Corporates must up their game to meet net zero targets – Fidelity International

• Less than 60 per cent of companies are currently on track to cut their carbon emissions to net zero by the UN agreed target of 2050
• Regulation is one of the most important factors for driving change
• ESG factors have been rising steadily up the priority list for management teams in China

London, 4 July 2023: Fidelity International’s (Fidelity) third annual ESG analyst survey delivers a stark truth: there is still a big gap between the action needed to deliver net zero and what the corporate world is currently doing. 

Fidelity’s ESG Analyst Survey studies the views of its in-house analysts across the world, aggregating bottom-up information from c.15,000 individual company interactions to find key ESG trends in the corporate landscape. 

Net zero by 2030 looks unrealistic for most companies

According to the survey, less than 60 per cent of companies are currently on track to cut their carbon emissions to net zero by the UN agreed target of 2050, and only one in four will do so by the more ambitious target of 2030. 

While good progress has been made as demonstrated with the 69 per cent of European companies that are already allocating the funds needed to hit those targets by 2050, there is still a need to further accelerate. But significant obstacles remain such as the gaps in technology, gaps between target and actions, and the amount of funding currently allocated to reducing carbon emissions remains short of what’s required.

Chart 1: Net zero by 2030 looks unrealistic for most companies Question: “What proportion of your companies do you believe are allocating enough capex to achieve net zero by 2030?” Source: Fidelity International ESG Analyst Survey 2023.

Chart 2: Most companies aren’t spending enough to hit net zero Question: “What proportion of your companies do you believe are allocating enough capex to achieve net zero by the following dates?” Source: Fidelity International ESG Analyst Survey 2023.

Government regulation will drive real change in ESG

Chart 3: Regulation and incentives among top drivers of change across ESG practices Questions: “What do you think will drive changes in environmental practices at your companies over  the next 12 months?”; “What do you think will drive changes in social practices at your companies  over the next 12 months?”; “What do you think will drive changes in governance practices at your  companies over the next 12 months?”. Chart shows the proportion ranking each factor as one of the  top three most important for each question. Source: Fidelity International ESG Analyst Survey 2023

One of the strongest findings of this year’s ESG Survey is the effectiveness of government regulation in changing companies’ behaviour. Investors, consumers, employees, and competitors all have a role to play in shifting practices, but it appears that regulatory updates can compel businesses to improve the most. Over 60 per cent of our analysts said that regulation was one of the top three most important factors for driving change in environmental, social, and governance practices.

Analysts also report that investor engagement and shareholder action are among the most effective ways of encouraging change in governance, and around half place engagement as one of the top three ways to improve environmental and social practices.

Jenn-Hui Tan, Global Head of Stewardship and Sustainable Investing at Fidelity International, comments: “Our ESG Analyst Survey asks whether companies’ net zero plans are sufficient. The answer is: not yet and a greater collective effort is needed. Further funding, technological innovation and regulation are just some of the areas identified if we are to close the gap between ambition and reality. But corporates cannot do it alone. Governments, like policy decision makers have a key role to play in creating an enabling environment for the transition, as does the financial sector through investor engagement, shareholder action and asset allocation.”

The Chinese character of sustainable investing

Chart 4: Chinese companies play catchup on net zero goalsQuestion: “What percentage of your companies have a net zero goal?” Source: Fidelity International ESG Analyst Survey 2023.

China appears to be at an altogether earlier and more optimistic stage of its journey. ESG factors have been rising steadily up the priority list for management teams in China for some time, albeit from a low base. But this embrace has taken on new urgency since 2020, when President Xi Jinping issued a pledge that the country would hit peak CO2 emissions by 2030 and achieve carbon neutrality by 2060.

Jenn adds: “Of all regions in our survey, China arguably has the most capacity to move the dial on the implementation of sustainability, especially when it comes to cutting greenhouse gas emissions. 

“Positive progress is being made but the survey shows Chinese companies have a lot of catching up to do, and fast, if they are to get in-step with the government’s targets for cutting emissions at the national level. Our sector analysts who focus on Chinese companies say that only about a quarter of those they cover have a net zero goal in place, compared with a global average of just over half of all companies under coverage.”

To read the full report, please click here: Fidelity ESG Analyst Survey 2023: Mind the gap.