Companies making net zero commitments they need to keep: investors

The world's largest greenhouse gas emitters have a long way to go on delivering on net-zero emissions promises.

Climate Action 100+ has issued its first-ever benchmark, which evaluates corporate actions and intentions on reduction of greenhouse gas emissions in line with the goal of the Paris Climate Agreement to limit global temperature rise to 1.5 degrees Celsius.

Climate Action 100+ is a collaborative investor group that engages with 159 focus companies - the largest GHG emitters in the world - on their plans to decarbonise their companies, operations and products in line with the Paris Agreement. For the benchmark Transition Pathway Initiative (TPI), assessed 159 focus companies assessed across nine key indicators.

The indicators included setting a target for net-zero greenhouse gas (GHG) emissions by 2050 (or sooner); long-term (2036-2050) GHG reduction target(s); medium-term (2026-2035) GHG reduction target(s); short-term (up to 2025) GHG reduction target(s); decarbonisation strategy; capital allocation alignment; climate policy engagement, including corporate climate lobbying; climate Governance, and meeting the Task Force for Climate-related Financial Disclosure (TCFD) recommendations

Overall, 83 of the focus companies (52 % of the total) assessed have announced an ambition to achieve net-zero by 2050 or sooner. However, roughly half of these commitments (44) do not cover the full scope of the companies' most material emissions.

No focus company assessed performed at a high-level across all of the nine key indicators and metrics that were used to evaluate each company. Further, the assessments show that no company has fully disclosed how it will achieve its goals to become a net zero enterprise by 2050 or sooner. This includes establishing short and medium-related targets to deliver ambitious emissions reductions within the next decade.

There are 14 Australian companies in the Climate Action 100+ list - Adbri, AGL Energy, BHP, Bluescope Steel, Boral, Incitec Pivot, Oil Search, Orica, Origin Energy, Qantas Airways, Santos, South34, Woodside Energy, and Woolworths Group.

There are some positive indicators for the Australian companies, said Laura Hillis, director of Climate Action 100+ at the Investor Group on Climate Change (IGCC).

"Australian companies have performed really well on producing TCFD reports - all companies are producing TCFD, which is the only jurisdiction in the world," Hillis said. "We're also seeing an uptick in climate governance, in terms of setting out the climate governance piece. In the last couple of years we have gone from virtually no companies having a net zero target, to more than half of the companies having a net zero target. In Australia, it's eight out of 14, which is a significant step."

However, where Australian companies, like their global peers, underperform is on the setting of the steps to get to mid-century decarbonisation.

"We're finding that in terms of having a clear pathway to get there, in terms of having s/t and m/t targets that really align in an ambitious way with the 2050 trajectory, there are a number of weaknesses in the targets as currently set," Hillis said. "The main weaknesses were the targets, which don't include scope 3 emission, and the targets aren't ambitious enough to be considered Paris-aligned."

Climate Action 100+ calls for companies to explicitly commit to aligning their future capital expenditures with their long-term emissions reduction target(s), with none of the companies has committed to aligning future capital expenditure with the goal of limiting temperature rise to 1.5 degrees Celsius as of the report.

The investor group also calls on corporate boards and executive management teams to improve climate change governance. The report notes that 139 focus companies assessed (87%) have board-level oversight of climate change, but only a third of companies tie executive remuneration directly to the company's emission reduction targets.

The results of the benchmarking report can be used as a tool for further engagement going forward, noted Stuart Palmer, head of ethics research at Australian Ethical. Australian Ethical is a member of Climate Action 100+ and acts as a supporting investor on several of the engagement teams.

"The first step is to take these results and comparisons between peers locally and globally as well and then throw them into the mix of the discussions with companies," Stuart said. "Obviously, what the results are saying to us is that there's action being taken on different fronts, but further action is needed."

Palmer highlighted the need for more ambitious targets, particularly relating to scope three, and noted that the benchmark can be a pish for further action when companies are compared to their peers on a like-for-like basis.

"It provides an evidence base for both private and public discussion," Palmer said. It is a comprehensive piece of credible research and rather than having to decipher PR speak in sustainability reports and so on, you've got a more objective analysis for looking at things like the comprehensiveness of targets and so on."

Read more: Climate Action 100+TCFDAustralian EthicalAdbriAGL EnergyBHPBluescope SteelBoralIncitec PivotInvestor Group on Climate ChangeLaura HillisOil SearchOricaOrigin EnergyParis Climate AgreementQantas AirwaysSantosStuart PalmerTask Force for Climate-related Financial DisclosureTransition Pathway InitiativeWoodside EnergyWoolworths Group