$3.1 trillion USD Net Zero Blind Spot Revealed

● Only 14% of the annual revenue of high-emitting private firms is covered by net zero targets, vs. 77% of annual revenues of listed firms in the same sector.

● Private companies' pledges are less likely to include interim targets, to cover all emission Scopes and to give clarity on use of offsets.

● All 10 of the largest publicly-listed companies in the world have a net zero target or similar, compared with none of the largest 10 private companies.

● Net Zero Tracker calls for a ‘whole economy’ climate disclosure system to enhance transparency and drive private action, and invites further research into this area.

Analysis reveals a chasm in corporate climate disclosure: private firms are less than half as likely to set climate targets compared with their publicly-owned counterparts that are listed on global stock exchanges.

Under one-third (32%) of the world’s 100 largest private firms, with revenues totalling nearly $1.2 trillion, are operating with a carbon reduction target, compared with over two-thirds (69%) of the largest 100 publicly-listed companies (1).

The study, ‘Everybody’s Business: The net zero blind spot’, compares the climate targets of the world’s largest 100 privately-owned companies with those set by the 100 largest publicly-traded companies.

John Lang, project lead of the Net Zero Tracker, which conducted the analysis, said:

“Private firms are falling devastatingly short on net zero compared with their publicly-listed cousins. As the shadow of disclosure regulation stretches across the whole economy, those private firms that choose to wave as the net zero train leaves the station risk becoming stranded.”

Only 17% of high-emitting private firms have net zero targets, vs. 70% of publicly listed firms:

Twenty nine out of the 100 largest private companies fall into sectors we consider high-emitting: Fossil Fuels (8); Infrastructure (6); Manufacturing (7) and Materials (8).

Amongst the high-emitting sectors, only 17% (5/29) private firms have set a net zero target, running counter to the publicly-listed landscape, where 70% (28/40) of firms have a net zero target. When investigating the annual revenues represented by the high-emitting sectors’ net zero targets, the following disparities emerge:

● By annual revenue, net zero targets cover just 14% ($221 billion / $1,556 billion) of aggregate annual revenue in these sectors. This compares with the 77% ($4,689 billion / $6,119 billion) of high emitting, publicly-listed companies that are covered by net zero targets.
● Only one of the high-emitting private firms, INEOS, has a published plan to deliver net zero and, even then, we consider this inadequate.

No fossil fuel firms in the top private 100 list has a net zero target:

Another major disparity between listed & private companies lies within the Fossil Fuels sector, where none of the private firms (8/8) have set a net zero target. This runs counter to the listed firms landscape, where 65% of publicly-listed Fossil Fuels companies are represented by a net zero target.

The scarcity of net zero targets and plans across high-emitting private firms expose them to transition risks and raises serious concerns about the economic vulnerability of countries where they are based. By annual revenue, the largest four high-emitting private companies without a net zero target are:

1. Trafigura Group, $231 billion USD annual revenues (Singapore)
2. Vitol Group, $140 billion USD annual revenues (Netherlands)
3. Koch industries, $115 billion USD annual revenues (US)
4. TATA Group, $113 billion USD annual revenues (India).

Richard Black, Senior Associate, Energy & Climate Change Intelligence Unit (ECIU), said:

“The biggest companies that you’ve never heard of - many of which have larger revenues than Facebook - are effectively undermining the net zero transition through non-disclosure and inaction.

“As major players in key commodities such as energy, food and manufacturing, private firms without net zero targets are stalling the progress of the entire business ecosystem, while hindering their own ability to shape the world's greatest megatrend.

“By opting out of net zero, private firms are missing the opportunity that many listed firms are now seizing upon - to turn climate risk into opportunity. As the largest private firms are ‘too big to fail’, their failure to adapt to the inevitable has major ramifications for economies.”

Major disparity on plans to deliver net zero in private firms’ targets, vs. listed

Net Zero Tracker compared the level of integrity within the targets that have been set by 32% of non-listed and 70% of the largest listed firms, based on key indicators including reporting mechanisms, scopes of coverage and interim targets.

The starkest contrast between the two corporate groups is that only 13% (4) of private companies’ net zero targets have accompanying plans to deliver their pledges, vs. 73% (32) of the publicly-listed companies with net zero targets.

Dr Steve Smith, Executive Director, Oxford Net Zero, said:

“Nearly nine out of 10 of the largest private firms’ net zero targets do not come with any plans. That suggests at best that these are shaky aspirations, and at worst that they are just greenwashing."

The following key disparities were also identified in the targets of private companies, vs. listed firms:

● Just 34% of private firms’ net zero pledges include an interim target, an important proxy for delivering short-term emission reductions and a marker of real intention to reach net zero. For comparison, 55% of publicly-listed company net zero pledges include interim emissions reduction targets.
● 53% of private firms' net zero targets include full or partial coverage of Scope 3 emissions (2) where most of a company’s value chain emissions typically occur, compared with 61% of publicly-listed companies.
● 69% of private companies do not specify whether or how they plan to use external offsets (carbon credits), compared with 51% of publicly-listed companies.
● This lack of transparency is an indicator of companies that have not ruled out the use of cheap, low quality credits.

