If we’re to believe top Harvard climate scientist James Anderson, we’ve got five years to save the planet.
In January, the award-winning scholar warned that “the chance there will be any permanent ice left in the Arctic after 2022 is essentially zero”. The only option left on the table, he claimed, is a World War II-style transformation of global industry.
“If we genuinely believe that investors are the collective owners of corporations, and that corporations are the biggest source of both emissions and climate solutions, then it’s time to roll up our sleeves and get organised.” – CA100+ Chair, Anne Simpson
Just weeks earlier, some of the world’s biggest climate-focused investment groups got together to launch the Climate Action 100+ initiative (CA100+), seeking to achieve just this. It too gave itself a lifespan of five years.
“We hear the line: ‘We’re all doomed. Now what?’”, says Anne Simpson, Investment Director of Sustainability at US pension fund CalPERS and Chair of the initiative. “Well, Climate Action 100+ is the ‘now what?’ part”.
“If we genuinely believe that investors are the collective owners of corporations, and that corporations are the biggest source of both emissions and climate solutions, then it’s time to roll up our sleeves and get organised.”
It’s a massive task. Thought to be the largest single-issue investor engagement programme in history, ClimateAction100+ has just shy of 300 members representing $30trn. Investors are both shareholders and bondholders – often both at the same time. The goal is three-fold: improve companies’ management of climate risk and opportunity; reduce emissions across the value chain; and strengthen climate disclosure.
Founding organisations Ceres, PRI, the Investor Group on Climate Change, the Institutional Investor Group on Climate Change and the Asia Investor Group on Climate Change led the development of the initial 100 target companies, announced late last year.
“The 100 list is very methodical and quantitative,” explains Stephanie Maier, Director of Responsible Investment at HSBC Global Asset Management and a member of the ClimateAction100+. Using a methodology based on Scope 1, 2 and 3 data from CDP, the MSCI ACWI was whittled down to the 100 largest greenhouse gas emitters.
Each of those target companies was allocated one or two ‘lead’ investors – big, seasoned players from the region, with the resources to attend the firm’s AGM in person. Other ‘supporting’ investors are assigned to the company to help coordinate research, analysis and ongoing engagement between AGMs. Ironically, despite its focus on corporate disclosure, CA100+ keeps lead and supporting investors confidential.“We’ve spent serious time developing these principles and processes,” says Simpson, pointing not only to the investor structure but to CA100+’s steering committee, the memorandum governing decision-making, its six-monthly progress reporting and the portal it will launch to enable investors to disclose and coordinate their efforts.
Despite its scale, there are still notable absences from the investor community. Heavyweights like BlackRock, State Street Global Advisors and Japan’s Government Pension Investment Fund (GPIF) – some of the biggest names in the ESG debate over recent years – are not members of CA100+.
Asked why it was not a member, BlackRock told RI it is “already a member of TCFD (which is a component of this initiative), and has engaged with more companies on climate-related financial disclosures and climate risk than the ClimateAction100+ aims to do”.
Similarly, State Street said it is “already engaging with the majority of the companies on the Climate Action 100+ list through our own stewardship programme”. “In addition to the high-emitting sectors that Climate Action 100+ covers, State Street Global Advisors believes climate change should be an engagement topic across all sectors,” a spokesperson added.
GPIF is unable to join because of legal restrictions on its engagement activities, due to its size and influence in the Japanese market.
And it’s not just the list of investors that has notable gaps.
When the ‘100’ list was launched, NGO Preventable Surprises criticised its methodology for “seriously underweight[ing] energy utility companies”, which Senior Advisor, Carolyn Hayman, described as “the low hanging fruit for reducing GHGs”.
“Just as good asset allocation needs data plus the application of investment beliefs, so a more strategic stewardship approach is needed here alongside the data”, she concluded.
And for CA100+, that was the ‘+’ part, launched in June.
“To get at companies that are central to the transition, we knew we needed a plus list too,” says Simpson. “Because there are companies that might be regionally important to the transition, or particularly vulnerable to physical climate risk – which isn’t captured by emissions data – or have real opportunities through the products they sell, but aren’t in that quantitative list of 100.”
Companies on the ‘plus’ list were selected by investors, not data. Members made nominations to be approved by the group, with special consideration given to maintaining geographical balance.
