Are Companies Backsliding on Sustainability?

_{Source: MSCI ESG Research, data as of 30 September 2024}

Digging into the data, however, an important caveat emerges. Targets are all well and good, but the strength of the target matters too. Data from Net Zero Tracker analyses the net-zero targets of the world’s largest 2,000 companies. We looked at the date at which companies have pledged to hit their climate targets, and found some evidence of backsliding. Look at the chart below. From 2020 to 2022, climate targets became more ambitious, with companies bringing forward the date at which they expect to hit them. But since then, companies’ targets have become somewhat less ambitious, as they push out the date. 

Figure 2: Average target date of new climate targets, world’s 2000 largest companies

_{Source: Generation calculations using Net Zero Tracker}

This is not necessarily a concerning development. Some of the early net-zero targets were overly ambitious. Some companies did not realise quite how robust the standard of net-zero emissions truly is. Nonetheless, we will continue to track this data closely, looking for evidence of more meaningful backsliding.

Second, consider what companies disclose. Climate disclosures provide transparency about a company’s actual sustainability performance in relation to targets they set themselves. Disclosures allow outsiders to hold companies accountable. And here the trends are reasonably encouraging. CDP is a charity which funds a global disclosure system. Their data shows that disclosure, overall, continues to trend sharply upwards. In 2023 disclosure numbers rose by 24%.¹⁴ In addition, close to 40% of disclosing companies are providing environmental performance information on nature-related issues beyond climate, in line with Generation’s views on the matter.¹⁵ In Generation’s Growth Equity strategy, we also note solid progress in disclosure.¹⁶  

It is not just climate and nature. The share of S&P 500 companies which publish workforce data by race and gender has risen to over 80%, up from just 5% in 2019, according to the data provider DiversIQ.¹⁷ We also find encouraging trends in the private markets.¹⁸

This data suggests that the idea of a retreat on sustainability is too simplistic. Companies may be talking less about sustainability in public forums, such as on earnings calls or to the media, but in terms of robust reporting, there is less evidence of backsliding. They are just doing it with greater discretion.

Third, consider the sustainability impact of companies. This is, in many ways, the most difficult to measure. But ultimately it is the most important. On this front, there has been some backsliding. In the Russell 3000 group of companies, the number of new directors who are women has edged down slightly in recent quarters.¹⁹ Some companies may now see themselves as operating on more of a “care and maintenance basis” on gender diversity, having achieved female representation on their board of around one third. We wouldn’t agree with this, and argue that the goal should be 40 – 60% representation.

Figure 3: New directors who are women (Russell 3000)

_{Source: Equilar}

But what is the overall effect? Of course, it is hard to summarise sustainability in a single metric. That is why we publish The Sustainability Trends Report, a compendium of different sustainability indicators; we published the latest version in September 2024. In that report, we show that on many fronts the sustainability revolution continues, even in the face of large political obstacles.²⁰ As we showed in that report, more than a tenth of venture-capital and private-equity investment now goes into climate technology. 

Trends in carbon emissions are one of the most important data points we look at. And here there is reason for some cautious optimism. Overall Scope 1 emissions from global listed companies may have peaked, according to data from MSCI. In 2024 companies in the MSCI All Country World Index Investable Market Index (which captures large, mid and small cap representation of around 9,000 companies across 47 countries) emitted 11.0 gigatons of Scope - 1 CO2 equivalent, the lowest level outside of the pandemic since 2017.²¹

Figure 4: MSCI All Country World Index Investable Market Index Scope 1 emissions over time

_{Source: MSCI}

An important insight remains as true as it ever was: that sustainability is simply good for business. Lowering emissions means increasing efficiency – which means higher profitability. And in a world where companies struggle to find talent, it makes sense to cast the net as wide as possible. 

There is, of course, a huge mountain still to climb. Progress is still far too slow. But the message is simple: do not lose hope. The apparent retreat from sustainability gets a lot of press, but what is going on under the surface is far more significant. Private companies may have an opportunity to lead and be more vocal right now, and we hope that public companies, even if more quietly, will continue to play a leading role in driving the world in a more sustainable direction.