Are companies moving fast enough to align with Paris Agreement goals and reduce investors’ risk? | Climate Action 100+

INSIGHT by Climate Action 100+

〉Updated and more ambitious Benchmark used to assess focus companies on their net zero transition plans.

〉Assessments show incremental progress on company ambition and long-term targets not supported by sufficient progress on short term targets, decarbonisation strategy and capital allocation.

〉Benchmark assessments are a cornerstone of Climate Action 100+ and are intended to help inform investors’ engagement strategies and wider public debate.

Climate Action 100+, the world’s largest investor engagement initiative on climate change, has released the latest round of company assessments against its newly updated Net Zero Company Benchmark, drawing on distinct analytical methodologies and datasets from public and self-disclosed data from companies.

The results show that most focus companies are not moving fast enough to align with the goals of the Paris Agreement and reduce investors’ risk.

In 2023, the Disclosure Framework shows that companies have continued to perform well with respect to long-term greenhouse gas (GHG) reduction targets, medium-term GHG reduction targets and TCFD-aligned disclosure.

However, with significant progress still needed on short-term GHG reduction targets, capital expenditure (CapEx) allocation, climate policy engagement, just transition and GHG emissions reductions, the necessary details to demonstrate that companies have credible transition plans to meet their long-term targets and align with the goals of the Paris Agreement are often missing.

The Alignment Assessments further underpin this, with low evidence of companies adopting strategies in line with a 1.5°C pathway set out in the International Energy Agency’s Net Zero Emissions by 2050 Scenario (NZE).

A summary of results can be found here and the full dataset can be found here.

| Key net zero company benchmark results

Specifically, the Disclosure Framework assessments show:

• More companies are disclosing details on their net zero transition plans, but quantification of individual decarbonisation levers is lacking: 59% of focus companies assessed this year now identify actions needed to meet their GHG reduction targets, compared to 52% in October 2022. However, further progress is needed on quantifying the contribution of these actions to their GHG reduction goals, as well as on disclosures on the use of offsets and abatement technologies.
• Companies are making steady progress on long- and medium-term target setting, but most of these targets are not sufficiently comprehensive or Paris aligned. 82% of focus companies have set long-term GHG reduction targets and 87% of focus companies have now set medium-term targets. However, only 37% of these long-term and 33% of medium-term targets also cover material Scope 3 emissions. In addition, while 30% of long-term GHG reduction targets can now be considered aligned with a 1.5°C trajectory, this is true for only 13% of medium-term targets.
• New climate solutions disclosures show positive potential: Despite this being the first year climate solutions metrics have been introduced, it is positive that approximately a third (29%) of focus companies disclose how much they invested in climate solutions in the past year and 32% specify the value of CapEx they plan to allocate to climate solutions in the future. Examples of climate solutions include electric vehicles and renewable energy (wind and solar). These results come at a crucial time, following the publication of the IEA’s updated Net Zero Roadmap indicating that limiting global warming to 1.5°C remains possible due to the growth of clean energy technologies.

The Alignment Assessments, which complement the Benchmark’s Disclosure Framework by measuring implementation of Paris-aligned corporate actions, indicate that the majority of focus companies’ actions are not aligned with the Paris Agreement.

| Key results for alignment assessment indicators

• InfluenceMap’s climate policy assessments show that most companies still do not align their real-world climate policy engagement activities with Paris Agreement goals, although partial alignment is increasing: Only 4% of companies fully align their climate policy engagement with the goals of the Paris Agreement, while 66% are only partially aligned.
• For climate accounting and audit, the Carbon Tracker Initiative (CTI) analysis – which considers both alignment and disclosure – shows that although there is still no focus company that meets all criteria of this assessment, 7% of assessed companies show real progress on climate accounting and audit disclosures compared to last year.
• CTI’s capital allocation assessments found that 23% of utilities have announced or already phased out their coal assets in accordance with a 1.5°C pathway, the IEA’s NZE. An additional 29% of utilities assessed have announced full retirement of their coal fleet, but too late to align with a 1.5°C pathway.
• CTI’s assessments show that the CapEx plans of oil and gas companies across the board are not aligned with the Paris Agreement goals. In particular, the results from CTI’s Indicator 2 for upstream oil and gas show that, across the industry, future capital is not aligned with an IEA Net Zero Emissions by 2050 (NZE or 1.5°C) pathway.
• The Rocky Mountain Institute sector-specific capital allocation assessments show that encouraging steps are being taken by the automotive sector, especially by those with a 5-year plan to rapidly increase electric vehicle production. However, cement and airline focus companies need to make rapid progress on decreasing their emissions intensity in line with a Paris Agreement trajectory.

| Revised strategy for phase two

The latest Benchmark results demonstrate the importance of the recently updated strategy – developed in consultation with signatories – for Climate Action 100+’s second phase to inspire companies to move from words to action. In addition to evolving the Benchmark to meet the accelerating urgency of climate change, the initiative has evolved its core goals, improved and expanded the ways investors can participate, and enhanced the investor engagement model.

A summary of key enhancements to the initiative for Phase 2 can be found here.

| about

Climate Action 100+ is the world’s largest investor engagement initiative on climate change. It involves over 700 investors, responsible for over $68 trillion in assets under management. Investors are focused on ensuring 170 of the world’s biggest corporate greenhouse gas (GHG) emitters take the necessary actions to align their business strategies with the goals of the Paris Agreement. This includes improving corporate governance of climate change, reducing GHG emissions, and strengthening climate-related financial disclosures.

The 170 focus companies include the initial 100 ‘systemically important emitters’, identified with the highest combined direct and indirect GHG emissions, and additional companies selected by investors as critical to accelerating the net zero transition.

Launched in 2017, Climate Action 100+ is coordinated by five investor networks: Asia Investor Group on Climate Change (AIGCC); Ceres (Ceres); Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI). These organisations, along with investor representatives from AustralianSuper, California Public Employees’ Retirement System (CalPERS), GAM Investments, Generali Insurance Asset Management (Generali Group) and Sumitomo Mitsui Trust Asset Management form the global Steering Committee for the initiative.

| All opinions expressed are those of the author and/or quoted sources. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.