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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.