Climate Action 100+ initiative must have sense of urgency that systemic risk demands

Credit Jan Smith FlickrCC

Research and advocacy organization, Preventable Surprises, has today (Tuesday Dec 12) congratulated organisers of the Climate Action 100+ (CA100+) initiative for harnessing so much ‘financial muscle’ in the cause of slowing climate change. The think tank also cautioned that this initiative will only deliver against its promise if it addresses 3 strategic challenges.

Carolyn Hayman OBE, board member and climate lead at Preventable Surprises said: “This initiative isn’t like previous ones: instead of telling governments or companies what to do, this time investors are saying what they will do as stewards. In the words of CA100+, this is about ‘Global investors driving business transition’ – potentially this could be a big shift. And yesterday’s announcement from Exxon Mobil shows how powerful shareholder pressure can be.’

Preventable Surprises has been asking investors to address climate-related systemic risk for several years and is reassured that this concept firmly underpins the initiative. And the fact that filing and voting for resolutions is explicitly mentioned is also very reassuring.

CA100+ focus on the demand side – major users of fossil fuels – as well as producers is welcome. And the fact that all the investor groups, namely AIGC, Ceres/INCR, IIGC, IIGCC and PRI are collaborating is an important signal to the 50% of investors that seem still to be climate unaware.

But will this initiative actually help bend the emissions curve by 2020? Hayman highlights the 3 strategic challenges that Preventable Surprises thinks are critical.

1. Who’s on board? The launch list indicates that many of the US fund managers that dominate the global investment industry have not felt the need to join, for now at least. Those missing include a number of PRI members,  Ceres members Blackrock, State Street and Fidelity, and disappointingly, even those like Goldman Sachs with a good voting record on climate resolutions in the recent AGM round. The fact that a major investor, Northern Trust, has joined, should encourage others to reconsider. Well before the next anniversary, we hope that climate aware asset owners and investment consultants will have been able to persuade all major global managers, wherever they are headquartered, to come on board (See appendix for a comparison of Investors_Member_Status).
2. What’s the target? CA100+ has used Scope 1, 2 and 3 emissions. Clearly scope 3 is critical when considering fossil fuel providers and CA100+ is to be congratulated for making this explicit. However, this formula seriously underweights energy utility companies: the sector accounts for ca 42% of global emissions (Statista 2015 figure), it is the low hanging fruit for reducing GHGs but is represented by only 13 companies in this list of a hundred. Based on data from Engaged Tracking (ET) Research, a formula that used Scope 1, 2 and 3 for 50% of the list and Scope 1 & 2 for the other 50% would have brought a further 14 energy utility companies into the list (See appendix: ET100IndustryCounts). According to Hayman, “Just as good asset allocation needs data plus the application of investment beliefs, so a more strategic stewardship approach is needed here alongside the data”. Investors, she added, need to quickly come to a view about what stewardship activity that will have the biggest reduction in GHG in the shortest timescale and CA100+ is the perfect initiative for experimenting with different theories of change. Preventable Surprises is glad that investors will be able to vote for 50 additional companies and recommends they vote for a) non fossil fuel companies for the next 50 additions to this list, especially global energy utility companies and b) major US financial players (in particular global banks and insurance companies).
3. What’s the ask? Having found that 55% of investors – “we call then the Missing55”, explained Hayman – voted against disclosure of climate risk in 2017 at energy utility companies, she is not yet convinced that investors have an ambition level which is fit for purpose given the urgency and seriousness of the climate crisis.  “We see no plausible justification for managers claiming that constructive engagement is working with the energy utility sector at the pace that is needed.” Preventable Surprises would also ask asset owners who join to go beyond ‘virtue signaling’ and report on how they are changing their mandates to investment consultants and fund managers to incentivize action on climate related systemic risk, a pre requisite for real manager commitment and participation in this initiative.

Carolyn Hayman concluded: “We at Preventable Surprises are strong believers in the potential that assertive engagement has as a powerful tool for change. But for this to work, as humanity faces a future of greater than 3°C warming, a world which humans have never yet experienced and where investment returns are far from certain, investors need to set ambitions which are fit for this purpose.”

“This initiative creates a great framework for doing the work that is needed and with clear C suite leadership on the strategic questions highlighted, which cannot be simply delegated to ESG heads to answer, we are certain it can deliver on its promise.”