Scope 3: Private firms need to shape up, or lose out on global supply chains

The direction of travel for publicly-listed companies towards increased mandatory disclosure and net zero transition requirements means that they will have no choice but to deal with their value chain (Scope 3) emissions. Private firms that form part of those value chains will need to either shape up or lose out. Moreover, companies that provide less emissions-intensive products or services will have an increasingly competitive advantage on the global market, due both to energy costs and the likely advent of carbon border price adjustments.

Dr. Takeshi Kuramochi, senior climate policy researcher at NewClimate Institute said:

“Overall, the robustness of existing private sector pledges is lower than pledges made by publicly-listed companies. They do at least put these firms on a starting line. Once targets have been set, firms should face pressure to establish mechanisms of accountability and reporting.”

The United States is a major player in the private corporate landscape, but net zero targets for most companies based there are missing in action:

The Net Zero Tracker analysis also notes the parts of the world where private companies are most dominant, and the levels of net zero adoption within key regions. Of the largest private companies covered by the analysis, most firms operate from the following regions:

● 50% operate from the US yet only 20% of those companies have net zero targets, far less than the US-based publicly-listed firms, where 73% have a target.
● Of the 21 companies operating in the EU, 52% (11/21) have a net zero target. This compares with 88% (14/16) of the publicly-listed EU companies in this analysis that have a net zero target.
● Of the 16 private companies headquartered in China, only one (6%), Zheijiang Geely Holding Group, has a net zero target. This compares with 33% (5/15) of the publicly-listed Chinese companies in this analysis that have a target.

The limited adoption of targets in the US appears to be due to a lack of any climate-related disclosure requirements for private companies comparable to those recently established by the UK and EU (3).

To increase transparency, the mandatory disclosure requirements for publicly-listed companies (including transparency measures, corporate governance, and direct regulation of business operations), should be extended to private companies.

Thomas Hale, Professor at the Blavatnik School of Government, University of Oxford, said:

“With public firms increasingly facing mandatory climate disclosure, there is a risk that private firms will escape climate-related scrutiny, allowing them to compete unfairly with companies that are serious about net zero. Smart regulation is needed to create a level playing field and close a potentially enormous loophole in corporate climate action.”

Carbon intensive assets going dark through ‘fossil-spinning’

The NZT study aligns with recent analysis on the lack of climate disclosure in private firms - including ‘Private Companies: The Missing Link on the Path to Net Zero’ by the Leibniz Institute for Financial Research and the University of Hamburg
(4).

The paper highlights a concerning recent phenomenon known as ‘fossil-spinning’, whereby public companies sell
carbon intensive assets, (such as major fossil fuel plants) to players in private markets, leading to assets ‘going dark,’ outside of the scrutiny of public markets.

‘Missing Link’ paper co-author, Wolf-Georg Ringe, the University of Hamburg, said:

“There is an increasing concentration of economic value in private companies, and a sharp decline in public equity over the last 20 years.

“An institutional lack of disclosure in non-listed firms, means colossal emissions footprints are regularly disappearing off the radar of regulators.

“This analysis should act as a warning sign to regulators and policymakers, that a vast proportion of corporate carbon emissions are slipping through the net.”

ENDS

Footnotes:

(1) The total annual revenue of the 100 largest public companies was $4.3 trillion. The 68 private companies
without targets is $3.1 trillion USD.

(2) Scope 1: Covers sources and sinks directly managed by an entity; Scope 2: Covers indirect emissions from
energy use; Scope 3: Covers all other indirect emissions across an entity’s value chain, upstream and
downstream.

(3) EU: The Non-Financial Reporting Directive (NRFD), and UK: TCFD reporting for ‘very large private companies.’

(4) Private Companies: The Missing Link on The Path to Net Zero by Alperen Gözlügöl, Wolf-Georg Ringe :: SSRN

About the analysis:

Everybody’s Business - A Glimpse into the Net Zero Credentials of the World’s Largest Publicly-Listed and Private Firms, conducted by the Net Zero Tracker consortium, compares the decarbonisation targets of the world’s largest 100 privately-owned companies, with those set by the 100 largest publicly-owned companies, within the Forbes 2000.

The publicly listed companies were drawn from the existing Net Zero Tracker database; for the private companies, this Eqvista list was used to first identify the 100 largest. Then the Net Zero Tracker Codebook was applied to assess their credentials, using publicly-available documents for investigation.

About the Net Zero Tracker (NZT):

The Net Zero Tracker (NZT) is a global initiative led by the Energy & Climate Intelligence Unit, Data-Driven EnviroLab, NewClimate Institute and Oxford Net Zero, that assesses global net zero targets to promote transparency and ambition.

The Tracker is geared to review a complex array of 50,000 data points on 4,000 entities' net zero targets encompassing governments, regions, cities and corporations, using open-source documents and data to categorise net zero targets in a comparable way.

The Tracker is geared to assess targets that, at the very least, include: a published plan; immediate emission-cutting measures; and an annual reporting mechanism. Net zero plans must depend primarily on genuine carbon-cutting rather than offsetting, and for businesses, strategies should include emissions generated by the use of their products and services
(Scope 3 emissions).

The NZT database provides the only open-source independent review of the quality of net zero targets across countries, regions, cities and companies. It is intended to be used in combination with deep-dive analyses of entities’ emissions reduction performance, for example, NewClimate Institute’s Climate Action Tracker and the Corporate Climate
Responsibility Monitor.