Common questions about our analysis of ASX200 emissions reduction commitments, answered.

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What is the purpose of this analysis?

This analysis assesses ASX200 companies’ emissions reduction commitments and their alignment with a 1.5°C trajectory. The analysis considers whether these companies have set short, medium and long-term targets and determines the emissions reductions implied through the commitments made and their alignment with a 1.5°C pathway.

What are scope 1, 2, and 3 emissions?

Emissions reported from organisations are classified as scope 1, 2 and 3 emissions. This is an important categorisation that underpins the emissions reporting required by international agreements.

• Scope 1 (direct control) – emissions that are directly emitted through the actions of the company.

• Scope 2 (purchased electricity) – emissions from purchased electricity used by the company.

• Scope 3 (value chain) – emissions are indirect emissions other than from purchased electricity that occur in the company’s value chain (including both upstream and downstream, and financed emissions where relevant). 

What is the difference between absolute emissions commitments and emissions intensity commitments?

Absolute emissions reduction commitments aim to reduce greenhouse gas emissions emitted into the atmosphere over time by a total physical amount (i.e. reduce emissions by 5%). By contrast, emissions intensity commitments are those set to reduce greenhouse gas emissions relative to a metric, namely emissions reduction per unit. Some examples of a metric are productivity output, economic output (e.g. revenue), number of employees, among others (i.e. a 5% reduction in emissions intensity per tonne of steel manufactured).

The use of absolute emissions reduction commitments preserves a direct link to company-specific performance and leads to actual emissions reduction. Given the large number of companies within the scope of this research and the diverse nature of business activities in which the companies are involved, the use of an absolute emission reduction metric provides a common comparable data set applicable to all. 

What does ‘all applicable scopes’ mean? Why are scope 3 emissions applicable for some companies and not for others?

‘All applicable’ scopes refer to the emission scopes (scope 1, 2 and/or 3) that are deemed relevant to a company.  While scope 1 and 2 emissions are always applicable to a company, scope 3 emissions can be applicable to some companies only. As a rule of thumb, scope 3 is deemed not applicable for companies predominantly involved in emission-intensive operations where the majority of their emissions stem from scope 1 and 2, such as steel manufacturing, airlines operation, aluminium smelting and cement manufacturing. However, in the real world, companies are often diversified with business activities spanning multiple sectors. In these cases, scope 3 emissions are considered applicable only when they represent at least 40% of the total company emissions.

What are the short, medium, and long-term assessment periods?

The alignment of corporate commitments have been broken down into three timeframes and refer to the following years: short-term (2022–2025), medium–term (2026–2039), and long term (2040+).

Does the analysis include companies that operate internationally?

This analysis focuses on ASX200-listed companies with operations in Australia. When a company also undertakes operations internationally, the assessment  focuses only on its Australian operations and commitments. Companies that do not operate in Australia are not included in the analysis. This includes companies whose principal activities are outside Australia and hence, produce negligible emissions within this country.

How is 1.5°C alignment of net zero targets determined?

A company’s net zero target is 1.5°C aligned when the target year of net zero emissions is the same as, or sooner than, the year when the relevant sectors in Decarbonisation Futures ‘1.5C All-in’ and, where electricity generation is concerned, Australian Energy Market Operator’s (AEMO) 2022 Integrated System Plan Hydrogen Superpower scenario, reach near zero emissions.

How was 1.5°C alignment of companies’ commitments assessed?

Company commitments were assessed against company-specific 1.5°C trajectories. To determine company-specific trajectories, companies are allocated to Climateworks Centres’ Decarbonisation Futures ‘1.5C All-in’ scenario sectors depending on their reported/estimated emissions breakdown. Each Decarbonisation Futures sector exhibits its own trajectory, and a company’s emissions may come from multiple Decarbonisaton Futures subsectors, so a weighted average of all relevant sectors is applied. This weighted average assessment results in each company holding its own unique emission reduction trajectory as the benchmark against which its commitments are assessed.

What is the Paris Agreement?

The 2015 Paris Agreement is an international treaty on climate change adopted by 197 parties in December 2015.  This treaty commits all countries to a common goal of limiting global temperature rise to well below 2°C, aiming for 1.5°C. Since the agreement in 2015, research has shown that each increment of warming avoided has significant consequences for the frequency and severity of extreme weather events. Many scientists and institutions now agree that climate action to limit warming to 1.5°C is imperative.

Was the use of offsets considered in this assessment?

Net zero targets achieved largely through carbon offsets (not actual emissions reductions) are not considered as net zero targets for the purposes of this analysis and therefore were not assessed. Emissions reduction targets expressed as reliant on the use of offsets were only assessed if clearly related to otherwise unavoidable emissions. 

However, because information on the use of offsets is not always clearly disclosed by companies, some targets relying largely on offsets may have been included in this study. 

How have multiple sector companies been categorised?

When presenting the overall findings, companies have been classified in the sector that best describes its main business activities. However, the analysis undertakes a more granular approach and considers all sectors in which a company operates according to its reported or estimated emissions breakdown to determine the company-specific 1.5°C trajectories.