15-Sep-23 Americas

Decarbonizing Corporate America

Decarbonizing Corporate America will be discussed on the New York Climate Week. Adopting science-based emission reduction targets might help.

As climate leaders gather in New York next week, serious efforts need to be taken to accelerate the decarbonization of the U.S.-economy. This appears more urgent than ever since greenhouse gas emissions in the United States have declined by just 7% since 1990 [1]compared to a 32% decline across the European Union over the same period.[2]

But action is taking hold. Just take three U.S. legislative bills encompassing USD2 trillion in new federal spending[3] supporting the U.S.’ emission reduction goals. [4]These aim to boost investments in such areas as domestic manufacturing, clean technologies, climate-efficient agriculture and carbon capture. All eyes are now on Corporate America since this week’s chart shows how the S&P500 has one of the smallest shares of companies setting science-based greenhouse gas emission reduction targets compared to other G7 equity benchmarks.

With 42% of the constituents of the S&P500 setting science-based targets (SBT) and commitments, this falls short of her European counterparts with France leading the G7 pack at 88%.[5]However, all is not lost since investors can play a role in pushing these percentages higher.

Companies signed up to science-based targets by G7 equity market

20230915_Chart of the week_New York climate week_CHART_EN.png

*SBTi = Science Based Targets initiative

Sources: SBTi Progress Report 2022 (August 2023), DWS Investment GmbH as of 9/11/23

Our latest research reveals why the creation of Climate Action equity benchmarks by various index providers may help to incentivize corporates in their decarbonization pathways as these often incorporate SBTs as a variable in portfolio construction.[6] Time may well show that failing to make such commitments risks eliminating companies from certain investment universes. We therefore see New York Climate Week as an opportunity to show corporates why science-based targets are so important and why investors should consider Climate Action benchmarks as an attractive investment vehicle, particularly for those investors in the Americas and Asia who may not be guided by European climate benchmark regulation.[7]

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1. EPA (July 2022). Climate change indicators. If 2005 is used as the U.S.base year, then US GHG emissions have declined by 20% https://www.epa.gov/climate-indicators/climate-change-indicators-us-greenhouse-gas-emissions

2. European Environment Agency (October 2022). Total greenhouse gas emission trends and projections in Europe https://www.eea.europa.eu/ims/total-greenhouse-gas-emission-trends

3. Bipartisan Infrastructure Law, the Inflation Reduction Act and the CHIPS and Science Act. McKinsey & Company (October 2022).

4. The White House (January 2021). US national goal to reduce GHG emissions by 50-52% by 2030 from 2005 levels https://www.whitehouse.gov/climate/

5. SBTi Monitoring Report 2022 (August 2023). Data as of end 2022. When measured by market cap the U.S. ratio increases from 42% to 60%.

6. DWS Research Institute (September 2023). Navigating the climate index jungle https://www.dws.com/en-gb/insights/global-research-institute/navigating-the-climate-index-jungle/

7. European Commission (December 2020). https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/eu-climate-transition-benchmarks-regulation_en

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