Investors covering $47trn ask world’s highest-emitting corporates to prove net-zero alignment

An initiative involving 500+ investors representing $47trn in assets has asked 161 of the world’s largest corporate emitters, including fossil fuel and mining giants, requesting that they commit to net-zero targets and prove they are changing their business models and processes accordingly.

In a letter sent to the corporates today (14 September), investor group Climate Action 100+ has revealed its intention to create a benchmark tracking corporate alignment with the transition to net-zero by 2050. The benchmark will assess progress and commitments across more than 30 indicators, including internal and external engagement, action on Scope 3 (indirect) emissions, and whether the businesses have interim targets and credible roadmaps.

Ahead of the publication of the benchmark next year, Climate Action 100+ is urging heavy emitters to increase their ambitions and actions around decarbonisation; to become more transparent with their sustainability reporting and climate disclosure; and to draw up ‘just’ transition plans, ensuring that their decarbonisation approaches do not bear disproportionate or unintended negative social consequences.

“Particularly unresponsive or poorly performing companies” will be flagged to investors through the benchmark. They may then choose to use this information to inform votes against the companies at shareholder meetings, or as a basis for divesting.

Companies to have received the letter were already identified at ‘focus’ firms by Climate Action 100+ and its advisory partners, due to their emissions footprints and their potential for abatement. The cohort (detailed in full here) includes the likes of ArcelorMittal, Chevron and Dow and covers 80% of industrial greenhouse gas emissions generated globally each year.

Climate Action 100+ said in a statement that many of the cohort have already “significant progress” in beefing up their climate plans. In particular, it has tracked an uptick in board-level governance, the tracking of supply chain emissions and reporting in line with the Task Force for Climate-related Disclosures’ (TCFD) recommendations. However, it warned that these actions will not be sufficient to align the private sector with the Paris Agreement’s more ambitious 1.5C trajectory, which, according to the IPCC, would require global carbon emissions to hit net-zero by 2050 at the absolute latest.

“Companies across all sectors need to take more ambitious action to ensure the otherwise devastating impacts of climate change are avoided while they still can be,” Climate Action 100+ steering committee member Stephanie Pfeifer – also chief executive of the Institutional Investors Group on Climate Change (IIGCC) –  said.

“Supported by investor engagement, we’re seeing encouraging commitments and ‘net-zero leaders’ beginning to emerge, but a broader step change is urgently required if global warming is to be limited to 1.5°C. The benchmark will ensure it is clear which companies are acting on climate change as a business-critical issue and embracing a net-zero future. Investors will be paying particular attention to those shown to be falling short.”

Investor focus

Back in August, the IIGCC kick-started trials of what has been described as the world’s first blueprint for aligning investment portfolios with the Paris Agreement on climate.

Brunel, APG, Scottish Widows, the Church of England Pensions Board and Standard Life will collectively apply the blueprint to assets valued at $1.3trn (£1trn) by the end of 2020.

Investor demands surrounding ESG issues are broadly believed to have been amplified by the impacts of Covid-19. You can read edie’s writeup of the recent Sustainable Investment Digital Conference to find out how and why, and what businesses and investors alike can expect from the debate in the coming months. edie is also hosting an exclusive guest blog from former IIRC CEO Richard Howitt, who discusses how ESG definitions and approaches are evolving as a result of the pandemic.

Sarah George