While 69% of focus companies have set commitments to achieve net zero emissions by 2050 or sooner, overall Benchmark finds companies have failed to show progress across key indicators, including disclosure of 1.5°C-aligned medium-term emissions targets and capex strategies.
– Benchmark sets urgent engagement priorities for USD 68 trillion investor-led initiative ahead of U.S. and European proxy season and as it marks the final year of its first phase.
– Investor signatories will give focus companies another chance to step up action in 2022, with another round of assessments planned for later in the year.

New assessments released today by Climate Action 100+, the world’s largest investor engagement initiative on climate change, show some corporate climate progress against key climate indicators, but find much more action is urgently needed from focus companies to support global efforts to limit temperature rise to 1.5°C.

This is the second round of Net Zero Company Benchmark assessments to be released by Climate Action 100+ since March 2021. 166 companies on the initiative’s focus list were measured on their progress against the initiative’s three engagement goals and a set of key indicators related to business alignment with the goals of the Paris Agreement.

To reflect the pace of change required to limit global warming to 1.5°C and to ensure it is aligned with the most recent science-based policy, Climate Action 100+ updated the Benchmark methodology in 2022, assessing companies against the International Energy Agency (IEA)’s more challenging Net Zero by 2050 scenario for available sectors. It also added new indicators and assessments focused on the just transition and climate accounting and audit to drive greater company ambition and reflect evolving investor priorities.

The assessments indicate overall year-on-year improvements on cutting greenhouse gas emissions, improving climate governance, and strengthening climate-related financial disclosures. Driven by engagement from Climate Action 100+ investor signatories, the results specifically show that:

  • 69% of focus companies have now committed to achieve net zero emissions by 2050 or sooner across all or some of their emissions footprint, a 17% year-on-year increase
  • 90% of focus companies have some level of board oversight of climate change
  • 89% of focus companies have committed to align their public disclosures with TCFD recommendations or are listed as a supporter on the TCFD website.

However, it is alarming that the vast majority of companies have not set medium-term emissions reduction targets aligned with 1.5°C or fully aligned their future capital expenditures with the goals of the Paris Agreement, despite the increase in net zero commitments.

Specifically, the assessments reveal:

  • An absence of medium-term emissions reductions targets aligned with 1.5°C: Only 17% of focus companies have set medium-term targets which are aligned with the IEA’s 1.5°C scenario and cover all material emissions.
  • Continued absence of Scope 3 emissions: Just 42% of focus companies have comprehensive net zero by 2050 or sooner commitments that cover all material GHG emissions, including material Scope 3 emissions.
  • Alignment of capex strategies with net zero transition goals remains almost non-existent: Only 5% of focus companies explicitly commit to align their capex plans with their long-term GHG reduction targets.
  • Companies are setting emissions reduction targets but don’t have the strategies to deliver them: Only 17% of focus companies have robust quantified decarbonisation strategies in place to reduce their GHG emissions.
  • A failure to integrate climate risk into accounting and audit practices. No company has demonstrated that its financial statements are drawn up using assumptions consistent with net zero by 2050, as per a new indicator on climate accounting and audit assessed by CTI and CAP. This Benchmark indicator has been introduced into Climate Action 100+ for the first time this year.

These results are disappointing as they are focused on areas which demonstrate tangible translation of commitments into action, indicating what companies are going to do over the short term to achieve their longer-term goals. They also come amongst broader evidence that the world is failing to step up to the meet the challenges of the growing climate crisis.

In a newly released report, the Intergovernmental Panel on Climate Change warned that the window of opportunity to take any meaningful climate action is rapidly closing and worldwide emissions must fall by 45% by 2030 to have any chance at keeping global temperature rise under 1.5°C.

Climate Action 100+, which now includes 700 signatories responsible for USD 68 trillion in assets under management, is calling on all focus companies to step up climate ambition before a third round of Benchmark assessments is released later this year.

Following last year’s record high majority votes on climate proposals in the United States and Europe, the next several months in the lead up to the upcoming proxy season will be a critical time for investors to support key climate shareholder resolutions that are aligned with the goals of the initiative and the Paris Agreement, as flagged by the initiative. These developments have spurred investors in Asia looking to further strengthen their own engagements and voting strategies to demonstrate to company boards their expectations for further progress and commitment.

The Benchmark is clearly driving an increase in corporate disclosures from focus companies. TPI, which assessed companies against the Disclosure Framework, received a record number of responses from companies during the review period in December 2021, signalling clear interest from companies to engage with the Benchmark. It also provided focus companies with a standardised way of reporting on corporate climate ambition, with the framework being increasingly used to frame net zero transition planning in company annual reports.

Sector and issue specific analyses from the Alignment Assessments, which complement the Disclosure Framework, finds that:

  • Less than one third of electric utility focus companies have a coal phaseout plan consistent with limiting global warming to less than 2°C, according to data from Carbon Tracker Initiative (CTI). This is concerning as the IEA’s Net Zero by 2050 roadmap, published in May 2021, says that in order to keep 1.5°C alive, coal-fired power must be phased out in advanced economies by 2030, and globally by 2040.
  • CTI also finds that almost two thirds of oil and gas focus companies are still sanctioning projects inconsistent with limiting global warming to less than 2°C. The IEA’s Net Zero by 2050 roadmap made it clear that there can be no new oil and gas exploration and production if we are going to keep 1.5°C within reach.
  • There is a considerable gap between what companies are saying publicly on climate lobbying and doing in practice. 54% of focus companies have mixed direct engagement with Paris-aligned climate policy, according to InfluenceMap data. However, only 9% have broad alignment between their direct climate policy engagement activities and the Paris Agreement. Also concerning is that only 2% of focus companies are aligned with the Paris Agreement in their indirect climate policy engagement activities via their industry associations.
  • Almost no steel, cement, or aviation focus companies’ emissions intensities are aligned with limiting global warming to less than 2°C, 2° Investing Initiative (2DII) finds. Most utility companies are not adding renewables and other low-carbon technologies fast enough to limit global warming to 1.5°C. Similarly, most auto companies are not phasing out internal combustion engine vehicles and adding enough electric vehicles and hybrid vehicles fast enough to limit global warming to 1.5°C.

Rebecca Mikula-Wright, CEO of AIGCC and a member of the global Steering Committee: “Companies across Australia and Asia must respond to the very clear call from investors to accelerate their decarbonisation plans. The Climate Action 100+ Benchmark is a necessary and valuable tool for companies to understand investor expectations. It guides transparency around credible net zero emissions strategies. As part-owners, investors have a common goal to achieve short, medium and long term sustainable returns but they also need to see companies both managing and adapting to the increasing climate risks and also being successful in the transition by seizing opportunities. Net zero goals are the minimum expectation, and now investors need to see companies making faster progress executing their decarbonisation plans.”

Seiji Kawazoe, Senior Stewardship Officer at Sumitomo Mitsui Trust Asset Management and a member of the global Steering Committee: “Asian companies have made encouraging progress on climate, but investors will expect many to publish clear and robust plans to reach net zero and assess their progress against their peers through the Climate Action 100+ Net Zero Company Benchmark. Company commitments will be expected to be more ambitious than the Nationally Determined Contributions in their markets where they are based and where proven effective the deployment of decarbonisation technologies to achieve climate goals. Investors will expect detailed climate transition plans from companies and evidence they are matching their peers – not just in their home markets, but also in their sectors globally.

“The Benchmark provides investors with a clear view of where companies are positioned amongst their peers. By complementing these results with progress in private engagement with the companies, investors gain value intelligence to prioritise their engagement and voting strategies.”

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