Many companies set lofty sustainability goals, such as net zero greenhouse gas emissions by 2030. But do sustainability goals match their progress toward those goals?
Companies can say they reduce a specific amount of emissions, but you must read dozens of pages about their methodology. Companies set emissions reduction goals, yet there is a lack of transparency. Companies typically do not show progress toward those goals or report on it. They will claim to be slightly behind schedule and say, “We are working actively on reducing our emissions.” However, they never really meet the goal but adjust it to fit the reality of their efforts.
Is ESG Enough?
Companies and investment firms rely on ESG—Environmental, Social, and Governance. The CFA Institute states that investors “are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities.” ESG metrics are not usually part of required financial reporting, yet many companies make disclosures in their sustainability reports or annual reports.
There is controversy about what ESG is, and there are companies with ESG controversies. ISS ESG, the responsible investment arm of Institutional Shareholder Services Inc. (ISS), identified almost 17,000 ESG controversies reported by the media and stakeholders. The Corporate Controversies That Defined 2022 report revealed that automobiles (and their components) and energy were the two industries with the highest intensity of ESG controversies. However, the telecommunications services industry had the greatest amount, with a third of the companies tied to problematic conduct.
Companies and investment firms need to go beyond ESG scores. What is sustainable to one person or one company is not sustainable to another. Standardizing millions of points of data into one number does not work. There is no standardization of the data collected on ESG factors.
Physis Investments: Going Beyond ESG Scores
Physis Investments aims to “map and democratize ESG” Cory Jaeger, Head of Business Development) Physis Investments told Global Warming Is Real. He asks, “Why shouldn’t portfolios be as curated as sustainability metrics?” That’s what Physis is trying to do.
“We’re looking to go beyond ESG scores,” said Cory Jaeger.
The word physis is from Greek and means “all things honored.” Stefania Di Bartolomeo, the founder and CEO of Physis, was a fund manager and an environmentalist who realized there was a massive need for transparency. “She was one of the first impact investing managers in Europe,” Jaeger said. “She realized that people wanted to invest in sustainable funds and assets, and she was one of the only people to do that, so people flocked to her. People wanted to know more about it, and she couldn’t because there was no such database. And that’s where the idea of Physis comes from.”
Di Bartolomeo realized a huge need for transparency and dedicated her life to achieving it. As a result, her company primarily works with asset managers and institutional investors to help them build and report on sustainable portfolios using that raw impact. This saves them significant time and resources from doing that research themselves.
“People suspect that more is better with ESG,” Jaeger explained. “Basic economics doesn’t apply to ESG. If you put more into one thing, it’s not going to take away from another. ESG can be a very difficult topic, and we are looking to turn that on its head. Instead of having scores and ambiguous numbers, we’re providing the raw impact data behind those numbers, so, for example, we can tell you the raw number of GHG emissions for a period of years.”
Physis spent three years developing a technology that goes through different data sources, gathers unstructured data and brings it into its system. The data then undergoes an algorithmic quality check. Physis can process data that takes three to five hours to obtain for one company in only seconds. Physis has 170 million different data points.
What Emissions Data Tells Us
A gap sometimes exists between emissions reduction pledges and emissions. “They have this grandiose dream and vision but don’t really do anything about it,” Jaeger said. “They are not just built for sustainability. They are massive companies.” In other words, the traditional bottom line is most important to companies. However, judging by their climate pledges, the triple bottom line of people, planet, and profit is what many companies claim they value.
Looking at absolute emissions (total emissions) and emissions intensity (emissions per revenue) tells a story. Some companies make progress toward their climate pledges, while others do not.
A company’s climate pledge can range from net zero carbon by 2030 to 2050. Some are on track to meet their commitments, while others lag. Two companies make great examples:
- The goal of Walmart is net zero carbon by 2040. The company reduced its emissions intensity by 6.13 tons per revenue while reducing its absolute emissions by 1,776,983 tons.
- Target also has a net zero by 2040 commitment. The company reduced its emissions intensity by 2.73 tons—far less than Walmart—while its absolute emissions increased by 611,910 tons.
Some companies have decreased their emissions intensity while increasing their absolute emissions.
Starbucks is a good example. The company aims to achieve a 50 percent reduction in greenhouse gas emissions in its direct operations, value, and supply chain. Starbucks’ emissions intensity increased from 2019 to 2020 by 5.36 tons and decreased from 2020 to 2021 by 2.37 tons. From 2019 to 2021, Starbucks’ absolute emissions increased by 193,169 tons.
Taking a look at tech companies paints a similar picture. Some companies are moving towards their pledge while others are not. Here are two examples:
- Amazon has a goal of achieving net zero by 2040. The data shows that Amazon is on the way to meeting its net-zero carbon by 2040 pledge. Amazon decreased its emissions intensity by 4.59 tons per revenue, while its absolute emissions decreased from 2019 to 2021 by 931,029 tons.
- Alphabet, Inc., the parent company of Google, wants to achieve net-zero emissions by 2030. Its emissions intensity decreased by 2.45 from 2019 to 2021. However, its absolute emissions increased by 297,802.
Top Oil Companies
The operations of oil and gas companies account for 15 percent of global greenhouse gas emissions. However, they indirectly account for 42 percent of emissions. Only two oil companies have not pledged to reduce their net zero emissions by 2035 to 2060. Here is a look at their progress:
- Chevron, Shell, BP, Reliance Industries Ltd., China Shenhua Energy Co. Ltd., and EOG Resources Inc. decreased their emissions intensity and absolute emissions.
- ExxonMobil, China Petroleum & Chemical Corp., and Petroleo Brasileiro increased their emissions intensity and absolute emissions.
- Saudi Arabian Oil Company and Equinor ASA reduced their emissions intensity while their absolute emissions increased.
- TotalEnergies SE and Enbridge Inc. reduced their absolute emissions while their intensity increased.
Here is a look at the two companies without a net zero pledge:
- ConocoPhillips reduced its absolute emissions while its emissions intensity increased.
- PetroChina Co, Ltd. reduced its absolute emissions but not its emissions intensity.
The Need for SEC Regulation
How do we get companies to reflect the truth of the data in their sustainability reports? “It’s a matter of regulation,” Jaeger believes. And the regulation will eventually come. In March 2022, the Securities and Exchange Commission (SEC) proposed a rule requiring companies to include climate-related disclosures in their registration statements and periodic reports, including their greenhouse gas emissions. The SEC is expected to announce the final rule in October 2023.