More than 80% of companies are not on track for a 2-degree world, according to this year’s report from the asset owner-led Transition Pathway Initiative (TPI), which called on investors to hold companies to account on climate amid Coronavirus-fuelled financial pressures.
The TPI State of Transition Report 2020 found “scant evidence” of corporate climate progress over the last year, with just 43 companies (18%) of 238 energy, industrial and transport companies identified as having emissions trajectories in line with limiting climate change to 2°C – up just 2% from last year.
Counting among its members US giant pension fund CalPERS, and Sweden’s AP1 and AP4, TPI is an initiative and online tool that gauges whether the global economy is on track to fulfil the goals of the Paris Agreement. TPI said the results of its most recent research “raise a red flag for COP26”, the climate talks planned for later this year [though now in doubt due to the pandemic].
The State of Transition report assesses companies on their projected emissions intensity, carbon performance and management quality.
Its Director is Nadine Viel Lamare, the former Head of Sustainable Value Creation at Swedish buffer fund Första AP-fonden (AP1), and its two co-chairs are Adam Matthews, of the Church of England Pensions Board and Faith Ward on behalf of the Environment Agency Pension Fund (part of the Brunel Pensions Partnership).
Ward said: “The IEA [International Energy Agency] has warned that, while carbon emissions will likely decline this year, in the medium term the coronavirus outbreak could slow down the low carbon transition, as green investments are put on hold by cash-strapped governments and businesses. It is therefore of deep concern that so few companies were on the right path before the virus struck. Investors must now use their influence to ensure that climate commitments are not discarded in the face of financial pressures.”
While across all sectors, average emissions intensity is falling by 1.9% annually, the report found that preparedness for the low-carbon transition differs significantly according to sector – with airlines, and oil and gas lagging significantly behind sectors like shipping, paper and electric utilities in carbon performance.
For companies that have set emissions targets to 2025 or beyond, the study also assessed whether companies were on track to meet their emissions targets by looking at their current rates of emissions intensity reduction.
Electric utilities and paper companies with 2025 targets are reducing their emissions intensity by approximately 4% per year – a pathway that would more than deliver their 2025 targets.
Oil and gas companies with 2025 targets, on the other hand, are not currently reducing emissions intensity fast enough to meet their targets.
Professor Simon Dietz, research lead for TPI and Professor of Environmental Policy at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment, said in some cases, steel and cement companies with targets “actually saw their emissions intensity go up in recent years”.
Dietz said: “This shows that investors must not only look at what targets companies have set, but also at what those companies are doing on the ground and in the boardroom to deliver them.”
On management quality, the report found that 29% of companies had improved their governance of climate-related risks, while 9% have regressed in the past year.
It found that almost 40% of companies are unprepared for the transition in terms of governance, having rated 332 companies on a scale of Level 0 (unaware) – Level 4 (strategic assessment) and found 38% of companies, including DowDuPont and Rosneft, on Lever 2 or lower.
Meanwhile, 62% were on Levels 3 – 4, compared with 54% last year. Seven companies, including E.On, Unilever, BHP Billiton and Equinor, were found to satisfy all 19 indicators of management quality and were classed as ‘4* companies’.