Net Zero Company Benchmark: Background and Future Development
Climate Action 100+ worked with EY to develop a framework for capturing and structuring the data needed to assess company performance against the initiative’s goals and those of the Paris Agreement. This work involved 50 signatory investors, investor network experts, leading climate research and data organisations and corporate stakeholders. The resulting framework became the Climate Action 100+ Net Zero Company Benchmark.
The Climate Action 100+ Technical Advisory Group was made up of Carbon Tracker Initiative (CTI), InfluenceMap (IM), Transition Pathway Initiative (TPI) and 2° Investing Initiative (2DII) (now The Rocky Mountain Institute,RMI).This group has been central to the overall development of the Benchmark, as well as to the indicators and assessments used to evaluate company alignment with the initiative’s goals. The Benchmark was developed under the leadership and support of the Climate Action 100+ Steering Committee and the investor network staff.
Once the Benchmark was finalised, TPI was selected to conduct the company research and analysis for the Disclosure Framework. Additionally, CTI and 2DII were chosen to analyse focus company capital expenditures (CapEX) and output relative to a range of climate change scenarios. These were initially called “Capital Allocation Indicators” and were available for companies in select sectors. They are now known as “Alignment Assessments”. The 2021 assessments also included a link to Influence Map (IM)’s data on corporate climate policy engagement practices and their individual IM company profiles to provide deeper insights into focus company approaches to climate policy engagement.
The Climate Action 100+ Steering Committee and lead investors sent a letter to the CEO and lead independent director(s) of the focus companies. The letter was accompanied by a provisional copy of the Benchmark framework and other relevant contextual information. The objectives of the letter were to introduce the new standardised progress reporting framework for Climate Action 100+ and outline expectations linked to the new Benchmark. It also encouraged companies to make new commitments and provided an opportunity to participate in the development and implementation of sector-specific net zero transition action plans.
The framework for the Climate Action 100+ Net Zero Company Benchmark was publicly announced in the initiative’s 2020 Progress Report. Preliminary company assessments against the Disclosure Framework were prepared by TPI based on public data as of 30 September 2020. Companies, as well as Climate Action 100+ lead investors and individual engagers, were invited to review these assessments for accuracy of data. Companies were invited to provide factual evidence to contest any inaccuracies, as well as submit any new and valid publicly disclosed information for consideration.
Climate Action 100+ published the first Net Zero Company Benchmark company assessments, ahead of the 2021 US and Europe proxy season.
The Benchmark assessments highlighted that whilst there was growing global momentum around focus companies making ambitious climate commitments (52% had announced a net zero emissions ambition by 2050 or sooner in some form), on the whole focus companies still had a long way to go in delivering on these promises. No focus company performed at a high-level across all of the nine disclosure-based Indicators and Metrics that were used to evaluate each company.
Similarly, the Alignment Assessments provided by CTI and 2DII (now The Rocky Mountain Institute ,RMI) showed that there was still much to be desired in terms of aligning companies’ CapEX and economic outputs with the Paris Agreement goals.
Climate Action 100+ announcedthe timeline, amendments to the Benchmark framework and methodologies for the March 2022 company assessments. Among other amendments, these updates reflect evolving investor priorities around climate accounting and audit and the just transition. New Alignment Assessments were added to provide further information on company climate policy engagement approaches as well as detail on how the emissions intensities of steel, cement, and aviation companies measured up against key climate scenarios.
Climate Action 100+ opened a public feedback survey on the framework and methodologies used for the March 2022 Benchmark company assessments. The survey was open until 30 April 2022. The feedback was collated and considered for integration into the methodology used for company assessments in 2023.
Focus companies received their preliminary assessments using the Disclosure Framework on 1 December, prepared by TPI and based on public data as of mid-November 2021. Companies, as well as Climate Action 100+ lead investors and individual engagers, were invited to review these assessments for accuracy of data, provide factual evidence to contest any inaccuracies, as well as submit any new and valid publicly disclosed information for consideration by 31 December 2021.
Climate Action 100+ published the second set of Climate Action 100+ Net Zero Company Benchmark assessments, ahead of the 2022 US and Europe proxy season.
The results showed some corporate progress, but found that much more action was urgently needed from focus companies to support global efforts to limit temperature rise to 1.5°C For example, the Benchmark found that while 69% of focus companies had set commitments to achieve net zero emissions by 2050 or sooner in some form, overall companies were failing to show progress across key indicators, including disclosure of 1.5°C-aligned medium-term emissions reduction targets and detailed capex strategies.
On 12 April 2022, focus companies were invited to notify the initiative of any relevant commitments, disclosures, or feedback that was not reflected in their final March 2022 Benchmark assessments and which they believe could improve their scores in the October 2022 Benchmark. The deadline for company responses was 13 May.
Climate Action 100+ published a third set of Net Zero Company Benchmark assessments. As this was the second set of Benchmark assessments released in 2022 and the last set before the initial five-year time horizon of the initiative, these are considered “interim assessments.” The timing of their release also responded to investor feedback that publishing Benchmark data in September/October worked better for corporate reporting and engagement purposes.
To provide critical benchmarking data ahead of their annual general meetings, the initiative published updated Benchmark assessments for Australian focus companies in early September 2022.
Climate Action 100+ opened a consultation on a set of proposals to enhance the Net Zero Company Benchmark for the next phase of Climate Action 100+, due to launch in 2023. The survey is open until 11th November 2022. Signatories, focus companies, and other stakeholders are encouraged to take this opportunity to share their perspectives on the future of the Net Zero Company Benchmark via this survey.
The Benchmark will continue to evolve based on investor priorities and the latest available information and methodologies for assessing companies’ climate transition preparedness and alignment with the goals of the Paris Agreement.
Over time, future developments of the Benchmark will likely incorporate a range of other potential enhancements on areas such as offsets, absolute emissions, climate policy engagement, just transition, green revenues, and expanded sector alignment with 1.5°C, among others.