Climate Action 100+ reports that, last year, there were 22 climate-related weather disasters in the U.S. that “each caused more than $1 billion in damages—far and away a record. To investors, climate change poses not only physical risks of damage to assets, supply chains and infrastructure but also transitional risk if portfolio companies do not adjust rapidly enough as the economy decarbonizes and systemic risk posed to the entire economy.” According to environmental nonprofit Ceres, as of April 21, 408 businesses and investors “with a footprint” in the U.S. have signed an open letter to the President indicating their support for the administration’s commitment to climate action and for setting a new climate target to reduce emissions. The signatories collectively represent over $4 trillion in annual revenue, over $1 trillion in assets under management and employ over 7 million U.S. workers across all 50 states. The letter states that to “restore the standing of the U.S. as a global leader, we need to address the climate crisis at the pace and scale it demands. Specifically, the U.S. must adopt an emissions reduction target that will place the country on a credible pathway to reach net-zero emissions by 2050. We, therefore, call on you to adopt the ambitious and attainable target of cutting GHG emissions by at least 50% below 2005 levels by 2030.” As reported by the NYT and others, the President announced today that the U.S. is setting a new climate target with a goal of reducing U.S. emissions by 50% to 52% below 2005 levels by 2030.  The target “calls for a steep and rapid decline of fossil fuel use in virtually every sector of the American economy and marks the start of what is sure to be a bitter partisan fight over achieving it.”

Climate Action 100+ reports that, for this proxy season through April 2, 136 climate-related shareholder proposals have been submitted, based on an analysis from Ceres. A number of the proposals ask companies to commit to reductions in greenhouse gas (GHG) emissions; in some cases that includes alignment with the Paris Agreement goal of limiting global temperature rise to 1.5 degrees Celsius. Some also seek progress toward the Net Zero indicator on the Climate Action 100+ Benchmark.  Ceres also identified 20 proposals that relate to lobbying disclosure, including 12 that request a report describing how the company’s lobbying activities (direct and through trade associations) align with the goal of limiting average global warming under the Paris Climate Agreement. In other words, are companies that publicly commit to reducing GHG emissions and taking other steps in support of the Paris Climate Agreement also privately funding trade associations and other groups that lobby politicians to support action contrary to the company’s stated goals? In addition, Ceres found that, for 54 proposals, engagements with the subject companies led to agreements and withdrawal of the proposals prior to a vote. For those that are still moving forward, while shareholder proposals are almost always precatory, “research indicates that any proposal that garners at least 30% of shareholder support tends to lead a company to take action.”

What is the Climate Action 100+ Benchmark? According to CA 100+, the Benchmark provides a mechanism for tracking climate goals by offering “comparative assessments of individual focus company performance against the initiative’s three high-level commitment goals: reducing greenhouse gas emissions, improving governance, and strengthening climate-related financial disclosures.” “Focus companies” are the 167 companies (with an aggregate $10.3 trillion in market cap) that CA 100+ considers to be “key to driving the global net-zero emissions transition” because they account for over 80% of corporate industrial greenhouse gas emissions. While the Benchmark shows that “companies are increasingly making ambitious climate commitments,” it also shows that they “now need to deliver” on those commitments:  

“While there is growing global momentum around companies making ambitious climate commitments, the Benchmark assessments show that companies still have a long way to go in delivering on these  promises. No focus company assessed performed at a high-level across all of the nine key indicators and metrics that were used to evaluate each company. Further, the assessments show that no company has fully disclosed how it will achieve its goals to become a net zero enterprise by 2050 or sooner. This includes establishing short and medium-related targets to deliver ambitious emissions reductions within the next decade.”

The Benchmark assessed 159 focus companies (excluding eight companies that were only recently added to the list) across nine key indicators, based on their public disclosures. The indicators included ambition to achieve net-zero greenhouse gas (GHG) emissions by 2050; long-term (2036-2050), medium-term (2026-2035) and short-term (up to 2025) GHG reduction targets; decarbonization strategy; capital allocation alignment; climate policy engagement; climate governance; and TCFD recommendations (see this PubCo post). To understand decarbonization investments, the Benchmark also looked at companies’ capex and technology mix.

The Benchmark provided the following key takeaways from its most recent assessment of focus companies:

  • “Alignment of value chain GHG (Scope 3) emissions often remain a blind spot.  Overall, 83 of the focus companies (52 % of the total) assessed have announced an ambition to achieve net-zero by 2050 or sooner. However, roughly half of these commitments (44) do not cover the full scope of the companies’ most material emissions.”
  • “Long-term ambitions need to be backed by clearer strategies and robust short- and medium-term targets.
    • There is a critically important need for corporates to establish more robust short- and medium-term targets to achieve their ambitions; 
    • While 107 companies have set medium-term targets (2026-2035), only 21 meet all assessment criteria; 75 companies have set short-term targets (up to 2025), but only eight meet all assessment criteria. 
  • “Future investments need to be more clearly aligned with the net zero transition.  Only six companies explicitly commit to aligning their future capital expenditures with their long-term emissions reduction target(s), and none of these companies has committed to aligning future capital expenditure with the goal of limiting temperature rise to 1.5 degrees Celsius.
  • “Corporate boards and executive management teams need to improve climate change governance.  139 focus companies assessed (87%) have board-level oversight of climate change, but only a third of companies tie executive remuneration directly to the company’s emission reduction targets.” 
  • “Ambitious 1.5-degree pathways are often missing from climate scenario planning.  Almost three quarters (72% of the total) of companies assessed commit to align their disclosures with the Task Force for Climate-related Financial Disclosures (TCFD) recommendations and/or support the recommendations. However, only 10% use climate-scenario planning that includes the 1.5-degrees Celsius scenario and encompasses the entire company.” 

Posted by Cydney Posner