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The 2023 Fidelity International ESG Analyst Survey - our third - asks whether companies’ net zero plans are credible. The answer is: not yet. There are gaps in technology, a shortage of ambition, and the money currently allocated to reducing carbon emissions is well short of what’s required. 

Currently, less than 60 per cent of companies are on track to cut their carbon emissions to net zero by the UN agreed target of 2050, according to our analysts’ assessments of the companies they cover. And only one in four will do so by the more ambitious target of 2030. 

That shouldn’t detract from the progress that has been made. The world’s big companies have, and are, listening, and the survey shows that most developed-world multinationals have committed to net zero targets, with 69 per cent of European companies allocating the funds needed to hit those targets by 2050. 

But the survey tells us that the big multinationals that we invest in must up their game, and much of the impetus must come from governments. 

“Although companies will get a return on their investment, they may not want to do the upfront spending,” says Velislava Dimitrova, a portfolio manager who focuses on climate. “If we want to get to 100 per cent within the timeframe scientists say we have, we will need a regulatory push.”

As Chart 2 shows, we are one year closer to 2030 and our analysts’ expectations for how many companies will hit net zero by that date has fallen slightly compared to last year on a global basis, although there appears to be more optimism around China.

Behind the headline numbers, as ever, is a complex mix of business- and policy-driven choices that vary widely across sectors and regions. 

“In many cases the technology is not yet there,” says Laura Stafford, an equity analyst who covers Latin America and Eastern Europe, Middle East and Africa (LatAm/EMEA) mining and commodities companies. “For those targeting net zero by 2050 they still don’t have a clear roadmap of how to get there so it’s impossible to say how much capital will even be needed.”

Utilities stands out as a success story, with the opportunities in renewable power drawing huge investment. Our analysts judge that almost four out of five companies will reach the net zero target by 2050. In the energy sector, there is a clear split between European companies, which are pivoting towards renewables, and those covering North American energy firms. 

“Our sector is at the heart of the problem,” says Randy Cutler, a credit analyst focused on the US energy industry. “Some will transform. But others either can’t get there or have decided they never will.”

Recession threats are a distraction

In the immediate future, the stresses caused by the world’s current weak economic situation will not help. As business conditions become tougher, managers will be under pressure to focus on immediate results over longer term sustainability.

“Most of my companies are either in default or deeply stressed. ESG has been low on their priorities and will very likely remain so in the next 12 months,” says Ming Gong, an analyst who covers China’s traumatised property sector. 

The survey data suggest that companies are gravitating towards areas where action is possible or easier. They are still discussing thornier, harder to measure issues like biodiversity or the need for a just transition, but far less than, for example, corporate governance.

ESG now embedded in some sectors

Opportunities created by the energy transition continue to outnumber the threats to corporate businesses, however, and in a number of sectors ESG issues have become an unavoidable factor in day-to-day operations and business strategy. 

Click on the following link to read more.

Mind the gap: Companies need to spend much more on net zero (fidelity.be)

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