Almost half the focus companies of Climate Action 100+ – the world’s largest ever investor engagement initiative on climate change – have now established commitments to reach net-zero emissions by 2050 or sooner, its latest progress report reveals.
The Climate Action 100+ 2020 Progress Report also outlines the significant growth and evolution of Climate Action 100+. There are now 545 investor signatories, responsible for over USD52 trillion in assets under management and engaging with 167 companies through the initiative.
But despite the significant growth in signatories and net-zero commitments, the report details ongoing gaps in target coverage, with only a small proportion of net-zero goals including the companies’ most material indirect (known as Scope 3) emissions.
The report details sector-level progress for the focus companies that are engaged by investors through Climate Action 100+, which comprises of the world’s 100 largest corporate greenhouse gas emitters and over 60 more who are critical to accelerating the transition to net-zero emissions. Company-level progress against the goals of the initiative will be reported in the first quarter of 2021 under the recently announced Climate Action 100+ Net Zero Company Benchmark.
Overall, the Climate Action 100+ 2020 Progress Report finds:
- 43 per cent of the initiative’s focus companies now have goals or commitments for net-zero emissions by 2050 or sooner in some form. While 51 per cent also have short-term emissions reduction targets (to 2025) and 38 per cent have medium-term targets (2026-2035).
- Just 10 per cent of focus companies have net-zero targets that include coverage of their most material Scope 3 emissions.
- 26 per cent of electricity utility companies on the initiative’s focus list have coal phaseout plans that are consistent with the Paris Agreement goals (up from 13 per cent in 2019).
- 194 new oil and gas projects sanctioned by focus companies this year are misaligned with the Paris Agreement goals. Further, 68 per cent of planned oil and gas capital expenditure was also inconsistent with these goals.
- Automotive focus companies are still largely falling short of the investment required to switch technologies at an appropriate pace from internal combustion engines to hybrid and electric vehicles.
Writing in the 2020 Progress Report, former Governor of the Bank of England and current United Nations Special Envoy for Climate Action and Finance, Mark Carney, said: “Investors are increasingly focused on assessing how well companies are positioned for both climate change and the net–zero transition, by identifying which companies will be on the right and wrong side of climate history. Climate Action 100+ has been leading this charge, providing the momentum, stewardship and analysis to support the world’s highest-emitting companies in the strategic resets they need to make. Companies are clearly taking note.”
CalPERS Managing Investment Director, Board Governance & Sustainability and Climate Action 100+ global Steering Committee member, Anne Simpson, said: “We are in the foothills of a long climb. Tackling the world’s systemically important carbon emitters is ambitious and necessary. It requires partnership from all sides: investors, companies, policymakers, and civil society. The results from Climate Action 100+ show what can be achieved, and what still lies ahead, for us to drive the transition to net zero by 2050.”
Laetitia Tankwe, Advisor to President Jean-Pierre Costes, Groupe Caisse des Dépôts, Ircantec and Climate Action 100+ global Steering Committee Chair, said: “In the five years since the Paris Agreement was signed, we have seen an explosion of engagement on climate risk. Climate Action 100+ signatories have been in the vanguard of this effort and we are proud to see progress in even the most resistant sectors and countries. In the coming year, we will be evolving our benchmark and our efforts to better reflect the just transition element of our work, without which global progress will be impeded.”
Asia Investor Group in Climate Change (AIGCC) Executive Director and Climate Action 100+ global Steering Committee member, Rebecca Mikula-Wright, said: “This report details significant progress on climate change from a number of Asian focus companies as a result of cooperative engagement with investors, including the emergence of a raft of net-zero emissions commitments. As engagement between Asian investors and companies deepens, and regional governments announce new goals and measures to support the net-zero transition, we can only expect this trend to accelerate.”
Ceres Chief Executive Officer and President, and Climate Action 100+ global Steering Committee member, Mindy Lubber, said: “We’ve been pleased to welcome two of the largest U.S. asset managers to the Climate Action 100+ initiative this year and to see the increasing corporate momentum around net-zero ambition. If we are truly going to limit global temperature rise to no more than 1.5°C, we know the world’s largest corporate emitters have to act and transition to net-zero businesses. We look forward to the ongoing investor engagement in the year ahead to drive higher corporate ambition.”
Investor Group on Climate Change (IGCC) Chief Executive Officer and Climate Action 100+ global Steering Committee member, Emma Herd, said: “Climate Action 100+ is engaging the most emissions-intensive companies in the world. Ensuring they act on climate change is critical to achieving the Paris Agreement goals and reducing financial risks. While we have seen a welcome boost in commitments to net-zero emissions in 2020, significant further engagement is needed to ensure these goals are robust and embedded in core business decisions.”
