Short-term Emissions Reduction Targets “Crucial”
Investors seek enhanced capital allocation disclosure after CA100+’s latest benchmark highlights a decrease in short-term target-setting.
High-emitting companies have been urged to set ambitious short-term decarbonisation targets which support their long-term net zero goals, following a dip in the number doing so.
The latest round of company assessments against investor-led engagement initiative Climate Action 100+’s (CA100+) Net Zero Company Benchmark noted that fewer short-term decarbonisation targets were set compared to the previous year.
Seven companies’ short-term targets have expired and have not been renewed, whereas four companies removed their short-term targets altogether. None of the 168 companies tracked by CA100+ have rescinded their overall net zero ambition, with 84% and 85% of all focus companies having set long- and medium-term emissions reduction targets respectively.
“This [decrease in or removal of short-term targets] could be due to recent changes in economic and geopolitical scenarios, which pushed companies to revisit their short-term actions,” said Valeria Piani, Head of Stewardship at long-term savings and retirement business Phoenix Group, and also a member of CA100+’s global steering committee.
“Other companies are re-assessing the quality and ambitions of their targets to ensure they stay achievable,” she said.
Regardless of the root cause, Piani stressed that investors are looking for companies to set short-term goals which allow them to thrive in a low-carbon economy in both the near- and long-term.
“If companies decide to change or re-set their targets, we will expect them to provide sufficient information for investors to understand how these would remain relevant to meet any net zero ambition,” she warned.
“For example, we are currently leading a conversation with a CA100+ European utility company that is on track to meet its current short-term targets ahead of schedule and is now going through the SBTi [Science Based Targets Initiative] verification process for [these] targets.”
Through engagement, Phoenix is asking the firm to define ambitious short-to-mid-term goals and deliver a credible implementation strategy, Piani added.
Agathe Masson, Sustainable Investment Campaigner at NGO Reclaim, said investors “should be worried” by the decline in short-term targets set by CA100+ focus companies.
“The absence of short-term targets means that more greenhouse gas will be emitted in the coming years, leading inevitably to worsened climate change,” she said.
“Investors should make it clear for companies that immediate climate action is needed.”
The Net Zero Company Benchmark assesses the climate-related performance of carbon-intensive companies across multiple sectors, based on themes including governance, target-setting, disclosures and Paris-alignment.
It has been published against a backdrop of pressure from the ongoing anti-ESG backlash, as well as some large US-based members choosing to drop out of the voluntary programme.
Limited progress
Despite concerns regarding short-term ambition, 80% of the 168 focus companies assessed against the benchmark have set net zero by 2050 emissions targets for Scope 1 and 2.
“We are pleased to see companies continuing to commit to long-term and net zero targets, and disclosure on climate risks and opportunities is clearly increasing,” said Piani.
Over 90% of companies assessed have disclosed evidence of board-level oversight of the management of climate-related risks, while 88% are publicly committed to implement the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) or the International Sustainability Standards Board (ISSB).
CA100+ also analysed the emissions performance of focus companies for the first time, noting that 65% have reduced their emissions intensity in the past year.
However, capital allocation alignment assessments have continued to exhibit limited progress, the report noted.
It found that just over a quarter of electric power companies assessed are aligning their coal capacity with their interpretation of 1.5°C alignment. Further, the alignment of oil and gas companies’ capital expenditure and broader transition strategies has regressed since 2023, meaning these companies are more exposed to climate-related financial risks.
This follows a recent spate of backsliding from oil and gas majors like BP and Shell.
“Given the shift back to core business announced by many oil and gas firms recently, it is not a surprise that many companies have performed poorly in the latest benchmark, particularly in capital allocation,” said Guy Prince, Senior Analyst for Oil, Gas and Mining at think tank Carbon Tracker.
“If they continue to invest in new oil and gas developments – rather than halt these, invest in suitable alternatives and/or return cash to shareholders – the majority will be unaligned with Paris.”
Speaking earlier in the year at ESG Investor’s Stewardship Summit, Piani admitted that disclosure from oil and gas companies was insufficiently detailed for investors to determine whether their capital allocation was attuned to decarbonisation targets.
Speaking this week, she reiterated that capital allocation is the “real test” for investors to assess companies’ decarbonisation strategies.
“Investors need to see enhanced disclosure and ambitions around capital allocation decisions in coal, gas and renewable power, oil and gas upstream projects and hybrid and electric vehicle production,” Piani said.
“The world is still warming, and we need to push for accelerated action.”
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