The top five climate risk and disclosure stories this week.
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Taskforce consults on sector-specific transition guides
The UK Transition Plan Taskforce (TPT) kicked off a consultation on sector-specific climate transition plan guidance on Monday. The guidance is intended to help businesses in seven sectors — asset managers, asset owners, banks, electric utilities and power generators, food and beverage, metals and mining, and oil and gas — to apply the TPT’s ‘gold standard’ disclosure framework, which was released in October.
The TPT developed the guidance to better account for the varying greenhouse gas emissions, transition financing requirements, and existing guidance quality for each industry sector in the UK context. For example, the metals and mining guidance calls on firms to consider whether each of the materials they explore, extract, and/or processes are aligned with a low-carbon, climate-resilient future. As for the asset owner guidance, there are recommendations touching on how institutions should disclose their engagement and escalation strategies with portfolio companies.
The consultation process aims to gather feedback from preparers and users of climate transition plans, in order to ensure that the guidance is comprehensive, effective, and suited to each sector’s unique challenges. The process ends on December 29.
The TPT framework both builds on and aligns with the International Sustainability Standards Board’s climate-related reporting requirements and the transition planning framework out of the Glasgow Financial Alliance for Net Zero. TPT is consulting with both international and national bodies to harmonize climate reporting and regulation around the world.
Decarbonization slows among major firms, jeopardizing 1.5°C goal
Listed companies may breach their remaining carbon budgets by April 2026, according to MSCI’s Net-Zero Tracker.
The report, released on Tuesday, also shows that listed organizations in nine of the G20 countries are decarbonizing at a slower rate now than they were in the immediate aftermath of the 2015 Paris Climate Agreement. If this trajectory persists, listed companies will exceed the emissions limit that would maintain global temperature rise below 1.5°C within three years.
Half of all companies MSCI surveyed are aligned with warming pathways that would result in a less than 2°C temperature rise and 22% are aligned with a 1.5°C temperature rise. Despite this, public companies are projected to increase their Scope 1 emissions by 11% this year compared to 2022. To limit the temperature rise to 1.5°C, emissions would need to decrease by 43% over the decade.
The slowing of decarbonization among certain companies is at odds with their host countries’ own climate ambitions. MSCI reports that 13 of the G20 are expected to accelerate their decarbonization efforts this decade.
“Following a strong start, progress from listed companies in the remainder of the decade is set to slow now that the low hanging fruit has been picked,” said Linda-Eling Lee, Founding Director and Head of the MSCI Sustainability Institute.
EU banks still “turn a blind eye” to climate risks — ECB
European Union banks are “far from being fully equipped” to deal with climate and environmental risks, a member of the European Central Bank’s (ECB) executive board has said.
In a Tuesday speech, Frank Elderson said that while banks have made some progress improving their climate risk management, many still did not meet the central bank’s expectations by its March 2023 interim deadline. Banks have until the end of 2024 at the latest to satisfy these expectations, which were first published in 2020. Among other things, these require banks to perform materiality assessments covering climate and environmental risks.
Elderson said that banks lagging on these assessments “are continuing to turn a blind eye to potential risks on their balance sheet”, a situation that the ECB “cannot and will not accept.” He explained that the central bank has adopted enforcement measures to ensure its expectations are met by the firms it supervises. These include periodic fines if banks fail to meet their requirements.
Study reveals major companies falling short on climate policy engagement
ExxonMobil, Glencore International, and Delta Air Lines are among 170 of the world’s largest companies at risk of “net zero greenwash” due to their lackluster climate policy engagement, a new report out of think tank InfluenceMap claims.
The study, based on the UN High-Level Expert Group (HLEG) ‘Integrity Matters’ guidance, found that these companies have announced net-zero or similar targets but are not doing enough to back the policies needed to deliver the 2015 Paris Climate Agreement. InfluenceMap’s analysis focused on 293 companies from the Forbes 2000 list.
Other companies identified as potential net-zero greenwashers include Chevron, Duke Energy, Repsol, and Stellantis. These companies have announced net zero or similar targets but have been found to be “misaligned in their climate policy engagement activities”, the report says.
InfluenceMap’s research also found a weak positive correlation between the use of net-zero terms on corporate websites and positive climate policy engagement. This suggests that many companies use the language of net zero without supporting climate policy. A small group of companies account for 83% of all web pages containing net zero terms, indicating high-intensity net zero communications among this group.
“These findings should be a wake-up call for businesses across the globe,” said Catherine McKenna, CEO of Climate and Nature Solutions and Chair of the UN Secretary-General’s High-level Expert Group on Net-Zero Commitments. “It’s clear that while companies are quick to showcase their climate commitments, too many of them are not backing that up with support for positive government policy on climate. Not only are many companies choosing to undermine their own climate commitments by lobbying against climate action, their net zero commitments are simply not credible,” she added.
Asset Managers pressured to adopt climate engagement strategies by NZAOA
The Net-Zero Asset Owner Alliance (NZAOA) has set out expectations for asset managers’ climate engagement strategies, as part of a series on how investment stewardship can help address systemic climate risk.
In the paper, titled ‘Elevating Asset Manager Net-Zero Engagement Strategies’, the NZAOA emphasizes the need for asset managers to adopt consistent, transparent, and outcome-oriented climate engagement strategies that address climate threats facing asset owners’ portfolio returns.
The paper states that asset managers are “well positioned to conduct effective engagement at scale” given the size of their portfolios, while asset owners are equipped to provide oversight, accountability, and instruction on desired stewardship practices.
The NZAOA expectations for asset managers cover governance and integration, setting and publishing a climate engagement strategy, climate engagement practices, and transparency and accountability on climate engagement. The Alliance intends the paper to help members improve their asset manager selection, appointment, and monitoring processes.
NZAOA members commit to align their investment portfolios to net-zero by 2050 pathways, with a focus on real-economy emissions reductions. Part of this commitment includes “advocating for, and engaging on, corporate and industry action” to deliver “a low-carbon transition of economic sectors in line with science.”