30 March: New assessments released today by Climate Action 100+, the world’s largest investor engagement initiative on climate change, show some corporate climate progress against key climate indicators, but find much more action is urgently needed from focus companies to support global efforts to limit temperature rise to 1.5°C.
- While 69% of focus companies have set commitments to achieve net zero emissions by 2050 or sooner, overall Benchmark finds companies have failed to show progress across key indicators, including disclosure of 1.5°C-aligned medium-term emissions targets and capex strategies.
- Benchmark sets urgent engagement priorities for USD 68 trillion investor-led initiative ahead of U.S. and European proxy season and as it marks the final year of its first phase.
- Investor signatories will give focus companies another chance to step up action in 2022, with another round of assessments planned for later in the year.
- As a group, Australian companies have performed relatively better on net zero targets for 2050 or earlier, governance, and disclosure of their target plans. This is important progress.
- However, 12 of the 14 Australian focus companies’ emissions reduction targets are not aligned with limiting global heating to 1.5°. This is very alarming to investors in these companies.
- Australian companies do very poorly on scope 3 emissions, and Australian and global companies all do extremely poorly on allocating capital expenditure in line with their climate targets or the goals of the Paris agreement. Investors will therefore be focused on these issues.
- With AGMs this year focused on climate plans, investors have the opportunity to respond to poor performance and acknowledge progress.
This is the second round of Net Zero Company Benchmark assessments to be released by Climate Action 100+ since March 2021. 166 companies on the initiative’s focus list were measured on their progress against the initiative’s three engagement goals and a set of key indicators related to business alignment with the goals of the Paris Agreement.
To reflect the pace of change required to limit global warming to 1.5°C and to ensure it is aligned with the most recent science-based policy, Climate Action 100+ updated the Benchmark methodology in 2022, assessing companies against the IEA’s more challenging Net Zero by 2050 scenario for available sectors. It also added new indicators and assessments focused on the just transition and climate accounting and audit to drive greater company ambition and reflect evolving investor priorities.
The assessments indicate overall year-on-year improvements on cutting greenhouse gas emissions, improving climate governance, and strengthening climate-related financial disclosures. Driven by engagement from Climate Action 100+ investor signatories, the global results specifically show that:
- 69% of focus companies have now committed to achieve net zero emissions by 2050 or sooner across all or some of their emissions footprint, a 17% year-on-year increase
- 90% of focus companies have some level of board oversight of climate change
- 89% of focus companies have aligned with TCFD recommendations, either by supporting the TCFD principles or by employing climate-scenario planning.
However, it is alarming that the vast majority of companies have not set medium-term emissions reduction targets aligned with 1.5°C or fully aligned their future capital expenditures with the goals of the Paris Agreement, despite the increase in net zero commitments.
Specifically, the assessments reveal:
- An absence of medium-term emissions reductions targets aligned with 1.5°C: Only 17% of focus companies have set medium-term targets which are aligned with the IEA’s 1.5°C scenario and cover all material emissions.
- Continued absence of Scope 3 emissions: Just 42% of focus companies have comprehensive net zero by 2050 or sooner commitments that cover all material GHG emissions, including material Scope 3 emissions.
- Alignment of capex strategies with net zero transition goals remains almost non-existent: Only 5% of focus companies explicitly commit to align their capex plans with their long-term GHG reduction targets.
- Companies are setting emissions reduction targets but don’t have the strategies to deliver them: Only 17% of focus companies have robust quantified decarbonisation strategies in place to reduce their GHG emissions.
- A failure to integrate climate risk into accounting and audit practices. No company has demonstrated that its financial statements are drawn up using assumptions consistent with net zero by 2050, as per a new indicator on climate accounting and audit assessed by CTI and CAP.1 This Benchmark indicator has been introduced into Climate Action 100+ for the first time this year.
These results are disappointing as they are focused on areas which demonstrate tangible translation of commitments into action, indicating what companies are going to do over the short term to achieve their longer-term goals. They also come amongst broader evidence that the world is failing to step up to the meet the challenges of the growing climate crisis.
In a newly released report, the Intergovernmental Panel on Climate Change warned that the window of opportunity to take any meaningful climate action is rapidly closing and worldwide emissions must fall by 45% by 2030 to have any chance at keeping global temperature rise under 1.5°C.
Climate Action 100+, which now includes 700 signatories responsible for USD 68 trillion in assets under management, is calling on all focus companies to step up climate ambition before a third round of Benchmark assessments is released later this year.