All 161 companies on the 100+ list will be reviewed annually. Those that meet the objectives of the initiative will be highlighted, says HSBC’s Maier, and “we may then extend our focus to another company”.
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So, CA100+ covers multiple asset classes, multiple regions, multiple objectives and multiple $trns. In its scale, sophistication and ambition, it represents ESG-engagement 2.0 – a slicker, more joined-up approach to stewardship.
But is it actually working?
Simpson says just the presence of the list is having an impact on the market. “Imagine, you get a letter from a lead investor explaining that you’re on this list, backed by $30trn. There is a high degree of companies saying: ‘Okay, we get it, we’re an important emitter… now how do we get off this list?’”
And according to its first six-month review, the CA100+ is already triggering concrete change. Support among its target companies for the TCFD has tripled, with 18% officially endorsing or committing to implement the Recommendations, it says. 22% of the companies have set, or committed to setting, science-based targets for emissions reductions or an “equivalent long-term target” beyond 2030.
But not everyone is convinced.
“They didn’t have an organisational line on the resolution and their engagement was limited” – One critic of CA100+
One player described CA100+’s activities as “underwhelming”, while another said the ‘plus’ list showed that members were more interested in “easy wins” from investor-nominated companies and opportunity-focused engagement than tackling systemic climate risk.
This AGM season, Shell – one of CA100+’s target companies – was subject to a resolution from the Follow This campaign, asking the oil major to set Paris-aligned targets. Many believed it was a moment for the rubber to hit to road for CA100+, but in reality the proposal garnered lower support than last year, with CA100+ members voting for and against, and abstaining.
“They didn’t have an organisational line on the resolution and their engagement was limited,” says one market observer, adding the proposal was a natural fit with CA100+’s stated objective of aligning focus companies with 2°C.
Both Simpson and Maier point out that the initiative cannot tell members how to vote.
“We didn’t take an explicit position, but a group of investors who have engaged extensively with Shell published the statement they made at the AGM setting out their views and explaining the facts around the resolution,” says Maier.The market observer says this is a sign that CA100+ is “still working out the groundwork”, and will hopefully step up next season. “But it’s a five-year initiative, so spending one year just deciding how it’s going to work is concerning. They need to starting taking meaningful action – filing resolutions, taking public positions, voting against auditors.”
And there are other concerns, too. Recently, CA100+ launched a RfP for data providers to help it develop its benchmark – the tool for assessing companies’ progress. In conclusion, it said lack of “significant budget allocated to cover the cost of providing data for the Climate Action 100+ benchmark” meant “proposals completed on a pro-bono basis or using pre-existing funding sources are strongly encouraged”.
One industry insider told RI it was “hard to believe that 265 investors with $28trn AUM expect to get data that is either paid for by taxpayers and donations, or for free”. Another said it put the big non-specialist data providers at a big advantage. A third said the lack of willingness to pay for the information “suggests that there is no one among the $28trn coalition that intends to use the results of this work – meaning it is a whole lot of make-work, with an insufficiently clear use-case”.
The PRI told RI that CA100+’s steering committee “felt there was adequate free-to-access resources available already, which could be made use of by the investment community, allowing more of the networks’ financial resources to be put to use helping coordinate engagement activities”. Additionally, it pointed out: “Some of the potential tools used to benchmark companies, such as the Transition Pathway Initiative, are already funded by investors participating in the initiative”.
“There are a number of other groups e.g. Carbon Tracker, that are funded by foundations, who want to see the funds that they provide for research used to support climate action 100+. This is about being efficient and not duplicating work that is already out there.”
The initiative is currently finalising agreements with data providers, to be named next month.
In additional, CA100+ is recruiting a co-ordinator and a series of regional positions to help “boost capacity at local level in Asia, Europe and North America”.
With a mission to push more than 100 major companies to commit to emissions reductions, TCFD-alignment and formal climate strategies by 2022, there is clearly a lot still to be done over the next four years.
“But the point of being investors is that you can live in a world of consequences,” says Simpson. “That means if this doesn’t start happening, we can vote against the boards of directors. We’re called Climate Action, not Climate Talking or Climate Pondering – and there’s a reason for that.”