Of these 8 corporate climate strategies, only 1 is linked to falling emissions

Companies can pull multiple levers in a bid to cut emissions, from developing a climate strategy to linking executive compensation to sustainability goals. 

Yet according to a study of close to 150 of the world’s largest companies, neither of those approaches, nor several others, is linked to declining emissions — and one was associated with emissions increases. The only one of the eight strategies that was linked with successful cuts? Having a target validated by the Science Based Targets initiative (SBTi).

The link between SBTi validation and emission reductions is likely down to several factors, said Michael King, a finance expert at the University of Victoria in Canada and an author on the study. 

One example: Firms that are more committed to decarbonization seek SBTi approval as a means of signaling their ambition. “When companies want to distinguish themselves, they can go just one step more and have their targets validated,” noted King.

Having adopted an SBTi-validated target, businesses are then motivated to stay on track — a factor emphasized by King’s finding that the longer a company has an SBTi target in place, the more likely it is to achieve significant emissions reductions.

Staged approach

The results of the study, which examined the emissions of 146 companies from 30 countries between 2012 and 2023, do not mean the other strategies are irrelevant. That’s because all of the companies with SBTi validation had previously taken one or more of four earlier steps: creating a climate strategy, giving the board responsibility for climate efforts, setting internal targets or having emissions data verified.

“Our findings highlight the importance of a staged approach: build internal climate oversight, pair it with externally validated science-based targets, and sustain these commitments long enough for measurable reductions to emerge,” wrote King and his co-author, Paul Beamish at Western University in Canada.

The single strategy amid the eight assessed by King and Beamish that was associated with increasing emissions was linking CEO compensation to climate goals. King suggests that could be because the practice is more common in industries that are experiencing increasing emissions, such as the tech sector, combined with the tendency of companies to link a relatively small fraction of CEO pay to emissions goals.

“If you are a CEO in that position, the question is: If it’s immaterial for your compensation, how much do you pay attention to that goal compared to your other KPIs?” asked King.

Earlier work

King and Beamish’s study, published earlier this month, is the second in a pair of papers from the two researchers. The first, which appeared in January, examined a similar group of companies and found that 71 percent had reduced operational emissions, although only a smaller fraction — less than 45 percent — was doing so at the pace needed to meet Paris Agreement goals.