This article was first published by Oliver Wyman here.

This report is co-authored with CDP.

As we approach COP27, this report uses CDP’s latest temperature ratings to assess whether current corporate emissions reduction targets are ambitious enough to meet the Paris Agreement’s 1.5°C goal. CDP temperature ratings compare our comprehensive dataset of publicly disclosed corporate emissions target disclosures, covering more than 4,000 companies globally, with science-based global warming trajectories.

G7 companies are on a path to a 2.7°C temperature increase

The G7’s private sector has an important role to play in keeping the Paris Agreement’s 1.5°C target alive. Strong momentum in 2021, particularly in the runup to last year’s COP26, saw the number of corporates committing and setting climate targets increase rapidly.

Yet, our analysis shows that the greenhouse gas (GHG) emissions reduction targets publicly disclosed by companies in G7 economies are still only ambitious enough to align with a 2.7°C decarbonization pathway — or 2.4°C if emissions from corporate supply chains, known as Scope 3 emissions, are excluded. Both are still well above the Paris Agreement’s goal to keep Earth’s temperature rise at or below 1.5°C — the upper temperature limit that science demands to avoid the most catastrophic environmental impacts.

How G7 countries rank against each other

Based on the aggregate ambition level of emissions reduction targets set by companies in G7 countries

Note: SBTs stand for science-based targets. Source: CDP data, Oliver Wyman analysis

Europe is improving, but still running hot

Following an 85% increase in the number of European companies with science-based targets
last year, over half (51%) based on market capitalization have now set targets through the Science-Based Targets Initiative (SBTi). This means that the targets have been developed consistent with pathways for carbon reduction anchored in climate science and approved by the SBTi. The most recent SBTi Progress Report found that companies with science-based targets decarbonize significantly faster than companies without targets.

This fast progress in Europe has ‘cooled’ the temperature of the European economy 0.3°C since 2021. Still, the emissions reduction targets publicly disclosed by European companies are now aligned with a 2.4°C decarbonization pathway, or 2.2°C if corporate Scope 3 emissions (value chain) are excluded.

Temperature map

European corporate emission targets are currently aligned with a 2.4 degree world- several major countries now getting close to 2 degrees on a scope 1 and 2 basis, but more to do to get to 1.5 degrees, but on scope 3 they are doing 0.2 degrees worse on average

Note: Scope 3 financial sector emissions are not counted within Scope 1, 2 and 3 temperature rating
Source: Oliver Wyman analysis, CDP dataset

Other regions aren’t keeping up with Europe

Looking beyond the G7, European corporates score ahead of their counterparts in Asia and North America across industries. Based on Scopes 1 and 2 emissions, companies headquartered in North America are collectively on a path to a 2.5°C rise in temperature, while companies headquartered in Asia are on a path to 3°C. Both are significantly higher than Europe’s 2.2°C.

Regional comparison of Scope 1 and 2 emissions targets for high-impact sectors

European companies are leading the way, especially in power and fossil fuels. Asia is lagging in all sectors with only one below 3°C

Source: Oliver Wyman analysis, CDP temperature rating

The analysis shows warmer temperature ratings in nearly all sectors and regions when all value-chain emissions (Scopes 1 through 3) are included. This reflects that Scope 3 emissions, concentrated largely in supply chains and the use of end products, are harder to measure and manage. As a result, targets are much less widespread and also less ambitious.