One of the most important NGO-led efforts to fight climate change is the Science-Based Targets initiative (SBTi), a collaborative effort launched in 2015 by four organizations: CDP (formerly the Carbon Disclosure Project); the UN Global Compact; the World Resources Institute; and the World Wide Fund for Nature. The organization evaluates companies’ emission reduction targets to ensure alignment with the science behind the Paris Agreement goals of limiting warming to 1.5°C.

The G7’s leading stock indexes are currently not aligned with a 1.5°C or 2°C target, according to new research by the Carbon Disclosure Project (CDP) and the UN Global Compact.

If unchanged, the current climate ambitions of the indexes’ constituents would lead to an average temperature pathway of 2.95°C, causing catastrophic events and irreversibly altering the climate equilibrium of the planet.

However, despite the unsettling findings, momentum for climate action is growing. Non-governmental organizations and the private sector are stepping up their efforts, launching decarbonization initiatives that are driving down greenhouse gas emissions in virtually every industry and region of the globe.

A market-based mechanism for climate action is emerging

The financial industry is adding more pressure for net-zero, warning that climate risk is financial risk. Large asset managers are beginning to vote against the management of companies they believe are not adequately addressing climate risk in their business strategies.

Together, these forces are creating a market-based mechanism in which climate action is becoming a competitive differentiator. Companies taking climate action can expect to attract more – and more loyal – customers, partners, and employees. Other things being equal, this will drive profits and win favor with investors. These interlocking forces create what we call a “climate action feedback loop” that rewards and reinforces corporate climate action, prompting more of it. The feedback loop is helping to accomplish what governments have not yet achieved.

SBTi participation benefits both companies and stakeholders

By providing external, accredited validation for a company’s emission reduction commitments, SBTi facilitates scrutiny and promotes accountability. It thereby reduces greenwashing, the practice of overstating the sustainability credentials of companies’ products and activities. Businesses achieve reputational benefits for setting and meeting greenhouse gas (GHG) reduction targets.

The process of setting and meeting science-based targets can spur innovation and help to minimize legal and regulatory problems. Customers and investors, in turn, can more easily distinguish between committed companies and those paying lip-service to the idea. Investors (both institutional and individual) can more easily factor companies’ climate performance into their investment decisions.

Participation is accelerating, and producing results

According to SBTi, more than 1,400 companies representing more than 20% of global market capitalization (more than $20.5tn) have committed to participate. So far, SBTi has approved targets for more than 717 companies across all economic sectors, including the highest-emitting ones such as cement, power, and steel. SBTi analyzed a subset of 338 companies and found that they had reduced their annual emissions by 25% between 2015 and 2019.

Furthermore, in spite of Covid-19, 370 organizations joined SBTi between November 2019 and October 2020, an average of 31 companies a month – more than double the rate from 2015 to 2019. This clearly shows the initiative gaining momentum and becoming one of the leading emissions reduction schemes globally.

While the initiative should strengthen its auditing and accountability mechanisms, it offers great tools for any company wishing to take serious climate action. It’s an all-hands-on-deck moment that calls for an holistic approach involving regulation, voluntary action, technology innovation, and self-interested action by companies seeking competitive advantage. Inaction is not an option, and G7 countries should be leading the way with ambitious and actionable climate targets.

Read GlobalData’s Climate Change report to find out more about this critical issue and best practices across over 25 sectors.