CDP Europe Report 2021
European companies have an enormous environmental footprint extending far beyond Europe’s borders. Emissions created by companies’ value chains are about six times more than their “direct” operational emissions, and their supply chains reach deep into countries with high rates of deforestation and water stress.
How are European companies and financial institutions managing these impacts, and driving progress towards a net-zero, nature-positive economy?
Our CDP Europe Report 2021, Now For Nature, written in partnership with Oliver Wyman, finds that while European companies are driving global progress on science-based targets (SBTs), they are often failing to act on their wider environmental impacts.
The number of European companies with approved science-based targets (SBTs) grew by 85 percent last year, as Europe contributed over half of all global SBTs set in 2021 by companies disclosing to CDP.
Around 34 percent of European Scope 1 and 2 emissions reported to CDP are now covered by SBTs, which are also becoming more ambitious as more companies align targets with 1.5C.
So far, only 16 percent of European companies have set 1.5C aligned targets, but if all companies publicly committed through the SBTi set such targets, annual reductions would be equivalent to 300 to 450 MN tonnes CO2e - equivalent to France and Netherlands combined.
There are also signs of faster progress in finance. In a 50 percent annual improvement, nearly half (44 percent) of European financial institutions now report ‘financed emissions’ – those linked to investment, loans and insurance activities – though only a minority (27 percent) include at least half of their portfolio. Meanwhile, a third 32 percent of disclosing financial institutions report specifically encouraging companies in their portfolios to set emissions targets in line with 1.5°C.
More engagement – for example through the CDP SBT campaign – can help drive progress European financial institutions and the real economy faster.
Nature issues are yet to see similar progress. Investors, for example, are nearly 2x as likely to assess their portfolios for climate risks than for forests.
Under a quarter of businesses with supply chains in high deforestation-risk countries have a strong zero-deforestation commitment, and under half of those sourcing beef, soy and palm oil have full traceability systems.
Just 1 in 20 (5 percent) companies disclosing to CDP on climate, forests and water have a robust emissions reduction target (an SBT), a target for reducing water withdrawals, and a best-practice forests commitment including zero-deforestation.
A recurring finding is that leadership is confined to few companies.
This presents a significant opportunity for a step change in action if trailing companies are willing to catch up with the leaders. Nowhere is this opportunity starker than in the case of operational emissions: if all companies matched the best in their industry, emissions equal to those of the UK and Ireland (400 million tonnes CO2e) could be spared each year - approximately a 50 percent reduction in total reported corporate emissions in Europe.