Net Zero Company Benchmark 2.0 update arrives as climate-focused investor initiative prepares for new phase.
The new iteration of Climate Action 100+’s (CA100+) Net Zero Company Benchmark has a “stronger focus” on emissions reductions, alignment with 1.5°C pathways and the robustness of transition plans, the investor-led alliance said.
Enhancements include the introduction of a new disclosure indicator for historical emissions reductions, as well as “significant” amendments to indicators covering decarbonisation strategy, capital allocation, policy engagement, and just transition
The benchmark launched in March 2021 to assess the performance of focus companies against the initiative’s three high-level goals: emissions reduction, governance and disclosure. Benchmark 2.0’s release follows an “extensive consultative process” including a public survey and a consultation in which 125 investors and other stakeholders offered feedback.
Jasna Šelih Senior Specialist, UN Principles for Responsible Investment (PRI), one of CA100+’s coordinating investor networks, told ESG Investor, “This is a really good set of new indicators. They’ll drive greater company ambition and position CA100+ well for the next phase of the initiative.”
“We hope that the new analysis that will come with these changes will support asset owners and institutional investors’ engagement with focus companies,” she added.
Bolstering the benchmark
Šelih said the historic emissions reductions indicator was the new benchmark’s “main new innovation”. It examines whether a company has reduced its emission intensity in the past year, the past three years, and then whether those emission reductions are in line with a 1.5°C pathway for its sector. “It essentially shows whether its emissions reductions are on track,” she added.
Šelih flagged companies’ selling off carbon-intensive assets as a “key issue”. While at a corporate level firms might be decreasing their emissions, real economy emissions will increase as the assets continue to be run by a different party. The new indicator includes metrics to see whether any emissions reductions have been due to actions such as divestment.
The decarbonisation strategy indicator is the benchmark’s main mechanism for checking the robustness of transition plans, with this update adding new metrics to that look at whether companies that use offsets and negative emissions technologies, have robust disclosures on these. Additionally, it checks whether these firms use any abatement measures and, if applicable, test whether these are “technologically and economically feasible”.
The Net Zero Company Benchmark is divided into the disclosure framework – which looks at company disclosures and their robustness – and alignment assessments, that take a broader range of data sources and examines companies’ alignment with Paris Agreement goals.
This update has added new metrics to the alignment assessments, including for utilities, that look at whether companies are decarbonising an asset level, substituting high–carbon capacity for low–carbon capacity renewables.
Šelih said capital allocation was an area where focus companies have “historically underperformed”, which CA100+ has looked to respond to with the expansion of its capital allocation indicator.
“We know that significant capital will have to be allocated to the net zero transition and there just haven’t been enough disclosures on this in recent years,” she said. “We now have a new indicator looking at whether companies are allocating money to climate solutions, products or services that will decarbonise the economy, and that’s because any robust transition plan has to be backed by enough capital.”
A new phase for climate engagement
While the CA100+ has made “notable progress” in engagement with carbon-intensive companies on their net zero transition since its 2017 launch, there have been calls for it to be more ambitious following the recent release of its progress report.
Three-in-four of 166 focus companies targeted by investors through the initiative have now made net zero commitments, a 50% increase since March 2021 when the Net Zero Company Benchmark was launched. More than nine-in-ten (92%) of companies have some level of board oversight of their net zero commitments, while 91% have aligned their reporting with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations.
CA100+ is due to move into its next phase in May or June, with the benchmark updates part of the initiative’s drive to “enhance all of its processes”, according to Šelih. Phase 2, which will run from mid-2023 until 2030, saw responses from 172 (24%) signatories and 78% of lead investors, with its strategies looking to identify investors actions relevant to policy and real economy engagement opportunities across these sectors.
As of the end of 2022, more 700 investors had signed up to CA100+ with a collective US$68 trillion in AuM, a US$3 trillion increase from 2021.
“We committed to our signatory investors that we will continue to evolve the benchmark framework as this is a really fast-moving landscape and we always have to keep updated,” she said. “The CA100+ net zero benchmark is one of the key strategic pillars of the next phase of the initiative, so we wanted to enhance it as we move into phase two just to ensure that it continues to drive ambition and inform investor engagement with focus companies”.
The next round of company assessments against the Net Zero Company Benchmark 2.0 are due to be released in the September-October timeframe.
CA100+ has also issued a list of proxy votes it will be concentrating on in the 2023 season at focus firms. It is due to support shareholder proposals at PACCAR, Imperial Oil, Berkshire Hathaway and Valero Energy in late April and early May. The initiative has emphasised the importance of lobbying activity, including climate lobbying disclosure proposals, describing decarbonisation and lobbying activities as “intrinsically linked”.