) wrote that limiting global warming to 2 degrees C would involve “rapid and deep and, in most cases, immediate greenhouse gas emissions reductions in all sectors this decade.”
This analysis also examined the ambition of emissions reduction targets of the sample universe, regardless of their stated net-zero plans. Across sectors, the companies in our analysis are aiming to cut Scope 1 and Scope 2 emissions by an average of 51%. This data reflects the maximum percentage reduction a company in the sample is publicly targeting and includes targets to cut either absolute emissions or emissions intensity.
Sector-specific Scope 1 and Scope 2 reduction targets do not deviate widely from the average across all sectors. The most carbon-intensive sectors — energy, industrials and utilities — seek to cut 58%, 56% and 59% of Scope 1 emissions, respectively.
In some sectors, there may be a mismatch between companies’ willingness to make net-zero commitments for value chain emissions and the actual ambition of their Scope 3 reduction targets. For example, the consumer staples sector has one of the highest Scope 3 net-zero commitment rates and also the second-lowest Scope 3 average reduction target, at 7%.
Net-zero commitments can benefit from interim targets with a near-term horizon. In a report launched at the UN’s COP27 climate change conference, a UN expert group wrote that it is “crucial that non-state actors have short-term targets that prioritise immediate reductions aligned with pathways that keep 1.5°C in sight across their value chain to avoid crossing dangerous climate tipping points. Immediate reductions are not only a scientific requirement, but also minimise transition risks for non-state actors.”
Many companies aim for net-zero by 2050, the target date for net-zero CO2 emissions that scientists say aligns with a global pathway that limits global warming to 1.5 degrees C relative to pre-industrial levels. But whether global warming can be limited to 1.5 degrees C, or even 2 degrees C, will largely be determined by the level of GHG emission reductions in the 2020s, the IPCC has written. That means the success of corporate net-zero commitments hinges on accomplishing shorter-term targets along the way.
The data shows that for the top US companies, net-zero commitments supported by interim targets aiming for 2035 or sooner cover only 33% of their total emissions — in other words, there is no interim target associated with two-thirds of these companies’ emissions.
In the carbon-intensive energy sector, only 5% of emissions are covered by net-zero commitments supported by interim targets. That could present the sector with the challenge of rapidly decarbonizing between 2035 and its long-term commitment horizon year to meet its net-zero goals. Cutting emissions by even small percentages before 2035 would represent enormous quantities of GHGs. If the US energy sector in this sample succeeded in cutting 5% of its Scope 1 emissions, for example, that would be roughly equivalent to the total Scope 1 emissions of the information technology and communication services sectors combined.
The industrials and utilities sectors, however, appear to be bright spots for interim target-setting. These sectors have the second-and third-highest carbon intensities, and 55% and 52% of their emissions, respectively, are covered by net-zero commitments supported by interim targets before 2035.
Net-zero goals are easier to set than to achieve. One way that companies can elevate climate action on their agendas is to align management incentives with progress on reducing carbon footprints.
The S&P Global Corporate Sustainability Assessment (CSA) provides a view of how companies are approaching this topic. Data from the 2023 CSA shows that about 15% of companies in the S&P 500 had a CEO with some form of monetary incentive linked to company emissions reduction. While these incentives are rare for the CEOs leading US companies, the trend has been growing, up from 9% in 2021. They are also much more common for other named executives outside the CEO role (27%).
CEO compensation linked to emissions cuts is most common in some of the most carbon-intensive sectors: energy (48%), materials (29%) and utilities (27%). The energy sector in particular has seen a sharp increase in this trend: the share of CEOs with monetary incentives tied to emission reductions rose 26 percentage points from 2021.
Pressure is growing for major companies around the world to increase their sustainability efforts. The standards developed for the EU’s Corporate Sustainability Reporting Directive, which is being phased in from Jan. 1, 2024, requires companies to disclose material environmental, social and governance impacts and risks within their upstream and downstream value chains, including Scope 1, 2 and 3 emissions. Several jurisdictions around the world have also stated their intention to adopt new International Sustainability Standards Board standards. In the US, the Securities and Exchange Commission announced — and subsequently paused — a rule requiring thousands of publicly traded companies to disclose certain climate-related information, including Scope 1 and Scope 2 emissions, if material.
As investors obtain more climate-related information and more transparency into corporate emissions, companies could face more market pressure to build transition plans that include decarbonization or a net-zero goal. Less than half of the leading US companies have committed to reaching net-zero so far, even among some of the most carbon-intensive sectors. If pressure on the top companies continues to grow, net-zero target-setting could evolve to become the norm.
