Planned guidance for wider engagement themes and tweaks to the Net Zero Company Benchmark, but inconsistent voting records limiting intended impact.
Climate Action 100+ (CA100+) has made notable progress engaging with carbon-intensive companies on their net zero transition over the past five years, but following its new progress report there are calls for the investor-led engagement initiative to be more ambitious.
The progress report highlights the impact of CA100+ engagements on the decarbonisation progress of select carbon-emitting global companies over the past five years (Phase 1), as well as touching on core areas of focus for Phase 2.
Seventy-five percent of the 166 focus companies targeted by investors through the initiative have now made net zero commitments, the report said, adding that this is an increase from 50% in March 2021. When the initiative launched at the end of 2017, just five of the focus companies had set net zero commitments.
Further, 92% of companies have some level of board oversight of their net zero commitments, and 91% have aligned their reporting with the Taskforce on Climate-related Financial Disclosure (TCFD) recommendations.
“CA100+ has changed the conversation about the world’s largest corporate greenhouse gas (GHG) emitters in relation to their action on climate change and the role of investors in corporate engagement,” Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change (IIGCC) and member of the CA100+ Steering Committee, told ESG Investor.
However, Lucie Pinson, Director General and Founder of French NGO Reclaim Finance, said “the jury is still out” as to whether Phase 2 of CA100+ will deliver the level of progress needed for Paris-alignment.
“What is missing is not data but ambition and the willingness to act,” she said.
Rory Sullivan, CEO of specialist advisory firm Chronos Sustainability, which manages the data delivery for the Net Zero Company Benchmark, acknowledged that there is still a “huge amount of work required to turn these high-level commitments into meaningful targets, underpinned by strategies and robust capital investment strategies”.
“Starting from a low base, an increasing number of companies have set short-, medium- and long-term targets,” said Sullivan. “While it is early days, a few have published net zero strategies, although barely any have explained how they expect to finance these strategies.”
Commencing Phase 2
Following a consultation in 2022, the latest CA100+ report highlighted some of the initiative’s ambitions for Phase 2, which will run from mid-2023 until 2030, with further details expected later this year. The consultation saw responses from 172 (24%) signatories and 78% of lead investors.
“We recognise focus companies collectively still need to go further and faster to support global efforts to limit the temperature rise to 1.5°C, starting with credible transition plans,” said Pfeifer, noting that the main focus will be on “ensuring engagement is effective, especially in the critical decade to 2030”.
Under Phase 1, CA100+ produced Global Sector Strategy reports mapping out “key transition levers” for four carbon-intensive industries, such as steel and electric utilities. In Phase 2, the strategies will identify investors actions relevant to policy and real economy engagement opportunities across these sectors, the report said.
Over the last five years, CA100+ engaged focus companies on themes such as aligning their climate lobbying with the Paris Agreement and accounting for climate risks in corporate financial statements. Going forward, the initiative aims to launch additional thematic projects, including fixed income engagement on climate change, the use of offsetting, and engagement strategies for state-owned companies in certain markets.
CA100+ has also proposed changes to its Net Zero Company Benchmark, including revisions to its disclosure framework indicators on decarbonisation strategy, capital expenditure (capex) alignment and climate policy engagement.
“While the final details have yet to be confirmed, the broad dimensions of the new Benchmark are reasonably clear and very sensible,” said Sullivan, adding that there are two noteworthy features
“First, most of the Benchmark is relatively unchanged, reflecting the importance of maintaining a consistent message from investors to companies over an extended period of time,” he said. “Second, there will be a greater emphasis on absolute emissions reduction, as a complement to the current approach of improving emissions intensity and efficiency.”
The just transition indicator was introduced in beta form in the March 2022 Benchmark, with CA100+ members calling on companies to develop a just transition plan or policy which was then privately assessed against the beta indicator – the results of which indicating that a majority were “not sufficiently prepared to deliver a just transition”, the report said.
All focus companies will now be publicly assessed against the indicator in Autumn 2023.
The Benchmark as it stands is “already pretty strong”, said Pinson, noting that CA100+ investor members’ voting behaviours are “trampling all over the intended impact”.
“If they really want to both align their portfolios with a 1.5°C target and critically support the decarbonisation of the real economy, they must come to the negotiating table with strong demands for their investee portfolios and be ready to sanction companies that fail to actually reduce their emissions, both through voting and by suspending new bond purchases,” she said.
As of the end of 2022, over 700 investors have signed up to CA100+ and collectively manage US$68 trillion in assets, up from US$65 trillion in 2021.