Industry

CA100+ Investors Must Raise the Bar on Engagement

New ShareAction report outlines recommendations to improve transparency and accountability. 

Climate Action 100+ (CA100+) has been challenged to increase transparency from asset owner and manager members on their climate-related engagement efforts with high-emitting companies.

A new report by UK-based NGO ShareAction has highlighted inconsistencies in how 60 assessed CA100+ asset owner and manager members have been reporting on their engagement activities with companies, noting a wide spectrum in the quality of information disclosed and overall transparency. 

ShareAction has subsequently outlined its recommendations for investor reporting guidance, which it says should be implemented during the initiative’s next five-year cycle, commencing 2023. 

“Clear reporting on engagement objectives, outcomes and escalation activities is essential for stakeholders to monitor progress on climate action and hold both companies and investors to account when their actions fall short,” said Isobel Mitchell, Research and Engagement Manager at ShareAction.  

“This is key to strengthening the initiative and ensuring that signatories commit to meaningful action.” 

Originally launched in 2017, CA100+ now has 700 investor signatories representing US$68 trillion in assets.  

It assesses the climate-related commitments and performance of 166 focus companies – typically the world’s highest emitters – against its Net Zero Company Benchmark, which was launched in March 2021 and covers emissions reduction, governance and disclosure themes.  

As of March 2022, 69% of focus companies have committed to achieving net zero greenhouse gas (GHG) emissions by 2050 or sooner and 89% have aligned with recommendations of the Taskforce on Climate-related Financial Disclosures.  

Having previously published sector-specific net zero strategy guidance for food and beverage, steel, electric utilities, and aviation, CA100+ will continue to publish guidance for other high-emitting sectors over the course of this year. 

Staggered progress 

Although progress has been made as a result of CA100+ investors engaging with companies, the disclosures from investors on their engagement efforts do not currently provide enough detail, ShareAction said.  

Thirty-seven of the 60 assessed asset owners and managers have not provided aggregate statistics on their climate change engagements, and only 29 said they monitor the progress of their engagements – climate-related or otherwise. Only ten of the 29 have reported on that progress. 

Further, 82% failed to specify escalation steps for unsuccessful engagement.  

Investor engagement efforts have so far failed to ensure any of the focus companies align their capex with a 1.5°C future or produced financial statements that reflect relevant climate risks, the report said.  

A CA100+ spokesperson responded: “It is worth noting that some metrics included in the Benchmark, including capex and financial accounting, are relatively new and specific areas of focus for CA100+. While these are clearly important factors, they are not representative of the full breadth of the initiative’s work and focusing too heavily on them risks giving a rather one-dimensional account which does not fully reflect the wider impact that it has had to date.” 

ShareAction’s 2021 Voting Matters report previously highlighted that, of the 45 CA100+ signatories assessed, many either declined to vote in support of environmental resolutions at AGMs that year, or actively voted against them.  

Majority Action, a US-based NGO focused on improving shareholder engagement, published a report earlier this year which found that majority of 75 CA100+ signatories voted to re-elect every incumbent director at a number of US companies demonstrating low compliance with the initiative’s Net Zero Benchmark.  

“Engagement conducted as part of CA100+ has driven notable progress towards climate goals, with more than 110 focus companies having made net zero commitments today, compared to just five in 2017,” the CA100 spokesperson said. 

The ShareAction report highlighted examples of good practice. Legal and General Investment Management publishes sector-specific red lines on climate change for 58 priority engagement companies as part of its Climate Impact Pledge. Companies falling short of these red lines will be subject to either divestment or the asset manager voting against company directors.   

ShareAction’s recommendations include setting investors’ minimum transparency requirements on climate change policies, minimum escalation expectations for engagements undertaken via CA100+, and publishing aggregated statistics on engagement activities and outcomes against the benchmark, supplemented with detailed case studies on engagement with each focus company in annual progress reporting.  

“Overall, there is no doubt that there is still urgent work to do if we are to meet the goals of the Paris Agreement and effectively tackle the climate crisis,” the CA100+ spokesperson said. 

“As CA100+ moves into the final year of this phase and looks to the future, we intend to further develop and strengthen the initiative to ensure its continued success in addressing the issues at hand.” 

Leading by example 

Although the organisation itself admits that progress has been slower than it would have liked, other collaborative investor initiatives have been inspired by CA100+.  

Due to be launched this summer, Nature Action 100 (NA100) will serve as the nature-related equivalent of the climate initiative, ensuring that companies are taking appropriate actions to address biodiversity impacts and risks. The new initiative is supported by the Finance for Biodiversity Foundation.  

Last year, a coalition of Canadian investor associations launched an engagement-focused organisation styled on CA100+.  

Climate Engagement Canada (CEC) was launched by 27 founding investors collectively managing C$3 trillion (US$2.42 trillion) in assets, with members including Healthcare of Ontario Pension Plan, RBC Global Asset Management and CIBC Asset Management.  

Co-ordinated by the UN-convened Principles for Responsible Investment, Ceres, the Shareholder Association for Research and Education, and the Responsible Investment Association, the Canadian initiative will engage with 40 of the country’s highest emitting companies.  

CEC will not select companies that are already being engaged with through CA100+.  

“CA100+ is the investor initiative on climate change many were waiting for,” said Catherine Howarth, ShareAction CEO.  

“It has the scale and focus required to make a meaningful impact on global carbon emissions. But success depends on action and real effort by all signatory investors, and so far, not all are stepping up.” 

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