European Companies Still Lack Credible Climate Action Plans, Study Says

(Bloomberg) -- European companies say they want to reduce their carbon footprint, but only a fraction of them are taking actionable steps to get there, according to a new report assessing corporate climate goals.

A study of nearly 1,500 European companies conducted by CDP, a nonprofit that analyzes climate disclosures, and consultancy Oliver Wyman found that about half of the firms have stated plans to limit global warming to 1.5C. Despite these pledges, the report concluded that less than 5% of companies reported specific climate actions proving that they are making necessary changes to meet their targets. 

"Companies have got the message,” said Rob Bailey, a partner at Oliver Wyman. “More than half of European companies now say that they have a transition plan in place, but when you start to dig into it — when you actually look at the extent to which the disclosures to CDP correspond to a comprehensive and credible transition plan —  you start to see that things are still pretty immature.”

The report, using data from CDP’s annual surveys, relied on corporate climate change practices voluntarily disclosed to the nonprofit in 2022. 

To assess companies’ climate plans, the researchers looked at two main metrics: emissions reduction targets consistent with keeping warming below 1.5C as well as data disclosures on at least 14 of 21 climate change indicators, such as the company’s risk management process.

Based on those standards, only 56 of the companies surveyed, or less than 5%, exhibited “advanced transition readiness,” according to the report. Companies based in Nordic countries — Sweden, Norway, Finland, and Denmark — were more likely to have specific climate plans, the study showed. 

In addition, the study assessed 183 companies’ forestry goals and 311 companies’ approaches to water security — with similarly disappointing results.  The report found that less than one-third of companies have adopted a “best-practice forests policy” that includes a no-deforestation commitment, while roughly 21% of companies have “a best-practice water policy,” including commitments to sustainable water usage. 

Bailey said that climate disclosures will become increasingly important for companies. The report found that four in five financial institutions say they now assess the climate transition plans of their corporate customers. Even so, the CDP study estimates that as much as 40% of outstanding corporate debt relates to companies that have not made clear progress in their climate goals.

Regulators will also increase their oversight of corporate climate actions. The upcoming European Union’s Corporate Sustainability Reporting Directive will mandate companies to provide more information on climate targets, including exposure to fossil fuels. 

“Our hope would be that this provides a general picture on the things that companies are going to need to get to grips with over the next few years,” Bailey said. “Things are underway, but we need to see a greater emphasis on the practical components for how you’re going to do it.”

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