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Research on corporate climate action an ‘urgent challenge to investors’

New asset owner-backed research on high-emitting companies’ behaviour with regard to climate change has prompted calls for investors to step up engagement with industry and focus their attention on companies’ emissions rather than their management systems and processes.

According to the research, out of a sample of 160 companies, only one in eight companies is cutting its carbon emissions at the rate required to keep global warming below 2°C above pre-industrial levels. Sixteen per cent are aligned with a 2°C benchmark.

Other findings, based on a larger sample of 274 companies, include that almost half (46%) are failing to adequately integrate climate change into their business decisions, and 25% do not report their greenhouse gas (GHG) emissions.

The research was carried out for Transition Pathway Initiative (TPI), a $14trn (€12trn) asset-owner led initiative whose stated mission is “to empower and equip investors to navigate the complexities of the transition to a low carbon economy”.

 

Adam Matthews, co-chair of TPI and director of ethics and engagement at Church of England Pensions Board, said the study showed “many more investors [need] to engage with big-emitters across all sectors of the economy to ensure companies are setting emissions targets consistent with the goals of the Paris Climate Agreement”.

adam matthews

Adam Matthews, co-chair of the Transition Pathway Initiative

“The fact only one in eight of the highest-emitting firms are responding at anywhere near the pace required is an urgent challenge to investors,” he added.

“Investors themselves need to adopt an emergency footing otherwise the window to secure the change we need will be gone.”

‘The central issue’

The study looked at the quality of companies’ management or governance in relation to climate change, such as whether they have a formal policy commitment to act on climate change or publish their emissions, as well as their “carbon performance”.

Carbon performance refers to companies’ current and expected future GHG emissions and how these compare with targets and pledges made as part of the Paris Agreement on climate change.

According to the report, one of the research’s implications for investors, in particular with respect to engagement with companies, was that although management quality was important, it was a “necessary but insufficient condition for ensuring that future carbon performance is aligned with the Paris Agreement”.

“Carbon performance is the central issue for investors concerned about climate change”

State of the Transition report, 2019

Investors should focus their attention on carbon performance, which was “the central issue for investors concerned about climate change” and “the key measure of corporate climate action”. 

The TPI’s report comes a week after the UK government revealed it expected UK listed companies and large asset owners to report on climate change risk by 2022, and that this could become mandatory.

Faith Ward, chief responsible investment officer at Brunel Pension Partnership and TPI co-chair with Matthews, said the TPI research’s finding that 25% of high-emitters did not report their emissions was “putting investors in a Catch 22”.

“The UK is one of several countries moving to make climate risk reporting by asset owners mandatory, yet without emissions data from a quarter of the high emitting companies that request will be impossible to deliver,” she said.

Ward is co-chair of the TPI on behalf of the Environment Agency Pension Fund, which is part of Brunel, one of the UK’s eight local authority pension asset pools.

The study was carried out by TPI’s academic partner, the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. 

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