South Pole and CDP's “Rising to the Challenge" report found that despite growing climate disclosure in the Asia Pacific region, only 8% of companies have set a net zero target. South Pole's Commercial Director for APAC, John Davis, calls on companies in the region to prepare for the global net zero transformation.
What Asia Pacific does or does not do to address the looming climate crisis will be felt across the entire world. Our region has a crucial role to play, which is why we were so proud to work with CDP to analyse the climate disclosures of almost 4,000 Asia-Pacific companies for the “Rising to the Challenge" report. Shining the spotlight on this diverse and dynamic region, its climate leaders and areas for improvement, will help to drive continued progress on our collective journey to net zero.
Despite too many companies still lacking net zero targets, the report highlights encouraging examples of climate leadership across the Asia Pacific in the past year. In 2021, we saw more analyses of climate-related business risks, but also a growing awareness of the commercial opportunities of net zero emission pathways. Companies are competing to prove their climate ambition to a consumer base that is increasingly more informed about climate change, and to investors who want to know whether their investees can thrive in a warming world. While this provides reason for optimism, there remains a significant ambition gap in meeting the Paris Agreement goals.
Reporting and disclosure are critical to transparently sharing climate action strategies and progress with stakeholders, and central to informing corporate climate journeys to net zero emissions. In this regard, the continued upward trend of companies reporting to CDP in Asia Pacific is encouraging.
In 2021, a total of 3,879 companies from 21 markets across the region disclosed their emissions, targets and climate action through CDP's TCFD-aligned Climate Change questionnaire – an increase of 27% compared to 2020. These disclosing companies represent an impressive 14% of global market capitalisation. One third (32%) were first-time responders, a promising sign of environmental disclosure picking up across the region.
Growth in corporate climate disclosure in Asia Pacific in 2021
One of the most positive insights from the report is that climate action is being recognised at the highest levels of most companies: almost all companies (98%) have made climate-related issues the responsibility of senior management. Nearly 80% of disclosing companies have tasked their boards with oversight of climate-related issues.
Linking climate targets and performance to the pay and incentives of senior management also seems to be an effective strategy for decreasing emissions: companies that had incentivised their management teams were approximately four times as likely to have decreased emissions as those that hadn't.
An increasing number of disclosing companies are also building better foundations for analysing climate risks and opportunities:
More Asia Pacific companies are identifying climate risks and opportunities
For most companies, a credible climate journey starts with measuring your carbon footprint, which includes emissions from your operations and supply chains.
Despite progress in measuring emissions and setting targets, the report shows that this is an area for significant improvement. The current targets analysed by South Pole and CDP lack ambition and alignment with the latest climate science. What's more, most of the companies aren't addressing their supply chain emissions. This indicates that most companies are not yet following best practice when it comes to accounting for the footprint of their full value chain:
Most Asia Pacific companies report scope 1 and 2 emissions but scope 3 disclosure is low
Another key area for improvement is setting targets. In 2021, 65% of reporting companies in Asia Pacific (2,263 in total) had an emission reduction target they were actively working towards. Looking at the overall reduction targets set by these companies, more than half (57%) cover both scope 1 and 2 emissions, and only 18% include scope 3 emissions, signalling that most companies are failing to account for critical value chain emissions in their targets .
Despite the growing net zero momentum among companies and countries, an overwhelming majority of businesses have not committed to a corporate net zero target. This is concerning: only 8% of reporting companies have set a net zero target, with more than 70% planning to achieve it by 2050 – or later.
Less than 10% of companies had their emissions targets validated by the Science-Based Targets initiative (SBTi), which is considered the gold standard for science-based corporate climate journeys. The plans and targets put forth by companies in Asia Pacific can and will be scrutinised to a greater degree: the SBTi has announced that, from July 2022 onwards, all targets must align with a 1.5ºC pathway.
Corporate net zero and science-based targets are low in the Asia Pacific region
Setting ambitious targets will help incentivise having a robust plan in place for emission reductions. The report found that the organisations that had targets – either absolute or intensity-based – were four times as likely to decrease their GHG emissions.
Some of the most prominent organisations in the region managed to successfully reduce their emissions. 975 companies responded to the 2021 questionnaire as a result of a request from CDP's Investor Signatories: of these, 600 (62%) reported lower emissions in 2021 than in 2020. Their net reductions totalled 267 million tonnes of CO2e from scope 1 and 2 emissions. While this is a significant reduction, it only represents 1% of the overall emissions reported by companies in the region for 2021, highlighting the enormity of the emissions gap that must be addressed.
According to the 600 companies that reported reductions, 38% of their emission reductions were attributed to a “change in renewable energy consumption". More companies in the region are also joining initiatives like the RE100, which is driving innovation and demand for renewable energy solutions.
While this trend around renewables is promising, much more needs to be done: just 5% of the electricity consumed by the top 100 energy consumers in Asia Pacific was sourced from renewables.
Companies reporting reduced emissions also attributed 36% of their reductions to “change in output". This refers to variations as a result of business growth or expansion, a decline in sales or a new product release. It is likely that, in 2021, this included the impact of the COVID-19 pandemic. As parts of the world return to “business as usual", it is crucial that emissions do not.
The Asia Pacific region needs to see increased emission reductions and renewable energy usage
We are at a fundamental fork in the road: incremental progress is no longer enough for our commerce nor our climate. As the region home to some of the most vulnerable countries in the world and the largest emitters, the Asia Pacific will continue to be measured in superlatives. It makes up the largest share of global emissions, yet remains the most exposed to extreme weather events.
In this context, the private sector can and must be the force for positive change. Now is the time for companies to take credible leadership positions in determining the future of Asia Pacific and providing the innovation and finance for the global net zero transformation. It's time, now, to become part of the solution.
Download the report now to find out more.