Investors are continuing to show their concern over the progress that their assets – as their shares of companies’ securities - are making toward Paris Agreement goals. This year’s State of Transition Report from the Transition Pathway Initiative (TPI), a corporate climate commitments benchmark initiative led by investors, dives into industry progress toward a low-carbon economy.
The results show that corporate climate commitments are a mixed bag, mostly indicating stagnation within the 16 sectors surveyed. Some signs of hope do surface, though, including a doubling of genuine net zero targets.
Results show an overwhelming need for a wake-up call to corporations instead of congratulations. “The TPI universe has become more stagnant and where there is movement it is now about as likely to be downward as upward, in stark contrast to previous years,” policy officer and TPI researcher Valentin Jahn states in the report.
In investigating the corporate climate commitments of 401 companies within energy, industrial and materials, transport and consumer goods and services sectors, the study’s authors found indicators of progress, including a huge increase of genuine net zero targets that cover a company’s most material emissions — 14 more in 2020 for a total of 35 today. The report goes so far as to say most of these companies, representing 16 percent of global market value, have basic carbon management practices in place. Despite such progress, “most companies are still not taking a truly strategic approach to the issue,” researchers note.
The average company is somewhere between “building capacity on climate change” and “integrating climate change into operational decision-making,” the report finds, leaving only 15 percent aligned with a below 2-degree Celsius benchmark in 2050. Almost half of the companies scored by TPI don’t align with any Paris Agreement benchmark.
Despite results the authors call “sobering,” the increase in net zero targets may be a meaningful pattern. The TPI writes that this growth “suggests that we may be on the cusp of a systemic transformation in how these large greenhouse gas emitting companies view the strategic risks and opportunities presented by climate change.”
The TPI is an initiative led by asset owners that supports investor decision-making. Over 100 investors have pledged support for the TPI, representing $25 trillion combined assets under management and advice (AUM), the organization claims.
Open-source data and analysis like the TPI’s are in high-demand. Even in 2019, the Harvard Business Review found that ESG issues were top of mind across the board for investment firm executives, though finding consistent data can be challenging.
This year’s State of Transition Report points to specific recommendations for ESG-motivated investors.
First, investors will want to watch for management quality, as TPI’s data does point to a correlation between management quality and carbon performance, particularly with emissions disclosures. Study authors also observe that “the share of companies aligned with TPI’s most ambitious Below 2°C benchmark rises as the Management Quality level rises.”
Even with an increase in commitments in some areas, TPI researchers emphasize that, overall, corporations are failing to plan concrete short- to medium-term actions. To spur corporations forward, the report recommends four areas for investors to push: covering material emissions in net zero greenhouse gas commitments by 2050 or sooner; setting short-, medium- and long-term targets; publishing strategy and capital expenditure plans to demonstrate how the company will meet its goals; and releasing disclosures.
One last counsel on corporate climate commitments: “Investors should be looking for companies to align themselves with the benchmarks as soon as is practicable,” the study’s authors recommend.
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