Four years into a plan to eliminate its carbon emissions, Amazon.com Inc. has lost a key endorsement from the world’s leading watchdog of corporate climate goals.

The Science Based Targets initiative, a United Nations-backed entity that validates net zero plans, has removed Amazon from its list of companies taking action on climate goals after the tech behemoth failed to implement its commitment to set a credible target for reducing carbon emissions.

The move raises questions around Amazon’s status as a preferred stock among funds marketing themselves as ESG. The world’s largest ESG exchange-traded fund, which is managed by BlackRock, lists Amazon among its top three holdings. The company is also held in over 900 ESG funds registered in the European Union alone, representing about 2% of outstanding shares, according to data compiled by Bloomberg.

Amazon is in contact with SBTi, according to Elizabeth Fine, a spokeswoman for the company.

“We’ve collaborated with the Science Based Targets initiative over the last several years in order to determine appropriate submission guidelines and methodologies for complex businesses like Amazon,” Fine said by email. Amazon intends to “continue to work with” SBTi “to establish a path forward for submission.” But “in tandem,” Amazon “will also seek to set science-based targets with other organizations,” she said.

Amazon has the largest market value of the roughly 120 companies to have been stripped of the SBTi endorsement. Just over 5,700 companies have made SBTi net zero commitments, up from 1,558 eighteen months ago. More than 3,200 now have approved SBTi targets, including Microsoft Corp., Walmart Inc., Dell Technologies Inc., Cisco Systems Inc., Apple Inc. and eBay Inc.

Amazon in 2019 said it would eliminate or offset all of its carbon emissions by 2040, and a year later the company committed to submitting its goals through SBTi’s verification process. The retailer and cloud-computing company is working to electrify its last-mile vehicle fleet and remove fossil fuels from its electricity sources, but hasn’t offered a detailed roadmap for how it plans to eliminate the other sources of carbon from its business.

Amazon’s emissions are up by about 40% since setting out its net zero target, though they ticked lower in 2022 as the company’s growth slowed and renewable energy projects came online. The Seattle-based company earlier this year retracted a sustainability goal that aimed to have Amazon deliver half its packages with zero carbon by 2030. The commitment, it said, was superseded by a company-wide net zero goal.

Meanwhile, SBTi’s foothold in financial markets keeps growing. Euronext recently launched a series of indexes that only include companies with SBTi approved emissions reduction targets. The new products, launched in July, “respond to the growing demand for sustainable investment tools from investors and from the market,” Euronext said in a statement.

Paul Chandler, director of stewardship at the UN’s Principles for Responsible Investing, said it’s “disappointing” that “some companies are failing to meet the expectations of initiatives like the SBTi,” which he said is among a small handful of bodies providing “key tools” for investors in their “engagement with companies on climate change.”

“Corporate progress on climate in line with the Paris Agreement is essential to meeting investors long term return needs and obligations to clients and beneficiaries,” Chandler said in an emailed statement.

A stamp of approval from SBTi helps investors figure out whether portfolio companies have committed to credible climate goals. Such data is increasingly tracked by the world’s biggest money managers. Norway’s sovereign wealth fund, the world’s largest owner of publicly traded stocks, recently said it’s putting companies on notice as it raises the bar for credible transition plans.

Amazon says that since committing to set a net zero target with SBTi in 2020, the organization’s requirements for submission have changed and new methodologies were developed. SBTi’s current metrics to tally emissions aren’t aligned to Amazon’s business model, making it “difficult” to submit a target in a “meaningful and accurate way,” according to the company.

SBTi introduced a stricter compliance policy in January, giving companies 24 months to set a specific target after committing to do so. The organization used to remove companies from its public database if they didn’t live up to that goal, but has instead started singling laggards out by stating clearly that a given company has had its “commitment removed.”

The goal is to “increase transparency and accountability around commitments and eventual validation,” SBTi said. And the expectation is that the move will serve “as a major disincentive for companies to make commitments without taking action,” it said.

The new policy only impacts non-financial corporates for now, while financial firms have until April 2024 to comply.

“We encourage any and all companies that are removed to re-engage with the process to set science-based targets for validation as soon as possible,” SBTi said. “Urgent corporate climate action is required to limit the worst effects of climate change.”

--With assistance from Frances Schwartzkopff, Amine Haddaoui and Carlo Maccioni.