Aussie firms “misaligned” with net zero targets

New research from Morningstar has exposed the Australian-listed companies whose decarbonisation and net zero emissions pledges are “severely misaligned” with the designated 1.5-degrees Celsius pathway.

Morningstar Sustainalytics released the science-based Low Carbon Transition Rating that examines and assesses companies’ alignment with the Paris Agreement pathway, revealing no Australian-listed company is on track to reach net zero by 2050 and the ASX 300 benchmark is “significantly misaligned” with the emissions reduction needed to limit global warming.

Computershare (CPU), Webjet (WEB), Whitehaven Coal (WHC), REA Group (REA) and Seven Group (SVW) are the top companies most misaligned to attaining its net zero emissions targets, with implied temperature rises ranging from 6.3 to 6.5 degrees.

Morningstar’s data also showed the top 20 stocks on the Australian Securities Exchange (ASX) held in sustainable Australian equity funds ranged from moderately to severely misaligned in their net zero target achievements.

The top three severely misaligned stocks included Qantas Airways (6 degrees), Brambles and Wesfarmers, which are also some of the most heavily featured stocks in investment portfolios.

Morningstar also rated ASX 300 sectors on a scale from aligned to severely misaligned, with telecommunications services ranking the worst at 100 per cent severely misaligned compared to real estate, consumer staples and financials with the lowest implied temperature rises.

“It may come as a surprise to see the telecommunications and IT sectors as so severely misaligned with net zero however, these low-carbon sectors paradoxically are severely misaligned due to their complex supply chains captured by scope 3 emissions,” the research said.

“For example, TPG Telecom TPG, the only company represented in the telecom sector, has scope 3 emissions accounting for 85% of its carbon footprint, yet TPG does not have a near term policy on supply chain emissions, nor does it report on these emissions, and the company’s near-term net-zero targets do not cover its supply chain. Rather, TPG says it encourages suppliers to set their own emissions targets, which is not a proactive approach or one that we consider best practice.

“It is a similar story for the IT sector as most companies have severely misaligned upstream scope 3 emissions. Sustainalytics data shows the extent of the scope 3 upstream emissions per company: Pexa PXA 91.6%, Carsales.com CAR 88.5%, Computershare 92.3%, Webjet 81.6%, and REA Group 76.9%. The type of activity contributing to these emissions can vary between companies but includes the procurement of goods and services and raw materials.

“Even sectors with the lowest implied temperature rises—real estate, consumer staples, and financials—are significantly higher than the maximum target of a 1.5-degree rise. But companies in these sectors tend to have stronger management of carbon-related issues.

“For example, they have specific decarbonisation targets in place, robust governance and reporting practices such as decarbonisation incentives, and board oversight. Lower carbon exposures coupled with stronger decarbonisation management helps to lift their overall assessments.”