Below is a summary of the panel discussion on the initiative’s successes and challenges as it embarks on its next phase. The event was moderated by Ben Pincombe, Head of Stewardship at PRI. Our panellists were: Stephanie Maier, Global Head of Sustainable and Impact Investment, GAM Investments; Kelly Christodoulou, Senior ESG, Investments, AustralianSuper;Seiji Kawazoe, Global Initiative Fellow, Sumitomo Mitsui Trust AM and Francois Humbert, Lead Engagement Manager, Generali Insurance Asset Management (Generali Group). All panellists are current members of the Climate Action 100+’s Steering Committee.
1st December 2022 – Barcelona
PRI in Person returned this year, with 1600 delegates from around the world. Being the first PRI conference since lockdown, in the midst of a global energy crisis and underpinned by Spain’s warmest Autumn on record, the question of whether 1.5°C is still an achievable target garnered unsurprising attention across the event. Amid this warm weather and heated debate, Climate Action 100+ delivered the preliminary results from its latest signatory consultation on the future of the initiative to a packed auditorium, each audience member looking for guidance and/or accountability from the world’s largest investor engagement initiative in the world. How has Climate Action 100+ tracked against its aims? And what needs to happen now to keep 1.5°C alive?
Below is a summary of the panel discussion surrounding the successes, challenges and direction of the initiative as it embarks on its new phase next year.
Successes
The positive impact of Climate Action 100+ is, at this point, clear.
Taking Bloomberg NEF’s graph below, for example, we can see proof of a gear shift from companies merely beginning to disclose their emissions, to taking concrete action1. In addition reporting from the Swiss Finance Institute has made the link between being a Climate Action 100+ focus company, a decrease in ‘cheap talk’ and an increase in quantifiable targets, demonstrating further third-party validation of our impact2.
The initiative’s own Net Zero Company Benchmark too shows that it has achieved a great deal around its three asks.
Approaching its 3rd iteration in 2023, the Benchmark has provided a solid basis for investor engagement, allowing focus companies and asset managers alike to compare progress across the three asks. As investors call for increasingly nuanced toolkits to help companies to decarbonise across specific sectors, the Benchmark will become more ambitious and more granular.
We have already seen some success with our sector strategies. The sector strategy guide in aviation, for example, has proven vital in Australia for understanding the industry’s specific barriers to action and opportunities for progress.
In addition to the increasing level of detail that the initiative and its tools are going into, we should also take care not to overlook the scale of the initiative, which now brings together 700+ voices to ask the initiative’s three key questions in chorus. These sheer numbers have been instrumental in mobilising Asian markets, for example, increasingly providing the impetus and motivation for stronger climate action as they see the rest of the world do the same.
The accelerated attention to local solutions, too, has led to many individual engagement successes. As we have seen with Cez, the Czech utility company, through identifying and connecting the right capacity builders and models, engagements with focus companies can deliver strong climate action alongside meaningful social value for employees and communities through a Just Transition.
However, what this example points to is a need to maximise the successes of localised efforts, particularly surrounding the effectiveness and social impact of the transition.
Challenges
It is the human element of transition that continually comes up as a pivotal challenge in the journey towards net zero. The climate transition is at its core a people transition and is, especially in the Asian markets, the very beginning of the conversation on decarbonisation.
With heightened concerns globally over the energy trilemma – the need to maintain affordability, security and sustainability in its supply – due to the Russia Ukraine conflict, the Just Transition now not only applies to the employees and communities surrounding energy companies, but their wider consumer base too.
What this conflict also makes apparent is that context matters. Investor engagements happen within a complex, real world economy. In Europe, as the war continues, we have seen a subsequent acceleration toward the use of renewables, but in other regions, an increase in the use of coal. The ongoing challenge for investor signatories is how to navigate these differentiated real-world decisions and outcomes.
In order to tackle these challenges, some say that more transparency is needed, while others say this may hinder progress. What our panel agreed upon is that trust between investors and their focus companies is the ultimate priority. The panel were also unanimous on the importance of amplifying the voices of those doing well, and to model the successes in local or sectoral arenas for those around them to improve.
Direction of Travel
With 78% of lead investors responding to our latest on consultation on the development of Phase 2, the mandate for a few, key improvements have become clear.
Firstly, in the ever-evolving ecosystem of climate action, the next phase requires new foundational goals and scope. The initiative will double down on the requirement for robust transition plans aligned with the Paris Agreement. It will also focus on deeper engagement by investor signatories to dismantle the barriers, and maximise the opportunities, that each sector encounters.
Indeed, with over 700 investor signatories across the globe, the opportunities to engage present themselves in increasingly different ways. There is an evolving need to diversify the ways in which investors can contribute, and to celebrate those who are working the hardest. The initiative will deliver more global sector strategies, but also deliver new thematic strategies, likely surrounding key issues like the Just Transition or climate accounting.
This means that we will need to ask for a renewed commitment to participation from investors. The requirements of signatories will increasingly include the need to prove meaningful, demonstrable contributions across the aforementioned thematic or sectoral engagement points.
Finally, the initiative will continue to improve upon the Net Zero Company Benchmark, continually evolving and ratcheting up its standards.
By fully deploying diverse and powerful methods of engagement, we will confidently move through this pivotal decade with the optimism and fortitude to limit global warming to the strongest possible ambition.
The full summary of the Phase 2 consultation results will be made available hereby the end of 2022.