Institutional Investors Group on Climate Change (IIGCC) Chief Executive Officer and Climate Action 100+ global Steering Committee member, Stephanie Pfeifer, said: “Investor engagement has been key to delivering the wave of net–zero commitments from companies during 2020. Firms yet to come forward with net–zero plans will come under growing pressure as investor willingness to escalate their engagement will be the new norm. Work will also continue to support those companies that substantiate net–zero goals with robust business strategies. Long-term ambition needs to be made real with clear short- and medium-term targets, and capex alignment to support delivery of those goals.”
Principles for Responsible Investment (PRI) Chief Executive Officer and Climate Action 100+ global Steering Committee Vice–Chair, Fiona Reynolds, said: “Climate Action 100+ signatories have demonstrated the power of engagement to drive company action in the face of the climate emergency. In the coming year, we expect to amplify our efforts using the Climate Action 100+ Net-Zero Company Benchmark, which will score companies on their progress and make clear who are leaders and who are laggards.”
About Climate Action 100+
Climate Action 100+ is an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. 545 investors with USD52 trillion in assets under management are engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. The companies include ‘systemically important emitters’, accounting for two-thirds of annual global industrial emissions, alongside others with significant opportunity to drive the clean energy transition.
Launched in December 2017, Climate Action 100+ is coordinated by five investor networks: Asia Investor Group on Climate Change (AIGCC); Ceres; Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI). These networks, along with five investor representatives from AustralianSuper, California Public Employees’ Retirement System (CalPERS), HSBC Global Asset Management, Ircantec and Sumitomo Mitsui Trust Asset Management, form the global Steering Committee for the initiative.
For more information, visit: ClimateAction100.org; and follow: @ActOnClimate100.
You can download the full Climate Action 100+ 2020 Progress Report here.
Let me first thank Anne Simpson for sending this report over to me as well as Marcie Frost, CalPERS CEO, who asked Anne to contact me.
Anne sent me this note as well:
Marcie just shared with me your recent piece discussing the follies of divestment. We thought you might find the progress report from Climate Action 100+ of interest as it shows the impact of engagement to address climate risk (and opportunity of course). CalPERS is the convener and co-founder of this initiative as you may know.
Thank you for always providing such thought provoking and frank commentary. We look forward to your fierce critique!
In case you have not read it, Anne was referring to my last comment on New York's pension joining the divestment crowd.
In a nutshell, I have some serious reservations on pensions divesting out of oil & gas and the whole ESG mania sweeping the investment world.
After I wrote my last comment, Clive Lipshitz sent me this updated paper from the Boston College Center for Retirement Research on ESG investing and public pensions which explicitly states that boycotting companies is unlikely to have any impact on the price of their stock and ends on this sobering note:
The evolution of social investing from economically targeted investments and state-mandated divestments, where public plans clearly sacrificed return, to shareholder engagement and ESG investing, where the goal, at least, is to maintain market or better returns, is definitely a step forward. But both data and theory show that stock selection is not the way to reduce smoking or slow the rise in the earth’s temperature. And focusing on social factors, at least for public pension plans, does not appear to be costless – plans earn less in returns and fail to capture beneficiaries’ interests. Most importantly for public plans, the people who are making the decisions are not the ones who will bear the brunt of any miscalculations.
You should all read this paper here.
Now, I want to make it clear, even though I'm not a big believer in divestment (except tobacco where engagement is truly futile), I do believe a solid ESG framework and welcome initiatives such as Climate Action 100+.
There's nothing wrong with global investors driving business transition. Climate Action 100+ is an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
I'm all for it as long as this initiative enhances the long-term sustainability of investments and is in the best interests of the members of global pension plans.
Where I have a problem is when the lines get blurred and the politics of oil & gas come into play, leading to shortsighted and frankly, terrible decisions to divest which raise the cost of the plan.
For me, ESG isn't a religion, it's not about politics, it has to first and foremost enhance the long-term sustainability of pension investments.
I'm very worried of an ESG bubble and long term investors getting caught up in the ESG mania without carefully thinking about the consequences of their actions.
In fact, an astute observer sent me this critical article by Kevin Freeman after reading my last comment. It begins like this:
The hottest area of investing today is ESG, which stands for Environmental, Social, and Governance. To some, ESG means “sustainable investing.” Over $30 trillion worldwide has been dedicated to ESG. That’s truly amazing. This trend has developed very rapidly and is the talk of Wall Street. But what does it really mean?
I will let you read the rest of this article here but let me tell you, I agree with him here:
The reality is that ESG is a buzzword with different meaning to different people and therein lies the problem. It is so wide open that people can have all sorts of agendas at work. Some investors want to “save the planet.” For others, it’s a hot new marketing gimmick to attract money. Still others want to push a certain political agenda and use your money to do it.
