In sustainable finance, we hold these truths to be self-evident:
- Things that aren’t measured aren’t managed.
- Less alphabet soup is healthy.
- If you want to go far, you have to go together.
That final adage — one I heard emphasized on stage during the Ceres Global conference last month by long-time leaders including Anne Simpson, sustainability lead for Franklin Templeton and former investment director at CalPERS — may best characterize the past few years.
And Climate Action 100+, a coalition of 700 investors responsible for more than $68 trillion in assets under management, may best embody the speed, scale and credibility required to galvanize the global investor action that a decisive and dwindling decade demands.
For the 166 "focus companies" that have been selected for engagement — real economy firms that together account for around 80 percent of the world’s corporate industrial emissions — Climate Action 100+ launched an updated Net Zero Company Benchmark last week, which it uses to inform and support investor members in their engagements.
The global investor coalition engages companies to improve climate change governance, emissions reduction and climate-related financial disclosure en route to net zero. The benchmark was launched in 2021 to help investors in their assessment of company performance on those three key themes — emissions reduction, governance and disclosure — and defines key success indicators for companies’ alignment with the Paris Agreement goal to limit global temperature rise to 1.5 degrees Celsius.
What’s new, and why does it matter?
The power of political footprints
The benchmark uses two types of indicators to measure a company’s net-zero transition credibility: disclosure framework indicators, which evaluate corporate climate disclosure; and alignment assessments, which evaluate the alignment of company actions with Paris Agreement goals.
Readers will know that one of the most frequent criticisms of voluntary initiatives such as Climate Action 100+ or those that fall under the Glasgow Financial Alliance for Net Zero umbrella centers on the sturdy legs that "voluntary" lacks. That is, without appropriate policy implemented to support or compel follow through on voluntary ambition, substantive and system-change level action on climate won’t — or potentially can’t — be taken.
Two updates in Benchmark 2.0 underscore the growing importance for investors in corporate policy engagement.
Climate policy disclosure
The first relates to the Climate Policy Engagement Disclosure Indicator, which evaluates company disclosures on climate lobbying activities.
Language matters, and a keyword added or omitted in a policy, commitment or framework can change the course of progress in the climate space.
Scrutiny of companies’ public commitments to conduct lobbying in line with the objectives of the Paris Agreement will include whether policy position statements name the 1.5 degrees Celsius global temperature rise goal (despite what doomers may have to say about the futility of trying to keep the 1.5 goal alive).
The new benchmark will also look at whether a company publishes a review of its policy positions’ alignment with the Paris Agreement. And, importantly, whether it discloses how it has advocated for these positions.
Climate policy assessment
Indeed, the second notable update is found in the Climate Policy Engagement Alignment Assessment.
Beyond disclosure, the new benchmark stresses closer scrutiny of what companies are actually doing when it comes to advocating for policy that aligns with a 1.5 degree C future. InfluenceMap, a think tank that maintains a database of corporate and industry association lobbying related to climate policy, provides the research for the Climate Policy Engagement Alignment Assessment.
Joe Brooks, program manager for Climate Action 100+ and investor engagement at InfluenceMap, observed: "Corporate climate policy engagement is increasingly seen as a mainstream indicator of readiness for the energy transition."
Under the benchmark’s new Corporate Climate Policy Engagement Review Indicator, companies will be assessed on whether they maintain a robust review process to address cases of misalignment between climate policy engagement activities and the Paris Agreement.
When it comes to what is simply good business versus what is "woke," our political world is divided along ill-defined lines. But with a clear line of temperature rise going up and to the right, investors will be keeping a close eye on how companies toe it.
