Privately owned companies are setting net-zero targets at less than half the rate seen by public businesses, with just under a third of the private market having such goals.

Among the largest 100 public and private companies globally, 69 of the publicly owned ones have net-zero targets, compared with 32 of the private ones, according to a report from Net Zero Tracker.

That creates a significant hole in efforts to combat climate change across the world. And it is particularly worrisome, the group notes, given that dirty assets are sometimes offloaded by public companies to private ones that are much less likely to disclose and attempt to reduce carbon footprints.

“In short, the lack of integrity of the largest private firms’ net-zero pledges is a $4.3trn blind spot that is likely to gain much greater interest in the coming years,” the group stated in its report.

Trouble spots

The size of the gap between public and private companies’ net-zero status varies considerably by industry and region.

The biggest laggards also happen to be in the highest-polluting sectors. And the two highest-emitting countries have a disproportionately low frequency of private companies with net-zero goals, according to the report.

Among private companies in the fossil fuels, infrastructure, power generation, manufacturing and materials sectors, just 17% have net-zero targets, while that figure is 70% among public companies in those areas. The report identified the biggest private companies in those sectors that lack targets: US-based Koch Industries, Singapore-based Trafigura, Netherlands-based Vitol Group and India-based Tata Group.

Among the 10 biggest private companies in the world, none have net-zero targets, while all of the 10 largest public companies do.

Such goals are particularly rare among private companies in the US and China. In the US, 20% of the biggest private companies in the report have net-zero targets, compared with 73% of the biggest listed companies. In China, only 6% of the largest private companies do, while that rate is 33% among the biggest public companies included in the Net Zero Tracker sample.

The rates are more encouraging in the European Union, with targets set by 52% of the private companies in the report and 88% of public ones.

Goals without plans

Of the minority of private companies that have net-zero targets, only a small proportion have disclosed the roadmaps that will get them to their goals. Among the 32 companies globally, just 4, or 13%, have any plans attached to their pledges, according to Net Zero Tracker. That compares with 50 of the 69 public companies, or 73%, that have indicated plans for reaching their targets.

None of the eight privately owned fossil fuel companies with net-zero targets have indicated plans for reaching them. Conversely, 65% of the public oil and gas companies with such goals have disclosed plans, the report found.

“Perhaps the most worrying finding is the striking dearth of plans among private companies – a strong proxy of whether a target has robustness,” the report stated. “The absence of a plan is effectively the absence of a target, because without a plan the target cannot be delivered.”

‘Out of the shadows’

“Bringing private companies out of the shadows and eliminating the damaging arbitrage that [BlackRock CEO] Larry Fink warned of requires government regulation,” the report read. “The good news is that policymakers in the EU and UK have started to include private companies in climate-related reporting requirements.”

The EU’s forthcoming Corporate Sustainability Reporting Directive and the UK’s Streamlined Energy and Carbon Reporting requirements could mean that the largest public and private companies will both have to make climate-risk disclosures. That would in some cases kill the “incentive for a company to stay private” or for public businesses to go private, at least for the sake of avoiding disclosure, the report noted.

But whether that would discourage big companies from selling off high-emitting blocks of business is another matter. Companies that rid their books of dirtier assets can look better on paper, but the carbon associated with those sold-off lines of business doesn’t go away just because they change hands.

In recent mergers and acquisitions in the oil and gas business, deals have disproportionately transferred assets from public companies to private ones, according to a recent report from the Environmental Defense Fund.

“Uneven disclosure requirements may incentivise the transfer of emission-intensive and increasingly financially risky activities from the more regulated to the less regulated world,” the report noted. “One company’s transition to net zero is seen by others as an opportunity to profit, even in the light of ‘stranded asset’ warnings.”