Investors encouraged to focus on short- and medium-term decarbonisation targets as collective consults on its next phase.
Decarbonisation strategies are not keeping pace with the commitments being made by some of the world’s most polluting companies, Climate Action 100+ (CA100+)’s latest Net Zero Company Benchmark update has found.
Notably, oil and gas companies within CA100+’s portfolio of 159 focus companies are still commissioning projects that do not align with Paris Agreement goals, while an overwhelming number of electric utility companies are not building out sufficient renewable energy capacity.
Compounding this, CA100+ noted a “widespread” failure to integrate climate risks into accounting and audit practices, with no focus company meeting all criteria of the initiative’s provisional assessment on climate accounting.
Ambitions not action
Overall, climate ambitions have improved within CA100+’s portfolio of focus companies since its last assessment in March 2022, but some key areas have seen little-to-no change.
While the six-month window for change may not afford companies the required time to fully embed these climate-centric aspirations, the investor-led initiative noted that 75% of focus companies have now committed to achieving net zero emissions by 2050 or sooner across all or some of their emissions footprint, up from 69% in March 2022.
Upticks have also been seen in the level of board oversight surrounding climate change, up two percentage points to 92%, while 91% of focus companies have aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), either by supporting the TCFD principles or by employing climate-scenario planning, a two percentage point increase from March 2022.
But the positive progress witnessed in the making of commitments has not been matched by the development and implementation of decarbonisation strategies, CA100+ said.
Its latest round of assessment suggests that real-world activities “do not yet demonstrate any meaningful shifts in business models at some companies to align with the Paris Agreement”.
Notably, CA100+’s previous Net Zero Company Benchmark showed that less than 12% had adequate short-term emissions reduction targets or decarbonisation strategies, while its latest benchmark reported a drop in this figure, now at 10%.
CA100+ noted that many companies have not yet disclosed the practical actions on how they intend to achieve the targets they have set for themselves, with only roughly half of the focus companies having a decarbonisation strategy in place to reduce their greenhouse gas (GHG) emissions.
Only 10% of companies provided disclosures that commit to fully aligning their capital expenditure plans with their GHG targets or the Paris Agreement objectives.
Renewed engagement
Based on the mixed progress recorded in its interim report, CA100+ encouraged investors to challenge companies to follow up on target setting with detailed climate transition plans.
The rate of change by focus companies still “needs to significantly increase to keep the Paris Agreement targets within reach,” the collective said.
CA100+ stated: “While net zero commitments are fundamental to a net zero strategy, investor engagement should encourage focus companies to follow up on target setting with detailed climate transition plans to achieve these goals.”
Moving forward, investors should put the onus on encouraging transparency and the integrity of net zero pledges
“This will give investors’ confidence that these targets reflect robust and ambitious climate mitigation commitments,” CA100+ said.
CA100+ pointed to short- and mid-term targets, areas that did not improve between the two latest benchmarking assessments, as areas that demand specific focus from investors.
Engagement activity should focus on encouraging company-specific commitments that explicitly target net zero by 2050 or sooner, and disclose the share of Scope 1 and 2 emissions covered, including Scope 3 where applicable, CA100+ recommended.
Mounting pressure
The interim report marks the end of the first phase of engagement activities with carbon-intensive focus companies by CA100+, which involves 700 institutional investors, with US68 trillion AUM and is backed by major sustainable investment networks.
The investor networks plan to announce details for its phase two strategy in the first half of next year, and are holding a public consultation on proposals to enhance the Net Zero Company Benchmark. The first reports under the new benchmark will be published in September or October next year.
A report by UK-based responsible investment NGO ShareAction in May argued that CA100+ had failed to steer its signatories sufficiently towards its listed goals, stating that “lack of transparency around objectives, accountability and outcomes” may allow investors to “greenwash their brands by signing up to the initiative, without using their influence to drive emissions reductions”.
To improve on outcomes in its second phase, ShareAction urged CA100+ to strengthen signatory requirements alongside heightened engagement expectations. A focus on expectations for targeted companies as well as improved accountability indicators should also be implemented, ShareAction stated.
Catherine Howarth, CEO at ShareAction, said the collective must be more robust with signatories. “CA100+ has always had the reach and scale to drive climate action where it counts: amongst the world’s highest emitting corporate entities. Yet this latest picture from their own powerful benchmarking exercise shows that its target emitters are not remotely decarbonising at the pace needed to avert severe climate damage,” she said.
“This failure of stewardship risks significant losses to investment portfolios and economies. Signatories to CA100+ have failed so far to manage climate risks in line with their fiduciary duty of prudent behaviour. If phase two is to be successful, CA100+ needs to step up and significantly raise the bar for signatories, for example by ensuring they have robust engagement plans in place.”