Stop a moment and consider that the best experts claim ESG was $30.1 trillion in 2018 and that assets were growing at an exponential rate. Current estimates suggest the total now tops $40 trillion. The goal is to use investment dollars to promote a certain outcome.With ESG, investment returns are not necessarily the main goal. And, while the specifics may be nebulous, it seems obvious that the generalities are centered around left-leaning political ideals.
And that's where I have a huge problem with ESG, when the primacy of long term returns takes a back seat to advancing some cause, no matter how noble that cause may be.
I also have a problem when politically connected people use large US public pensions to advance their political agenda.
Case in point, Tom Steyer, the billionaire founder of Farallon Capital Management, turned philanthropist/ environmentalist/ liberal activist who ran and lost against Joe Biden in the Democratic primaries.
Mr. Steyer carries a lot of political clout in California, he even made a guest appearance at a CalSTRS board meeting five years ago arguing to divest from coal and oil & gas.
See the problem? Powerful billionaires influencing the investment decisions of US public pensions to advance their political and ideological causes.
And who is brave enough to go against Steyer in California? Nobody, it's political suicide as that state is run by liberal, left-leaning environmentalists and they will crush anyone who isn't on the same page as them.
But I know people, very smart people, who would have argued very well against Tom Steyer's proposal and exposed significant weaknesses in his presentation and thinking.
Of course, these people aren't billionaires and are nowhere near as powerful as Tom Steyer, or Bill Gates or other billionaires who have a green agenda.
This is why I prefer Canada's pension governance system. Keep governments and billionaires out of our public pensions, let professional pension fund managers manage pension assets in the best interests of beneficiaries and all stakeholders.
This doesn't mean Canadian, American and global pensions cannot advance ESG goals as long as they are in the best interests of all stakeholders.
Getting back to Anne Simpson of CalPERS, I agree with her,'there's a letter missing in ESG’:
The $393bn California Public Employees’ Retirement System (Calpers) is the United States’ largest public pension fund.
It bases its risk and return valuations on the interactions between financial capital, human capital (employees and the community) and physical capital (natural resources and physical assets), says Anne Simpson, Calpers's managing investment director of board governance and sustainability. Unless all those forms of capital are well understood and incorporated into corporate reporting, not much will change, she says.
Q: Will the next US administration under president-elect Joe Biden make a difference?
A: Money talks. Politics may have the microphone right now, after the US presidential elections, but the economic logic behind sustainability is what's driving investors in this direction. Look at the S&P 500 index – 30 years ago, 85% of the balance sheet was tangible; 85% of the balance sheet now is formed by intangible assets.
What's happened in the economy is that human capital is a huge part of value creation. At the US Securities and Exchange Commission Investor Advisory Committee [from which I am now stepping down] we were able to build a framework for how companies in the US should start reporting. [This year] there was a three to two vote in support of [looking further into] the principles of reporting on human capital management. It didn’t adopt the more detailed-line items though, so view this as work in progress.
Q: How do you make environmental, social and governance (ESG) factors more urgent?
A: My conclusion, at this stage, is that there's a letter missing. We have environmental, the E; social, the S; governance, the G – but there's no F for finance.
In some markets like the US, ESG is viewed as something that nice people do. It's something for family offices, it's imbued with do-goodery. That missing F, for a pension fund, has meant that it was really quite hard to get moving on ESG. If we can add F to ESG, the knock on effect on accounting and financial markets would be transformative.
Q: An even busier sustainability alphabet? Isn’t your ultimate goal that ESG (or ESGF) becomes redundant because those factors will automatically be included in investment decisions?
A: Yes, a measure of success is that we would just talk about investment. We are fiduciaries, this is how we take care of other people's money. Anyone who is not thinking about climate change or impact on workers or worrying about health and safety, any investment strategy that doesn’t consider those factors will be flawed.
For the big asset managers in the world like Calpers, success means that those letters will not feel needed, a little flag over what we're doing; those factors will just be thoroughly well-integrated in managing risk, and also in seeking out the returns that we need to pay pensions over the long term.
Anne is right, we need to add an F to ESG and all investors need to integrate an solid, well thought out ESG framework to evaluate the long-term risks of their public and private asset holdings.
In this regard, I welcome the efforts of CalPERS and of of Climate Action 100+ and other institutionally led efforts to improve ESG reporting and accountability.
Lastly, since I am on this topic, USPRwire reports the pandemic-induced boost to climate change fight opens investment opportunity:
2021 is on track to be the biggest year yet in the global fight against climate change as the COVID-19 crisis has spurred worldwide political support for the "build back better" movement.
Massive amounts of government spending earmarked for 2021 to support both the economy and new, ambitious net-zero emissions targets have positive implications for investors say two Toronto-based investment professionals, who were recently certified as global Sustainability and Climate Risk (SCR) experts.
