What data sources will be used to assess focus companies?
The Benchmark will draw on two distinct analytical methodologies and data-sets, both designed to evaluate company performance and provide greater transparency for investors and companies.
- Disclosure assessment indicators: The Benchmark includes ten indicators that reflect the initiative’s goals. It will assess companies against specific criteria including ambition to align with the Paris Agreement goals, GHG emissions reduction targets, decarbonisation strategy, capital allocation alignment, climate policy engagement, climate governance, just transition and TCFD disclosure. Using only publicly disclosed data (e.g. annual reports, sustainability reports, press releases, CDP disclosures), TPI will assess the progress that companies are making against each of the indicators.
- Capital allocation assessment indicators: Carbon Tracker Initiative (CTI) and 2° Investing Initiative (2DII) will also analyse companies’ capital expenditures (CAPEX) and output relative to a range of future climate change scenarios to provide additional insights on the relative adequacy and alignment of company actions with the Paris Agreement goals. Both organisations use proprietary methodologies and asset-level inventory data sources which vary depending on the sector. These additional assessments will be included for upstream oil & gas companies, electric utilities (coal and gas generation assets) and automotive companies.
How is the Benchmark structured?
Companies will be assessed on each of the Benchmark’s 10 disclosure assessment indicators and their related sub-indicators and metrics, which collectively reflect the overall engagement goals of Climate Action 100+. Company performance will be assessed based on each company’s publicly disclosed information.
Additionally, capital allocation assessment indicators complement the disclosure indicators by providing further insights regarding the adequacy of companies’ capital allocation plans and their relative alignment with a range of alternative future climate scenarios. These indicators are provided by CTI and the 2DII and currently apply to upstream oil & gas companies, electric utilities and automotive companies.
Company scorecards will contain three sections;
- Company statistics and information, including International Securities Identification Number(s) (ISIN), and country and region of headquarters. This section will also include information on whether Scope 3 emissions are material to the company’s targets and reporting, as determined by the Scope 3 application by sector summary which identifies the sectors in which investors expect Scope 3 disclosures because they are significant to the company’s activities. (Please see Benchmark PDF for more details.)
- Assessments of the company’s publicly disclosed information against each Benchmark indicator, sub-indicator and metric to give investors information on the company’s alignment with the Climate Action 100+ goals. (Please see Benchmark PDF for more details.)
- Assessments of the company’s capital expenditures (CAPEX) and output relative to a range of climate change scenarios to give investors additional insights on the relative adequacy and alignment of company actions with the Paris Agreement goals for applicable sectors.
Will there be clear links or appendices to any assumptions/calculations/methodologies that were used in the company scorecards/assessments?
Yes, this information is being provided to companies. In summary, FTSE Russell analysts research and collect company data on most indicators by looking for evidence that the company meets each indicator’s requirements in its public disclosures. TPI assesses each company’s GHG emissions targets (sub-indicators 2.3, 3.3 and 4.3) using TPI’s Carbon Performance assessment methodology. Detailed information about this methodology is attached.
Companies, lead investors, and individual engagers will be sent TPI’s detailed Carbon Performance assessment and sectoral methodologies, alongside the scorecards shared in December 2020.
How have we defined the sectors with the most relevant Scope 3 emissions?
We have not defined formal thresholds for Scope 3 emissions. The measurement and assessment of Scope 3 emissions contains many uncertainties. Our approach is to identify those sectors and companies where Scope 3 emissions are likely to be significant, while allowing our analysts to identify additional companies where Scope 3 emissions are significant. See above for more information about the Scope 3 application by sector summary.
How does the Benchmark assess whether the decarbonisation strategy disclosed by a focus company is in line with the GHG targets it has set? For instance, in the automotive sector does the Benchmark assess whether the future product mix will allow the company to reach its target?
The Benchmark disclosure indicators assess whether companies have disclosed decarbonisation strategies to meet their long-, medium-, and short-term emissions reduction targets, whether they have made commitments to ‘green revenues’ from low carbon products and services (applies to EU headquartered companies only in 2021) and whether they have committed to align their future capital expenditure with their long-term targets. The Benchmark’s capital allocation assessment indicators supplement this information with company-level analyses from Carbon Tracker and 2° Investing Initiative on companies’ decarbonisation strategies and capital investment strategies (for companies in the upstream oil & gas, electric utilities and automotive sectors).
How does the Benchmark align with existing disclosure frameworks such as SASB, GRI, TCFD, and CDP?
The design of the Benchmark indicators (in particular those that relate to emissions targets and performance) has, where feasible, sought to build on existing disclosure frameworks such as those produced by CDP, TCFD, SASB, and GRI, among others. The Benchmark is designed to be complementary to these frameworks and provide more detail on specific disclosures that investors want to see regarding how companies are planning to transform their businesses in line with a net-zero emissions future.
The Benchmark has an explicit indicator (disclosure indicator 10) on the implementation of TCFD aligned disclosure, which is a key goal of Climate Action 100+. The TCFD offers companies and investors a comprehensive, forward-looking framework to assess climate-related risks and opportunities.
It should also be noted that the Climate Action 100+ Net-Zero Company Benchmark is not a reporting framework itself and draws on existing disclosure platforms (e.g., CDP) and other public information such as a company’s annual report, sustainability report, press release, etc.
Why is ‘emissions intensity’ used instead of ‘absolute emissions’ to assess a company’s GHG targets (related to Benchmark indicators 2, 3 and 4)?
The Benchmark and TPI’s methodology to assess alignment with global climate scenarios are derived from the absolute emissions pathways developed by the International Energy Agency (IEA). Performance is described in intensity terms to allow for comparisons between companies and to eliminate the size differences between companies. For example, if a large company reduces its emissions by a certain absolute amount, it might represent only a relatively small portion of the company’s overall emissions impact, whereas if a smaller company were to reduce its absolute emissions by the exact same amount, it may represent a much greater effort given the company’s size and emissions impact. Using emissions intensity as the metric of performance, by contrast, better accounts for the difference in scale between companies and thereby enhances the comparability of company emissions reduction targets.
How does the Intergovernmental Panel on Climate Change’s (IPCC) 1.5°C global reference scenario (based on a carbon budget that includes agriculture, forestry, and other land use [AFOLU] emissions) link to the sectoral decarbonisation approach (SDA) methodology used in the Benchmark, especially given that TPI is only capturing below 2°C? Do you imagine using a 1.5°C scenario in the future to map company progress?
Companies are assessed against the IEA’s benchmark scenarios specifically the IEA’S Beyond 2 Degrees Scenario, which is well suited for defining benchmarks for heavy industry and contains sufficient sectoral detail. The IPCC models are generally less suitable for this purpose. An IEA 1.5°C benchmark will be added to the Benchmark after it is made available by the IEA.