Global listed infrastructure companies will be key to reaching the goals of the Paris Agreement, but net zero target announcements should be critically examined by investors, according to Maple-Brown Abbott.
While many companies have outlined some variation of a net zero target, there are notable inconsistencies between what is being said and what is actually being done, according to Georgia Hall, Maple-Brown Abbott Global Listed Infrastructure ESG Analyst.
"A net zero target can mean lots of things, and for us it's important for us to gauge what the target is, and whether it's inconsequential or highly ambitious," Hall said. "... The thing with net zero targets is whilst at face value, it sounds like a great thing for a company to be announcing, there are a number of factors to be taken into account - alignment. Is the ambitiousness aligned with the long-term goal? Coverage - does it cover all business operations, subsidiaries, geographies? Validity - are they valid targets, what scope do they cover- is it scopes 1, 2 and 3, and what other greenhouse gas emissions do they cover - is it just carbon emissions, or does it include methane as well?"
In examining a company's net zero commitments, Maple-Brown Abbott Global Listed Infrastructure will also assess whether a company is looking to achieve real emissions reductions versus offsets, and what s standards they are using, such as Science Based Target Initiative (SBTi).
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The results of COP26 were "a mixed bag", Hall said, but the agreements will not cause the private sector to reverse course.
"We saw measures being watered down at the last minute, but that's the problem with international treaty negotiations," Hall said. "You get the lowest common denominator among hundreds of countries. There is impetus to reach high quality net zero targets in the private sector."
Hall pointed to the UK announcing that the TCFD would be mandatory reporting for certain companies, as well as the Methane Pledge and the announcement of International Sustainability Standards Board (ISSB), which will develop the IFRS Sustainability Disclosure Standards as important outcomes.
Decarbonisation activities in listed infrastructures is part of that solution, Hall said. She noted that energy and its end uses contributes to three quarters of the world's GHG emissions, which is why Maple-Brown Abbott focuses on climate risk in engagements with energy companies.
"We've focused on the electricity and power sector and seen some great progress," Hall said. "This is why we participate in active engagement - infrastructure is really critical to decarbonisation. The world can live without tobacco companies, but we can't live without water."
Engagement rather than divestment is a key tool for infrastructure companies, said Andrew Maple-Brown, co-founder and managing director of Maple-Brown Abbott Global Listed Infrastructure.
"Our approach has been on strong engagement with the companies. We've engaged heavily over the years around corporate governance areas, and more recently on the environmental side has increasingly come up the agenda."
Maple-Brown Abbott seeks to invest in infrastructure companies that have lower GHG emissions and that are "aggressive" in their rate of change, Maple-Brown said.
"We need electricity and water, and electricity cannot be provided in a reliable and sustainable way in a totally decarbonised manner," Maple-Brown said. "That will come, at this point in time, but it's not here yet.
"We're looking for companies that are very much focused on the decarbonisation plans that are achievable, and plans that we believe are appropriate in terms of delivering for society the safe reliable delivery of energy in a clean manner as affordable as possible to consumers. They need to consider a variety of elements, not just about decarbonisation."
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