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Climate targets are dead. Long live climate targets!
Originally published in National Observer.
The reality has been clear for some time now, but it’s not easy to accept: As the 30th UN Conference of Parties (COP) in Belém, Brazil approaches — and with it the 10th anniversary of the Paris Agreement — we know that we will not succeed in keeping global warming to 1.5°C above pre-industrial levels as the world agreed to accomplish in 2015.
Back home, the news is hardly better. It was reported last month that Canada’s greenhouse gas (GHG) emissions reductions “flatlined” in 2024, and we will fall well short of 2035 targets. Our organization — the Institute for Sustainable Finance — looked at corporate Canada’s role in all of this. The research shows that the number of Canada’s publicly listed firms that have set net-zero targets has come to a standstill. Outside the utilities sector, reported emissions reductions have been modest. Even more alarmingly, in the energy sector, disclosed emissions actually rose by nine million tonnes (CO2 equivalent) between 2019 and 2023.
Is all of this a counsel of despair? It’s not.
Targets may be missed, but benchmarking is important to galvanizing spirit and directing best efforts. 1.5°C may have exceeded our grasp, but holding warming below 2°C will save potentially tens of trillions in economic losses, millions of lives and untold hardship and disruption compared to higher-warming scenarios.
The answer to missing targets is setting ambitious new ones and developing new approaches that are more likely to meet them.
While governments in Canada and globally must set the right incentives through policy choices such as carbon pricing or environmental regulations, it is private capital and private sector innovation that will do most of the real work toward meeting emissions targets. If they want to be economically viable in a low-carbon economy and protect their operations, supply lines and sales from the impacts of climate change, companies need to give themselves time to adapt. And they need a plan.
So why aren’t more Canadian companies setting net-zero targets? No doubt, individual calculations vary, but some causes are clear.
Understanding where their emissions are coming from and having a plan to reduce them will put companies ahead of the regulatory game, improve access to capital, open new markets and create cost savings, write Thomas Walker and Maya Saryyeva
For one, as milestones such as 2030 or 2050 grow nearer, the reality of the effort and investment required to hit targets becomes starker. Companies are less likely to make commitments and some are probably regretting earlier commitments made when the target dates seemed far off.
There has also been a generalized “greenhushing” due in part to anti-ESG hostility emanating from the US and taking hold in certain circles in Canada. Many firms are continuing to do the work to assess and prepare for the realities of climate change, but they’re being a lot quieter about it.
Sometimes, policies aimed at clarifying environmental claims can actually have adverse effects on transparency. When the federal government enacted anti-greenwashing legislation in 2024, it caused a great deal of fear and confusion in the market due to sky-high penalties, onerous requirements and unclear standards. Companies, particularly in the energy sector, pulled back on climate commitments, emissions targets and sustainability reporting, reducing their litigation risk.
How can we get to a place where corporate climate disclosures result in scaled-up climate capital, lower emissions and met targets?
First, Canadian firms should recognize the value of voluntary reporting and continue efforts to make disclosures aligned with rigorous standards such as those developed by the Canadian Sustainability Standards Board. They should also recognize that good corporate citizenship will remain in fashion despite the current political turmoil — and that much of their long-term success will depend on how they adapt to operating in a cleaner economy. Understanding where their emissions are coming from and having a plan to reduce them will also put companies ahead of the regulatory game, improve access to capital, open new markets and create cost savings.
We know from our research that larger firms and firms with higher levels of ownership by institutional investors are leading on disclosures and target setting. This is natural. Climate disclosures are hard work and data is messy and has gaps, so companies with greater resources are further ahead. Also, large public companies typically face more scrutiny over their emissions than their smaller, privately held peers.
Smaller firms currently lack the resources and expertise to make meaningful climate-related disclosures but as capacity in the market builds, standards simplify and access to data improves, there will be a knock-on effect. Smaller firms should also be aware that their larger customers may soon be looking for emissions information from them to meet their own climate commitments.
Investors also have a role, particularly those with longer time horizons such as pension funds that have their own goals for transitioning their portfolios. They are engaging with companies and working with them to create credible transition plans.
Consumers and investors need more transparency and comprehensive information about GHG emissions in order to be able to make informed decisions. Corporations need clarity on what’s expected regarding environmental reporting. The federal government and regulators have a key role to play. They should be mandating corporate emissions reporting to a high standard and working to ensure greenwashing rules punish harmful marketing practices while encouraging transparency on emissions and climate targets.
At the end of the day, transparency on carbon emissions is great, but that’s just the start. That information needs to inform action. Like nations, if corporations are going to be competitive in the future, they need a target to get to net zero and a realistic plan to get there.
Thomas Walker is Executive Director (Academic) at the Institute for Sustainable Finance at Smith School of Business, Queen’s University, and Professor of Finance at the John Molson School of Business, Concordia University.
Maya Saryyeva is Director of the Institute for Sustainable Finance.
