The Paris agreement, the first plan to fight climate change with buy-in from nearly every nation on Earth, was finalized five years ago on Saturday. Broadly, the agreement aims to keep global warming “well below” 2°C above pre-industrial levels (we’re at about 1.1°C today) by 2100, with a moonshot goal of 1.5°C.
So far, global progress is mixed. Governments have established zero-emissions deadlines—including brand-new commitments from the UK and China—but have mostly failed to institute concrete policies to reach their goals. An analysis last week by Carbon Action Tracker suggested the world could be on track to limit warming to 2.1°C by the end of the century, but only by enacting more tangible rules.
While governments dither, though, climate commitments and action by corporations has gained considerable momentum since Paris. And for companies with credible decarbonization targets, the work is paying off—both for the climate, and for their bottom lines.
There are good reasons to be skeptical about corporate climate promises, which have exploded in number over the last five years. Climate plans are often too slow, limited in scope, or reliant on dubious carbon offset credits to make a real difference. But the number of companies with credible decarbonization targets that are in line with the demands of the Paris agreement is growing rapidly in number and valuation.
When the agreement was signed in 2015, there were fewer than two dozen members of the Science Based Targets Initiative (SBTI), a partnership overseen by the World Resources Institute (WRI), Carbon Disclosure Project (CDP), World Wildlife Fund, and UN that vets corporate targets. Today, there are nearly 1,100.
Of these, about half have fully-vetted targets aligned with limiting warming to 2°C or 1.5°C, which aren’t allowed to include offsets at all. The rest have them in the works. These targets are required to cover the company’s own operations (so-called scope 1 and 2 emissions); at least 100 companies go further to cover scope 3 emissions from suppliers and customers. At least “a few dozen” companies have been booted over the years for insufficient commitments, said Cynthia Cummis, who oversees the program for WRI.
Altogether, the program covers enough emissions to at least offset the carbon footprints and France and Germany, said Cummis.
What’s the motivation for companies to jump through all these hoops? For one, it’s a lot easier to be green than it used to. “Paris unleashed significant momentum in the business community,” Kathleen McLaughlin, Walmart’s chief sustainability officer, said in a press call on Dec. 9. (Walmart was one of the earliest SBTI members.) ”It made people realize the risk and the opportunity for innovation.” Costs for renewable energy and other clean technologies are plummeting, just as costs are rising for weather-related property damage and companies face the risk that carbon-intensive or nature-based supply chains could be cut off or become prohibitively expensive.
But it also appears that it simply pays to commit to climate action. Since the Paris agreement, an S&P index of climate-aligned companies beat the S&P 500 by 11 points, according to a new report from S&P Global, with the gap widening over time.
In addition, sustainability-focused ESG funds have consistently outperformed conventional funds for several years running, according to a recent Morningstar analysis.
“People are absolutely not losing money because of leadership on climate,” said Mindy Lubber, CEO of the sustainability nonprofit Ceres. “It’s a myth that needs to go away that somehow smart decisions on sustainability are bad for the bottom line.”
Those valuations reflect the market’s perception of companies with climate commitments, but they save real dollars, too. A survey by CDP of 5,500 suppliers of major corporations found that emissions reduction measures, mostly in the form of energy efficiency improvements, saved the group nearly $20 billion in 2018.
At the Paris summit, when climate hawks told the few corporate leaders in attendance that they would need to bring their emissions to net zero in the next few decades, “they looked at us like we were crazy,” Lubber said. Now, companies without serious, science-based climate plans are the ones on the fringe.
“Climate work is starting to become mainstream for real,” said Jesper Brodin, CEO of IKEA parent company Ingka Group, another SBTI participant, in a press call last week. “The biggest risk as a corporate today is to not join the movement.”