Stephanie Maier, Founding Global Steering Committee Member at Climate Action 100+, says the initiative’s second phase will prioritise “actual emissions reductions, not just targets”.
In December 2015, the world took a vital step in tackling climate change by adopting the Paris Agreement. Two years later, Climate Action 100+ (CA100+) was established as an investor-led initiative aimed at collectively supporting the goals of the Paris Agreement by challenging the world’s largest corporate greenhouse gas (GHG) emitters to take the necessary action on climate change.
Today, the CA100+ boasts more than 700 investors, responsible for over US$68 trillion in assets under management – making it the largest global investor engagement initiative on climate change. In June, the initiative launched its second phase, running until 2030, which aims to inspire a global scale-up in active ownership, markedly shifting the focus from corporate climate-related disclosure to the implementation of climate transition plans.
“Phase two of the initiative is an evolution of phase one, building upon the learnings and considerable progress made,” Stephanie Maier, Founding Global Steering Committee Member at CA100+, tells ESG Investor.
CA100+ centres if attention on companies that are key to driving the global net zero transition, with its focus list comprised of 171 companies, with a total market capitalisation of US$10.3 trillion across industries including oil and gas, aviation, mining, and consumer goods, among others.
Currently, 75% of focus list companies have made net zero commitments, and over 90% have some degree of board-level oversight of climate-related risks and opportunities. Additionally, more than 90% of those companies have aligned their disclosures to the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
However, it’s evident that many of these companies still lack comprehensive and credible transition plans, essential in driving the meaningful action required to meet their headline commitments, says Maier, adding that a core goal of CA100+ through to 2030 is to encourage signatories to engage with investee firms to move from “words to action”.
CA100+ aims to facilitate this end-goal by engaging with focus list companies to implement strong governance frameworks that articulate board accountability and oversight of climate change risks. It also aims to actively reduce GHG emissions across the value chain, including engagement with stakeholders such as policymakers and other actors to address the sectoral barriers to transition, as well as ensure enhanced corporate disclosure on, and the implementation of, transition plans to deliver on robust targets.
“The areas we’ve laid out in phase two ensure we are focusing on actual emissions reductions, not just the targets,” says Maier, who is also Global Head of Sustainable and Impact Investment at asset management firm GAM Investments, adding that transition plans are central to achieving net zero.
In 2023, the UK Transition Plan Taskforce aims to finalise its disclosure framework and implementation guidance and will develop sectoral pathways. It also plans to increase its engagement with other jurisdictions and standard setters, including the International Sustainability Standards Board (ISSB) to support global convergence on transition plans.
Further, the EU’s Corporate Sustainability Reporting Directive (CSRD) will require in-scope companies to disclose transition plans, including implementation actions and related financial and investment plans.
The ISSB is set to publish its long-awaited standards – IFRS S1 and S2 – which will provide general requirements for disclosure of sustainability-related financial information and climate-related disclosures on 26 June.
Net Zero Company Benchmark 2.0
A core component of phase two of CA100+ is the evolution of its Net Zero Company Benchmark. It was originally launched in March 2021 to assess corporates on their net zero transition against the initiative’s three core goals: emissions reduction, governance and disclosure.
Released following a consultation, CA100+’s Benchmark 2.0 framework still serves as an evaluation tool for investor engagement with focus list companies, but enhancements have been made to embed a stronger focus on emissions reductions, alignment with 1.5°C pathways and the robustness of transition plans.
“Over the course of phase one, we have provided sector-specific guidance, which has informed our engagement with individual companies within clusters of the highest emitting sectors,” says Maier. “However, we want to do more by connecting across sectors and addressing barriers that are not specific to any one company, such as policy barriers.”
Benchmark 2.0 draws on analytical methodologies and datasets from public and company disclosures that are categorised into two types of indicators: disclosure framework indicators, which evaluate the adequacy of corporate disclosure; and alignment assessments, which evaluate the alignment of company actions with the Paris Agreement goals.
In addition to the new benchmark, phase two also aims to improve and expand the ways investors can participate, to ensure climate engagement with focus list companies is effective in driving meaningful outcomes. To achieve this, CA100+ is introducing a new ‘lead sector investor’ category to help create the ecosystem conditions needed for sectors to transition, alongside a new ‘lead thematic investor’ category, allowing signatories to engage on specific themes in any given year.
“Another key aspect is the financing of climate opportunities that are necessary for the transition across the economy and within specific sectors. For example, the benchmark includes an indicator for investment in climate solutions, and we need to determine where more investment is needed and identify barriers that could slow down the transition,” she says.
