The ESG Interview: Raising Ambition in the USA

Stephen Clarke, Senior Director at Ceres, urges major corporates in high-emitting sectors to lead by example by setting interim targets and detailed transition plans.

The statistics on company engagement with climate risk do not look good. Most of the world’s largest enterprises are failing to report on climate-related risks in their company accounts, research from Carbon Tracker has found. While just one US energy company has an approved science-based target for carbon emission reduction.

Many corporates’ persistent refusal to engage on any meaningful level is part of the reason why Ceres, a US-based not-for-profit organisation focused on making the business case for sustainability, has launched its Ambition 2030 initiative. The intention is to accelerate the decarbonisation of six of the highest-emitting sectors: food; electric power; banking; transportation; oil & gas; and steel.

Given that Carbon Tracker’s research names global heavyweights such as Chevron, Exxon Mobil, BMW, and Air France-KLM among the 70% of companies not fully accounting for climate-related risks in financial statements, Ceres has its work cut out.

Stephen Clarke, Senior Director for Climate and Energy at Ceres, says: “While a significant number of companies have made net zero commitments, half of the major publicly traded companies in the US have either no goals whatsoever or weak goals.”

Earlier this week, the Science Based Targets initiative revealed that four-fifths of companies in G20 countries have not aligned their climate change strategies with the goals of the Paris Agreement using climate science. Further, of the 843 US-headquartered firms to have disclosed climate targets to climate reporting platform CDP, only 19% were verified as science based, putting US firms behind British, French and German peers.

Clarke adds: “We need to get past that goal-setting phase and into one where they are producing very detailed transition plans. We want to see them lay out on quarter-by-quarter basis how they are reducing emissions right now.”

‘Clear-eyed’ transition plans

Ceres’ Ambition 2030 initiative – which is aligned with Climate Action 100+ – calls on companies to write ‘clear-eyed’ transition plans in line with the Ceres Roadmap 2030.

The Ceres’ view is that when the top players in a sector make strong climate commitments with “time-bound, science-based, short- and medium-term targets”, peer companies are “pulled along through a competitive cascade powered by investor, employee and consumer expectations”.

And there is plenty of reasons for these stakeholders to pull in the same direction.

Focusing on just one of the six sectors targeted by its Ambition 2030 initiative, Ceres says more than a trillion dollars of business-as-usual investment is at risk in the oil sector alone, including US$480 billion in shale/tight oil projects and US$240 billion in deep water projects. ConocoPhillips is the oil major that is most exposed, with 88% of its business-as-usual project portfolio likely to be uncompetitive, followed by ExxonMobil 80%; Chevron 60%; Shell 53%; BP 40%; Total 39%.

These risks – to companies, their shareholders and their employees – are driving the case not just for targets, but near-terms targets. And action.

“A lot of companies aren’t doing enough in the short term to reduce emissions immediately such as using renewable electricity, maximising energy efficiency and moving to electric vehicles (EVs). These are all low-hanging fruit that we should be doing now.”

Stewardship in action

Fortunately for the likely success of Ceres’ Ambition 2030 project, there is plenty to indicate that shareholders are taking climate change more seriously.

Research from shareholder activist organisation As You Sow reveals there were five majority votes on ESG issues at major US companies in the 2021 proxy season, including a 98% vote at General Electric on climate change that paved the way for an agreement by the company to disclose Scope 3 emissions and reduce them 5% per year over the next decade.

Clarke says: “We think a lot of positive activity has been encouraged by investors. Some of the leading companies are doing better job of disclosure and aligning capex investment in decarbonising thanks to investor intervention, but there is still room for significant progress to be made, especially on Scope 3 emissions.”

The challenges for Ceres’ in achieving its ambition also extend to managing companies’ membership of lobbying organisations whose objectives are misaligned with their promises to manage climate change risk.

For example, energy infrastructure company Sempra’s subsidiary Southern California Gas Company (SoCalGas) is currently under investigation by the California Public Utilities Commission’s (CPUC) Public Advocates Office (PAO) regarding the use of ratepayer funds and lobbying groups to promote gas.

Clarke says: “We have canvassed the largest publicly traded companies in the US to evaluate the way in which their climate policies are aligned with their membership of certain trade groups. We want to help companies and investors better understand how sometimes the impact of that misalignment on their hopes to achieve net zero.”

Anti-climate lobbying by trade bodies is a source of growing concern among investors globally. Clarke says Ceres has been moving forward “aggressively” on the issue, but admits there is “still a lot of work to be done”.

Allied forces

Joined-up thinking – and indeed action – is also a major part of Ceres’ work to encourage the decarbonisation of the heaviest emitters. The organisation wants to see more cross-industry collaboration and Clarke highlights the organisation’s corporate electric vehicle alliance.

The alliance wants to demonstrate high levels of demand for light-, medium- and heavy-duty EVs which will in turn force manufacturers to produce more affordable, easily available models.

“Best Buy, National Grid and some of world’s largest companies across different sectors have come together and sent demand signals to original equipment manufacturers that they want EVs. We are also engaged in policy advocacy as well, weighing in on the CAFE [corporate average fuel economy] standards and EV infrastructure and the federal infrastructure bill,” Clarke says.

Ceres also has its sights set on COP26 this November. Clarke recognises that the revised nationally determined contributions (NDCs) submitted by governments and the net zero commitments declared by corporates are a positive step, but insufficiently ambitious in most cases.

“We are on track to blast through the 1.5 degrees limit in less than 20 years which is terrifying. If we don’t cut global emissions by 45% in the next eight and a half years, we are going to approach point of no return fast,” he says.

“I’d like COP26 to build on the momentum we have seen already in 2021. We have seen investors engage with COP26 and they are using their clout to encourage national leaders to make sure NDCs are aligned and are robust and aggressive and aligned with the UN Intergovernmental Panel on Climate Change report.”

Clarke is clear that while much rests on the success of COP26, it will take a concerted effort by all stakeholders if we are to avoid reaching the “point of no return”.

As the Ceres ambition 2030 states: “If we want to avert the most catastrophic impacts of the climate crisis, we will need bold, broad, and immediate action. We must act now, and we will need everyone to do their part — countries, policymakers and regulators, each investor, every company.”


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