Behind Schedule: The Corporate Effort to Fulfill Climate Obligations

Reports and studies — Financial Advisory, Lazard Climate Center

July 31, 2023

The Lazard Climate Center paper, Behind Schedule: The Corporate Effort to Fulfill Climate Obligations, reviews the state and progress of carbon emission reduction commitments made by corporations, as well as potential consequences of falling behind on pledges.

Central Findings:

  • From a sample of large U.S. corporations between 2010 and 2020, 72% of firms have not reduced emissions at a sufficient pace to meet their committed targets.
    • Commitment failures are present across all industry sectors, with the largest failure differentials. occurring for Communication Services, Materials, and Information Technology firms.
    • The smallest failure differentials between pledged and actual emission reduction trajectories are observed in the Utilities, Industrials, and Financials sectors.
  • U.S. climate deregulation in 2017 engendered a rise in failing commitments, and the subsequent global lockdown in 2020 contributed to a reduction in failing commitments as emissions significantly dropped.
  • Investors do not presently assign material financial weight to corporate pledges as we observe no statistically significant changes to firm-level price-to-earnings ratios as a result of carbon reduction commitments.

These findings point to a need for a second generation of pledges, in which science-based targets account for inter-industry variations of firm attributes, commitments are stress tested (and include force majeure clauses), and emission reduction outcomes are tied to financial terms (such as cost of capital or executive compensation).

The Climate Center expanded this analysis to the broader commitments landscape, including national pledges, university commitments, and the Net Zero Asset Managers Alliance (NZAM).

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