Catherine Ann Marshall, SCR, Principal Consultant at RealAlts, and Tania Caceres, SCR, Principal at Risk Nexus are among the first professionals globally to earn the SCR credential making them members of an elite network of sustainability thought leaders, according to the Global Association of Risk Professionals (GARP). The pair say that many government investment initiatives to push a "green recovery" will also provide attractive new investment opportunities to the private sector.
The latest action to unleash government funds is expected Friday (Dec.18, 2020) as the European Parliament votes on the 2021 portion of the multi-year 1.82 trillion European Green Deal Investment Plan. The Plan has a binding target of reducing greenhouse gas emissions by 2030 by at least 55% from the 1990 level.
This Plan follows other recent spending announcements by Canada and the UK, and expectations that president-elect Joe Biden will convene a climate summit within his first 100 days in office. All of these developments added to the momentum in 2020 to fight climate change. More than 110 countries, including major greenhouse gas emitters China, Japan and South Korea, have now committed to becoming carbon neutral by mid-century, according to the United Nations.
Last week the Canadian government unveiled its C$15 billion multi-year green recovery plan which focuses on energy retrofits for real estate, clean transportation, annual increases in the carbon tax until 2030, and support for green industry and nature-based climate solutions. This came on the heels of the announcement of a binding net zero target for Canada by 2050.
Since the summer, and as recently as this month, the UK government made a series of announcements targeting a 68% cut in carbon emissions by 2030 supported by almost 7.4 billion in green recovery initiatives, with more spending to come in future. The UK pledged in 2019 to achieve net zero emissions by 2050.
"These announcements mean governments are taking action to protect against the physical risks of climate change, but they will result in companies facing transition risks as the economy moves away from fossil fuels," said Ms. Caceres, who has 20 years of experience managing real estate investment risk across Canada and Europe. "The good news is that the transition will open up many new investment opportunities" she said.
"For instance, the UK government has announced it will partner with private infrastructure investors on green investments such as railroads," said Ms. Marshall, a real assets expert with 20 years of investment experience. "Other new investment opportunities will include clean energy production and energy retrofits for real estate. These investments have a history of producing solid income returns, and in this low yield environment, they are a welcome opportunity."
With extensive experience as institutional investment professionals in real assets, the pair are uniquely positioned to recommend how to invest sustainably in real estate and infrastructure.
In bestowing the SCR certificate to Ms. Marshall and Ms. Caceres, GARP said "the SCR distinction makes you one of the area's first subject matter experts, joining you with an elite network of thought leaders."
I congratulate Catherine Ann Marshall and Tania Caceres for obtaining the SCR credential and would urge my institutional readers to reach out to them for further insights.
Below, Anne Simpson, managing investment director for Board Governance & Sustainability at CalPERS, discusses balancing portfolios and a climate emergency.
Also, CalPERS CEO Marcie Frost recently told CNBC's Squawk Box: "We're watching for when the markets actually more align with the actual real economy but we have to think, again, very long-term, past the one year, past the three year."
I'm not sure this market will be aligned with the real economy any time soon, I see this market frenzy going on for a while, backstopped by the Fed and other central banks, but you'll have to wait for my end of week market comment on Friday to read my views.
Update: Professor Ingo Walter of NYU's Stern School of Business who co-authored an important paper with Clive Lipshitz comparing US and Canadian pensions plans (see here), sent me a recent paper he wrote, Sense and Nonsense in ESG Ratings which you can view here.
I note the following:
Within this heuristic, sensible ESG considerations can be a useful in diagnosing relevant issues, broadening the discourse, anticipating developments in the outer realms of the social control platform, and encouraging timely adjustment and engagement on the part of firms. To the extent that this increases revenues, lowers costs, and, especially, reduces idiosyncratic risk of the kind that is most difficult to calibrate, it can also enhance a firm’s value as a going concern.
On the other hand, except as a way of flagging important social costs and signaling ways of dealing with them, ESG scoring and its misuse can be a convenient shortcut for stakeholders averse to hard work and critical thinking. Its key weaknesses run from identification and causality problems, self-reporting and greenwashing, quality of the primary data collection process, indicator mismatch in the use of secondary data, factor aggregation and weighting, setting scoring breaks, and reporting formats. This is a formidable list, with key dimensions that can frustrate transparency, replicability, and therefore credibility. Given the current state of play, it follows that there are a number of issues that must be addressed to reinforce ESG assessments and make them more defensible in capital allocation and enterprise management.
Professor Walter outlines seven things that need to be done to improve ESG ratings. Please take the time to download and view this paper here (registration is free).
Also, I thank Lindsey Walton, Head of Canada's PRI for sharing this Climate Action 100+ case study featuring BCI and Teck Resources:
Cool stuff, it shows you how engagement can bring about positive change.