Climate Action 100+ investor group pledges to step up its engagement activity during this year’s proxy season in a bid to encourage firms to beef up their currently inadequate climate strategies

Net zero goals are increasingly common at large, carbon-intensive companies, but these same corporates have largely failed to follow up their long-term climate targets with measures that can drive near-term decarbonisation.

That is according to the second edition of the ‘Net Zero Company Benchmark’ published yesterday by the Climate Action 100+ investor group, which provides an assessment of the climate plans of more than 166 of the world’s biggest corporate greenhouse gas emitters.

The exercise found that 69 per cent of the group’s ‘focus companies’ have now committed to achieve net zero emissions by 2050 across all, or some, of their emissions footprint.

Despite seeing a 17 per cent increase on net zero commitments recorded in 2020, Climate Action 100+ branded the results of this year’s survey as “alarming” and “disappointing”, noting that almost a third of companies still lack a net zero goal while many of those that do are largely failing to translate headline commitments into near-term climate action, for instance by aligning their capital expenditure with Paris Agreement goals or setting interim emissions reduction targets.

The investor group, which now represents more than 700 signatories responsible for $68tr in assets under management, has warned carbon intensive companies they could face a raft of shareholder resolutions at the upcoming proxy season if they fail to bolster their climate strategies. 

The findings show that just five per cent of the firms analysed have committed to explicitly align their capital expenditure plans with their long-term greenhouse gas emission reduction targets, and just 17 per cent have established medium-term targets aligned with the International Energy Agency’s (IEA’s) 1.5C scenario.

Meanwhile, just 17 per cent of firms were found to have robust, quantified decarbonisation strategies in place to reduce their greenhouse gas emissions. Not a single company was found to have integrated climate risk into its accounting and audit practices by drawing up financial statements with assumptions consistent with achieving net zero emissions by 2050.

The findings also reveal that the majority of companies reporting on their indirect Scope 3 emissions remains limited, with just 42 per cent of companies surveyed including all material greenhouse gas emissions in their carbon accounting.

In addition, the vast majority of companies studied were accused of failing to align their lobbying activity with climate goals, with just nine per cent of firms found to have aligned their direct climate policy engagement activities with the Paris Agreement. That number shrinks to just two per cent once indirect lobbying from trade groups is taken into account, according to the report.

Stephanie Maier, global head of sustainable and impact investment at GAM Investments and current chair of the global Climate Action 100+ steering committee, said the findings showed that carbon intensive companies were not making the progress required to cap global temperature increases at 1.5C.

“Given that these companies represent the world’s largest corporate greenhouse gas emitters, their ambition and pace of change is critical to a successful transition and needs to accelerate,” she said. “The latest IPCC report starkly outlined the social and economic imperative for this. As a consequence, we should expect a ratcheting of investor-led shareholder resolutions as well as increased scrutiny on transition plans brought to the vote, starting with the imminent AGM season.”

Climate Action 100+ said it would be flagging upcoming Paris Agreement-aligned climate shareholder resolutions at carbon intensive firms to the investors in its membership base over the coming months in a bid to ratchet up pressure on firms to strengthen their climate strategies. And it confirmed that it intends to publish a third edition of the Benchmark assessments later this year, so as to ensure progress – or the lack of it – is highlighted at regular intervals.

The investor group said it had made its methodology more demanding for this year’s exercise, assessing companies against the International Energy Agency’s (IEA’s) new net zero by 2050 scenario and adding new indicators and assessments focused on companies’ climate accounting practices and support for a ‘just transition’. It said it had decided to tweak its approach to align with the latest climate science and to spur companies to move faster in line with “evolving investor priorities”.

Stephanie Pfeifer, CEO at the Institutional Investors Group on Climate Change (IIGCC) CEO and vice-chair of the Climate Action 100+ steering committee, urged corporates to step up their climate ambition in response to the report. “While there has been a level of progress by focus companies towards net zero by 2050 with the majority setting long-term targets, many remain far from where they need to be if they are to help limit a global temperature rise to 1.5C,” she said. “Investors are calling on focus companies to credibly set out details of their net zero transition plans and will step up their engagements to ensure companies move from target setting to delivery.”

Elswehere, the Benchmark notes that less than one third of companies in the electric utility sector have a coal phaseout plan consistent with limiting global warming to less than 2C, and more than two thirds of oil and gas companies are still moving ahead with new exploration projects, despite the IEA warning that all exploration must cease if there is to be any change of delivering on the Paris Agreement’s 1.5C temperature goal.

In more positive news, however, the findings reveal that 90 per cent of companies studied now have some level of board oversight of their climate strategies in place, and 89 per cent are adhering to Taskforce for Climate-related Financial Disclosure recommendations in some form.

Climate Action 100+’s report was published on the same day as an annual audit of the banking sector’s financing of fossil fuels has revealed the world’s 60 largest fossil bans poured $742bn into coal, oil, and gas projects last year.

The latest Banking on Chaos report notes that that fossil fuel projects and companies have snagged some $4.6tr of financing from the world’s leading commercial and investment banks in the six years since countries recognised the need to deliver net zero emissions so as to cap global temperature increases at well below 2C through the landmark Paris Agreement.

American banks are singled out in the report as the most prolific fossil fuel financiers, with the world’s top four fossil fuel funders – JPMorgan Chase, Citi, Wells Fargo, and Bank of America – all headquartered in the US. Canadian banks are also singled out as major enabler of fossil fuel expansion, with the country’s five leading banks all increasing their fossil fuel financing between 2010 and 2021.

Elsewhere, the report notes that just five banks have integrated the International Energy Agency’s warning that all new exploration for fossil fuels must stop into their exclusion policies, despite two thirds having some form of restriction on financing oil and gas projects in place.

The report, which is a collaboration between Oil Change International, the Rainforest Action Network, BankTrack, Indigenous Environmental Network, Reclaim Finance, Sierra Club, and Urgewald, paints much the same picture as the latest updated from Climate Action 100+. Awareness of the need to decarbonise is more widespread than ever and companies are ramping up investment in low carbon technologies and infrastructure, but at the same time the most carbon intensive industries are struggling to move beyond business as usual investment plans and strategies, in the process locking in a new generation of polluting assets. The global economy is heading for either more than 2C of warming, a huge wave of stranded assets, or the most rapid industrial revolution in human history.

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