Climate Action 100+ urged to improve transparency, investor engagement amid greenwashing concerns

Climate Action 100+ (CA100+) should offer more transparency about its activities and set clear emissions goals when engaging with businesses seeking investments, warned UK-based nonprofit ShareAction, adding that the activist investor group has not achieved much so far.

CA100+, launched in December 2017, is backed by 700 financiers with $68 trillion in assets under management and seeks to promote emission reductions by large corporations via investor engagement.

ShareAction, which focuses on responsible investment, said the engagement has been lacking the ambition, transparency, and accountability needed to drive the net-zero transition at the pace required so far.

The nonprofit recently carried out a study of 60 asset owners and managers, all of whom are among the largest CA100+ signatories by assets under management, over their transparency, engagement strategies, aggregate engagement reporting, and engagement case studies.

The results show 82% did not reveal any objectives for their engagement, and that the same percentage did not say what will be the next step when their dialogues cannot lead to any change in corporate behavior.

In addition, 62% of them failed to specify how many times they have engaged with businesses, and 37% did not clearly list climate action as an engagement priority.

In the case studies published by the financiers under assessment, the quality of disclosure was uneven, ShareAction said. The vast majority gave little to no information about how engagement was conducted.

While 77% publicly stated they are CA100+ signatories, just 5% named all the companies for which they are a lead investor.

In a research note published 19 May, ShareAction said there are doubts over whether CA100+ signatories are allocating resources to effectively engage on climate action or "freeriding" on the reputational benefits of their participation.

"CA100+ is the investor initiative on climate change many were waiting for. It has the scale and focus required to make a meaningful impact on global carbon emissions. But success depends on action and real effort by all signatory investors, and so far, not all are stepping up," said ShareAction CEO Catherine Howarth.

In its benchmark assessments of corporate net-zero pledges published earlier this year, CA100+ admitted there remain some shortfalls in the climate action of the "focus companies" it selected.

Among the 166 major corporations with $10.3 trillion in market capitalization, only 17% had set medium-term decarbonization targets for 2026-2035 that could cap global warming to 1.5 degrees Celsius above pre-industrial levels. Just 5% explicitly pledged to align their capital expenditures with their targets for 2036-2050.

"The [CA100+] initiative is falling short of delivering meaningful progress on climate … The initiative must set a higher bar for standards of engagement undertaken by signatories in its next phase if it is to achieve its stated goals," ShareAction said.

Recommendations for CA100+

The nonprofit suggested that CA100+ should strengthen signatory requirements by setting minimum transparency requirements on climate change policies, raise the bar on engagement by establishing minimum escalation expectations following unsuccessful engagements, and improve signatory accountability by naming the signatories that are lead and collaborating investors for each focus company.

CA100+ should also publish and maintain a list of engagement objectives and milestones for each focus company, and compile aggregated statistics on engagement activities and outcomes accompanied by detailed case studies, ShareAction said.

"To avoid the risk of greenwashing, transparency is critical," said Isobel Mitchell, research and engagement manager at ShareAction. "Clear reporting on engagement objectives, outcomes, and escalation activities is essential for stakeholders to monitor progress on climate action and hold both companies and investors to account when their actions fall short. This is key to strengthening the initiative and ensuring that signatories commit to meaningful action." 

When asked to comment on the ShareAction study, CA100+ pointed to its achievements but admitted there is room for improvement.

"Engagement conducted as part of Climate Action 100+ has driven notable progress towards climate goals, with more than 110 focus companies having made net-zero commitments today, compared to just five in 2017," the group said in an email, adding that it has played "a key role in bringing engagement and stewardship on climate issues into the mainstream."

CA100+ stressed that some metrics included in its benchmark assessments, including capital expenditure, do not represent "the full breadth of the initiative's work." But it added: "There is no doubt that there is still urgent work to do if we are to meet the goals of the Paris Agreement and effectively tackle the climate crisis … We intend to further develop and strengthen the initiative to ensure its continued success in addressing the issues at hand."

Investors under watch

ShareAction has made a name for itself in recent quarters by targeting major financiers. In January 2021, the nonprofit filed a shareholder proposal calling on HSBC to reduce its exposure to fossil fuels with a timeline consistent with the Paris Agreement.

This led to a board-backed resolution passing at the UK bank's annual general meeting to phase out financing of coal-fired power and thermal coal mining globally by 2040. In mid-December, HSBC fleshed out some details on how it will turn off the liquidity tap.

Overall, there has been growing scrutiny over how investors are meeting their climate pledges lately.

Nonprofits Reclaim Finance, Urgewald, Re:Common, and the Sunrise Project in April said some of the largest investment firms maintained significant fossil fuel holdings despite their participation in the Net Zero Asset Managers (NZAM) initiative.

They took particular aim at the Glasgow Finance Alliance for Net Zero (GFANZ), a network composed of the NZAM plus banks, insurers, asset owners, financial services providers, and investment consultants with net-zero pledges.

In a letter to Mark Carney and Michael Bloomberg, the GFANZ co-chairs, the nonprofits warned that the alliance is "at risk of becoming a smokescreen to hide the finance sector's foot dragging on decarbonization" without strong leadership.

GFANZ has 450 members with more than $130 trillion in assets under management and advice. Some major financiers, including Allianz and BlackRock, have signed up for both GFANZ and CA100+.

Posted 19 May 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.