Investors are also expected to escalate pressure on companies and boards during the upcoming proxy season in the U.S. and Europe, following last year’s record high majority votes on climate proposals. The next several months will be a critical time for investors to support key climate shareholder resolutions, asincluding those flagged by the initiative, that are aligned with the goals of the initiative and the Paris Agreement.
The Benchmark is clearly driving an increase in corporate disclosures from focus companies. TPI, which assessed companies against the Disclosure Framework with support from its data partner FTSE Russell, received a record number of responses from companies during the review period in December 20212 , signalling clear interest from companies to engage with the Benchmark. It also provided focus companies with a standardised way of reporting on corporate climate ambition, with the framework being increasingly used to frame net zero transition planning in company annual reports.
Sector and issue specific analyses from the Alignment Assessments, which complement the Disclosure Framework, finds that:
- Less than one third of electric utility focus companies have a coal phaseout plan consistent with limiting global warming to less than 2°C, according to data from Carbon Tracker Initiative (CTI). This is concerning as the IEA’s Net Zero by 2050 roadmap, published in May 2021, says that in order to keep 1.5°C alive, coal-fired power must be phased out in advanced economies by 2030, and globally by 2040. 3
- CTI also finds that two thirds of oil and gas focus companies are still sanctioning projects inconsistent with limiting global warming to less than 2°C. The IEA’s Net Zero by 2050 roadmap made it clear that there can be no new oil and gas exploration and production if we are going to keep 1.5°C within reach.
- There is a considerable gap between what companies are saying publicly on climate lobbying and doing in practice. 54% of focus companies have mixed direct engagement with Paris-aligned climate policy, according to InfluenceMap data. However, only 9% have broad alignment between their direct climate policy engagement activities and the Paris Agreement. Also concerning is that only 2% of focus companies are aligned with the Paris Agreement in their indirect climate policy engagement activities via their industry associations.
- Almost no steel, cement, or aviation focus companies’ emissions intensities are aligned with limiting global warming to less than 2°C, 2° Investing Initiative (2DII) finds. Most utility companies are not adding renewables and other low-carbon technologies fast enough to limit global warming to 1.5°C. Similarly, most auto companies are not phasing out internal combustion engine vehicles and adding enough electric vehicles and hybrid vehicles fast enough to limit global warming to 1.5°C.
Members of the Climate Action 100+ global Steering Committee join investor calls for stepped up climate ambition and action:
- Stephanie Maier, Global Head of Sustainable and Impact Investment at GAM Investments and current chair of the global Climate Action 100+ Steering Committee:
“Overall the Net Zero Company Benchmark clearly shows that focus companies are not making the progress required to align with achieving the 1.5°C climate goal agreed in Paris and reaffirmed in Glasgow last year. Given that these companies represent the world’s largest corporate greenhouse gas emitters, their ambition and pace of change is critical to a successful transition and needs to accelerate. The latest IPCC report starkly outlined the social and economic imperative for this. As a consequence, we should expect a ratcheting of investor-led shareholder resolutions as well as increased scrutiny on transition plans brought to the vote, starting with the imminent AGM season.”
- Rebecca Mikula-Wright, CEO of AIGCC and IGCC and a member of the global Steering Committee:
“Companies across Australia and Asia must respond to the very clear call from investors to accelerate their decarbonisation plans. The Climate Action 100+ Benchmark is a necessary and valuable tool for companies to understand investor expectations. It guides transparency around credible net zero emissions strategies. As part-owners, investors have a common goal to achieve short, medium and long term sustainable returns but they also need to see companies both managing and adapting to the increasing climate risks and also being successful in the transition by seizing opportunities. Net zero goals are the minimum expectation, and now investors need to see companies making faster progress executing their decarbonisation plans.”
- Andrew Gray, Director, ESG and Stewardship at AustralianSuper and a member of the global Steering Committee:
“We know that the current climate trajectory presents a systemic risk to investment portfolios and long-term returns to funds’ beneficiaries. This demands intensified engagement from investors, calling for near-term action from the companies they are invested in. Long-term engagement works and accountability is key.”
Climate Action 100+ will give focus companies another opportunity to step up and demonstrate progress with a further round of assessments to be released later this year. Companies will be given the opportunity to provide additional disclosures or commitments, announced between 1st January 2022 and 13th May, to improve their Benchmark results4.
Climate Action 100+, which is in its final year of phase 1, will continue with more ambitious goals as demanded by the urgency of the growing climate crisis.