The last few years have witnessed a step change in investor engagement with the climate agenda, fuelled by progress made at the international level through the UN Paris Agreement.
But how do we assess companies’ progress on the transition to a low-carbon economy? And how do we assess the effectiveness of investor engagement on climate change, including collaborative initiatives like Climate Action 100+?
These are not just questions for internal tracking purposes, or for external reporting. Companies and investors routinely point to changes in corporate management practices as evidence that they have been effective. Much less attention has been paid, however, to whether these efforts have led to reductions in carbon emissions, or to companies, and their investors, becoming better prepared for the low-carbon transition.
Tesla has the lowest possible fleet emissions, but it is on Level 0 on management quality due to a complete absence of suitable disclosures.
It is here that the Transition Pathway Initiative (TPI) is so important. TPI is an asset owner-led initiative, supported by investors with over £5/$6.9 trillion of assets under management. TPI is a collaboration between these investors, the Principles for Responsible Investment, the London School of Economics and FTSE Russell. It provides a free open online tool, which assesses companies on their corporate carbon management (‘management quality’), and by making a forward-looking assessment of companies’ CO2 emissions and how they align with international targets (‘carbon performance’).
Since January 2017, TPI has assessed 138 companies across 7 sectors with high CO2 emissions, accounting for up to a quarter of emissions from all listed companies globally. This week TPI releases its assessments of 20 of the world’s largest automobile manufacturers, and 19 of the world’s largest paper companies.Automobile manufacturers are the joint-top performer on management quality of the 7 sectors assessed by TPI to date, alongside electricity utilities. Perhaps this is due to having long been a focus of attention from regulators. Nevertheless, 6 companies have still not progressed beyond Level 1, which implies they are yet to implement basic carbon management practices such as setting targets and disclosing emissions. They are Brilliance, Ferrari and Tesla (Level 0), and Geely, Subaru and Suzuki (Level 1).
We also benchmark companies’ fleet emissions performance against 2 Degrees and countries’ pledges to the Paris Agreement. Only 7 manufacturers are aligned with the benchmarks today, showing how important it is to complement an assessment of management practices with what ultimately matters: emissions. Indeed, Tesla has the lowest possible fleet emissions, but it is on Level 0 on management quality due to a complete absence of suitable disclosures.
Looking to the future, 8 out of the 11 automobile manufacturers with targets are aligned with the benchmarks in 2020: Geely; Groupe PSA; Mazda; Nissan; Renault; Suzuki; Tesla; and Toyota. The problem is that a majority of companies do not have future targets and many targets in place expire in 2020.
We find paper companies at all stages of management quality. The sector is an average performer, relative to others TPI has assessed, and has a similar profile to cement and steel, the two other carbon-intensive manufacturing sectors covered so far. The lowest-scoring companies are Lee & Man Paper Manufacturing, and Nine Dragons Paper Industries (Level 0). The highest-scoring companies are International Paper, Sappi and Stora Enso (Level 4).
On carbon performance, 7 paper producers are aligned with the benchmarks today. In 2020, only 3 are. Across the paper sector, inconsistent and incomplete reporting of emissions and production volumes is a particular challenge.
TPI’s next assessments will update and deepen analysis of the oil and gas sector and electricity utilities. All assessments can be found on the TPI website, where you can also register your organisation’s support for TPI.
To read the full reports on RI please click here
Professor Simon Dietz is the Professor of Environmental Policy at the Grantham Research Institute.
This article was sponsored by the Transition Pathways Initiative and RI editorial staff were not involved in the creation of this content