Benchmark assessments show long-term targets not supported by detail on short-term goals, decarbonisation strategy and capital allocation.
Climate Action 100+ (CA100+) has warned that carbon-intensive companies are not progressing fast enough to align with the objectives of the Paris Agreement, supporting the rationale for its revised engagement strategy.
The investor-led initiative said firms needed to increase the scale and pace of their decarbonisation actions as it released its latest benchmark results, which assess disclosures from CA100+ focus list companies.
“Urgent action is needed to shift the weight of focus from mere commitments to implementation,” said François Humbert, Lead Engagement Manager at Generali Insurance Asset Management and current Chair of the CA100+ Global Steering Committee.
“Although it’s encouraging to see more companies disclose their net zero transition plans, there’s a missing link between how these can meet the Paris Agreement goals.”
CA100+ released its latest round of company assessments against its newly updated Net Zero Company Benchmark. The results highlighted that the inadequate pace of focus list companies threatens to increase risks for investors.
“While there are clear signs of progress, particularly from a European perspective, it’s equally clear that companies need to move further and faster to fully play their part in the transition of the global economy,” said Stephanie Pfeifer CEO at the Institutional Investors Group on Climate Change (IIGCC) and CA100+ Global Steering Committee Member.
“Ahead of the critical milestone of 2030, the importance of constructive engagement between corporates and investors has never been greater.”
According to the latest Net Zero Company Benchmark assessment, companies are performing well with regards to long- and medium-term greenhouse gas (GHG) reduction targets, and disclosures following the Task Force on Climate-related Financial Disclosures (TCFD) guidelines.
However, CA100+’s fourth round of benchmark assessments flagged that progress is needed on short-term GHG reduction targets, capital expenditure allocation, climate policy engagement, just transition, and GHG emissions reductions. Further, the benchmark revealed a significant gap in disclosure required to prove that companies have credible transition plans to meet their long-term targets and adhere to the Paris Agreement’s goals.
Absence of alignment
These findings are further supported by ‘alignment assessments’, which reveal limited commitment from companies to strategies in line with the International Energy Agency’s (IEA) Net Zero Emissions by 2050 Scenario (NZE) for a 1.5°C pathway.
“It’s clear that we need to see companies take more decisive action to address their exposure to climate risks and to take advantage of the opportunities presented by the energy transition,” said David Atkin, CEO at the UN-convened Principles for Responsible Investment (PRI) and CA100+ Global Steering Committee Member.
“This year’s results follow the update of the IEA’s Net Zero Roadmap which shows that – even though the path is narrowing – the 1.5°C goal of the Paris Agreement can still be achieved.
“The need for corporate action on climate change has never been more urgent.”
Alignment assessments, which complement the CA100+ Benchmark by measuring implementation of Paris-aligned corporate actions, indicate that the majority of focus list companies’ actions are not aligned with the Paris Agreement.
InfluenceMap’s latest climate policy assessment revealed that most companies are not fully aligning their climate policy engagement with the Paris Agreement’s goals, with only 4% fully aligned, while 66% partially align with these goals.
“[CA100+] companies stand in a position of significant influence over the global climate policy agenda and, as such, the delivery of this aim,” said Joe Brooks, Programme Manager at InfluenceMap and Investor Engagement Lead at CA100+. “However, with little improvement in the October 2023 benchmark results compared to 2022, most focus companies continue to obstruct or undermine ambitious climate policy.
“New InfluenceMap data shows that while the number of companies reporting on and reviewing their climate policy engagement activities is increasing, many of these disclosures fail to correct misaligned lobbying practices.”
CA100+ cited climate accounting and audit analysis by the Carbon Tracker Initiative (CTI), which found that 23% of utilities have announced or phased out coal assets in line with the 1.5°C pathway, while 29% have announced coal fleet retirement, albeit too late to align with the 1.5°C pathway. CTI analysis of upstream oil and gas showed that, across the industry, future capital expenditure is not aligned with an IEA Net Zero Emissions by 2050 pathway.
“The Climate Accounting and Audit Assessment helps investors engage, make voting decisions and allocate capital in the face of climate-related risks,” said Barbara Davidson, Head of Accounting, Audit, and Disclosure at CTI. “Unfortunately, most companies and their auditors continue to fall short in demonstrating how they have considered the financial impacts of material climate-related risks – even their own emissions targets.
“This information is vital if we are to meet our global and local climate goals and curb the significant risk of loss from climate change, and the energy transition, today.”
The engagement initiative also cited sector-specific capital allocation assessments by the Rocky Mountain Institute which show that encouraging steps are being taken by the automotive sector, especially by those with a five-year plan to rapidly increase electric vehicle production.
However, cement and airline focus companies need to make rapid progress on decreasing their emissions intensity in line with a Paris Agreement trajectory.
According to CA100+, these findings underscore the urgency of its updated strategy for its second phase.
“As the findings show, we are already seeing increased corporate commitment and capital spending among the world’s major emitters towards climate solutions,” said Mindy Lubber, President and CEO at investor network Ceres and CA100+ Global Steering Committee Member.
“The strengthening of the Benchmark, along with the enhanced engagement strategy for the second phase of the initiative, will allow for greater investment opportunities in the clean energy transition.”
CA100+’s second phase, developed in consultation with signatories, aims to encourage companies to transform their climate commitments into tangible actions. The initiative has evolved to meet the escalating urgency of climate change, with improved core goals, expanded ways for investors to participate, and an enhanced investor engagement model.