“We believe focusing on specific sectors, engaging across sectors, and addressing barriers are important for delivering the progress we desire and encouraging corporate engagement.”
CA100+ plans to release its Benchmark 2.0 assessments in September/October this year, with thematic and sector engagement groups established and leads preparing annual company engagement plans from October/November.
Aligning on climate
CA100+ is an alliance of assets and managers, but the two can have differing perspectives on common objectives.
Faith Ward, Chair of the UK Asset Owner Roundtable, has expressed concern at the perceived misalignment between asset owners’ long-term interests and how asset managers are exercising proxy voting at key AGMs of European oil and gas majors.
Following this year’s proxy season, the UK Asset Owner Roundtable has invited asset managers to have a “constructive dialogue” with its members to improve alignment on climate-related engagements with investee firms.
Maier admits that not all CA100+ signatories have the same approach.
“Broadly speaking, asset owners are increasingly holding asset managers accountable and scrutinising their voting behaviour when investment decisions are delegated to them,” she says, adding that depending on the nature of the funds or mandates, asset owners may have more or less directive power.
However, disclosure and transparency have become key areas of focus, with asset owners increasingly engaging with their asset managers on climate-related issues. An example of this is a growing trend towards asset owners’ pre-declaration of their voting intentions prior to key AGMs, allowing investors to communicate their views to the market ahead of the vote.
The Church of England Pensions Board (CoEPB) announced its intention to vote against the re-election of National Grid Chair Paula Rosput Reynolds and CEO John Pettigrew at its AGM, scheduled for 10 July. The pension board’s decision is based on the energy utility’s failure to provide adequate disclosure on its climate lobbying activities.
According to Maier, the practice fosters closer engagement between asset owners and their asset managers, with some jurisdictions requiring post-vote disclosure to improve alignment between both parties.
Progress and limitations
For some focus list companies, the failure to heed engagement efforts by investors to make good on their net zero commitments leaves them open to the threat of divestment. The unwillingness of oil and gas majors, including BP, Shell and Total among others, to align with climate goals recently saw them excluded by the CoEPB and Church Commissioners.
In a statement released this week, the Church Commissioners said it will only remain invested in an oil and gas firm if it can demonstrate genuine alignment with a 1.5°C pathway by the end of 2023.
“The decision to disinvest was not taken lightly,” said Alan Smith, First Church Estates Commissioner. “Soberingly, the energy majors have not listened to significant voices in the societies and markets they serve and are not moving quickly enough on the transition. If any of these energy companies come into alignment with our criteria in the future, we would reconsider our position.”
The lack of meaningful outcomes from climate engagement with the oil and gas sector has prompted some, including Adam Matthews, Chief Responsible Investment Officer at CoEPB, and former CA100+ engagement lead with Shell, to consider a “rethink” in investors approach.
“As investors we need to rethink our approach and focus on the demand side, not just the supply side,” he wrote in a post. “We must pivot our engagement to these other sectors on their use of oil and gas and encourage them to transition to alternative energy sources.”
Building on that point, Maier notes that given the supply-demand dynamics of the oil and gas industry, it is vital to take a more “joined-up approach”, considering factors such as the value chain.
Her sentiments are shared by the Net Zero Asset Owner Alliance (NZAOA) which called for a more systemic approach to stewardship to avoid energy dislocations and increase policy ambition to rapidly reduce oil and gas demand and increase the supply and availability of renewable alternatives.
“We know that the oil and gas sector is a key component within that transition,” says Maier. “Not engaging with the sector would be challenging given its central role. However, it is crucial to align our goals with the necessary whole economy transformation.”
Investors should explicitly target and unlock opportunities where demand is changing and facilitate the transition to less carbon-intensive energy sources, she says, adding that understanding customer groups and their involvement in the value chain is important.
“The targets set by automakers for electric vehicle manufacturing will impact the overall demand for energy,” she says, noting that countries are increasingly announcing plans and policies to address charging infrastructure and phase out internal combustion engines.
“All these initiatives are essential in supporting the transition to a less carbon-intensive energy system.”
Maier says that the investment community recognises the strengths and imitations of shareholder resolutions and active engagement, with investors aware that without policy change the goals of the Paris Agreement will not be met.
“We recognise that this is an economy-wide and society-wide change we’re looking to drive, which means we need to look at the system, not just company by company,” she says.
“Climate is a systemic issue that is absolutely a financial and fiduciary issue – that’s the key message that needs to be heard in the run-up to COP28.”