Climate Action 100+: Mega Activist Investors

Climate Action 100+ is an institutional investor-led reporting framework focused primarily on the largest greenhouse gas emitting corporate issuers. Information can be found on the largest greenhouse gas emitting corporate issuers from 2017 to the present day. The project has close ties to Carbon Tracker Initiative and Transition Pathway Initiative, which act as technical advisors.

The project currently focuses on 166 companies representing $10.3 trillion of market capitalization, including the largest 100 greenhouse gas emitting companies globally, which have been targeted for investor engagement under Climate Action 100+ plus other companies that were identified via investor consultation and targeted for investor engagement. These companies either present climate-related risks to investor portfolios or have significant opportunities to drive the net zero transition that are not captured by emissions data alone.

Climate Action 100+ has three goals: reducing greenhouse gas emissions, improving governance and strengthening climate-related financial disclosures. António Guterres, the United Nations Secretary General, stated in September 2018:

"[Climate Action 100+ investors]… have committed to engage with the world’s largest corporate greenhouse [gas] emitters to improve their climate performance and ensure transparent disclosure of emissions… they are betting on green because they understand this is the path to prosperity and peace on a healthy planet. The alternative is a dark and dangerous future."

Reporting format

Currently all information is taken from assessments dated Dec. 31, 2021. Individual companies' reports can be accessed from the Climate Action 100+ website, which include basic frameworks such as the presence of a net zero GHG by 2050, reduction targets, target delivery and performance against the United Nations Task Force on Climate-Related Financial Disclosures’ recommendation. Climate Action 100+ looks for the presence of a net zero GHG by 2050 strategy and then scores the companies on whether they have achieved this goal, haven't, or only partially achieved it.

Climate Action 100+’s main scoring is achieved through a traffic light system: green for yes, red for no and orange for partial. The disclosure framework evaluates the adequacy of corporate disclosure in relation to key actions companies can take to align their businesses with the Climate Action 100+ and Paris Agreement goals. There are 10 sections (quoted directly from the website):

1. Net zero by 2050
   • Qualitative net zero ambition including 95% of scope 1 and 2 emissions
   • Covers most relevant scope 3 categories
   • The GHG also includes general methane emissions alongside carbon emissions
2. Long (2036 to 2050) emission targets
   • The company has set a target for reducing its GHG emissions by between 2036 and 2050 on a clearly defined scope of emissions
   • This requires the companies to not only have the targets, but also assesses whether the targets are Paris Aligned
   • This Paris Aligned target uses TPI's framework, which is sector specific and follows emission pathways and system transitions consistent with 1.5°C global warming as per the Intergovernmental Panel on Climate Change (P1 pathway, or as is the case for some sectors the P2 pathway)
3. Medium (2026 to 2035) emission targets:
   • See above section 2
4. Short (2022 to 2025) emission targets:
   • See above section 2
5. Decarbonisation Strategy (Target Delivery)
   • This portion focusses on the actions that will be utilised to achieve the aforementioned targets. Focusses on the importance of limiting or reducing the biggest sources of the company’s GHG emissions. This also requires companies headquartered in Europe to have a commitment towards 'green revenues,' which is particularly important for energy companies
   • The assessment will leverage the European Union’s Green Taxonomy criteria on revenues for companies headquartered on the European continent
   • This requires the actions to be explicit and specific, such as phasing out particular assets or implementing novel technologies
   • To meet all criteria on this metric the actions must be present for all three timeframes of emission targets
   • However, there are no specific details on whether these targets are ambitious enough or how exactly they calculate the efficacy
6. Capital Alignment:
   • Decarbonising of capital expenditure alongside its GHG emission targets in a manner that is aligned with the Paris agreement
   • Needs to specify the exact methodology used to be Paris aligned
   • Requires disclosure on when capital expenditure will peak and the percentage share of capital expenditure going towards this
7. Climate Policy:
   • This requires the company to ensure that the lobbying is aligned with the Paris agreement, such as supporting governments in presenting fines to those companies that are not complying
   • Needs to include the company directly as well as the Paris agreement, but a second section requires them to support trade associations in this type of lobbying as well
   • Needs disclosure on what climate related lobbying has occurred
8. Climate Governance:
   • Requires the government to consider climate change on the board level, as well as potentially having an individual who is responsible for climate change risk mitigation and targets present on the board
   • At least one board member's remuneration arrangements must incorporate climate change considerations
9. Just Transition (Beta mode - not currently assessed):
   • Requires the company to have made a formal statement recognising the social impact of climate change and the company has referenced the just transition guidelines
10. TCFD Disclosure:
    • Must commit to align its disclosure with TCFD or be listed on the TCFD website as a supporter, as well explicitly sign-posting TCFD aligned disclosures in its annual reporting or publishes them in a TCFD report
    • Requires the use of scenario analysis to analyse robustness of the company, as well as disclosing the risks and opportunities provided by these scenarios

The full details of the disclosure framework can be found on the Climate Action 100+ website.

Ease of access

Investors can freely access the assessments of the companies on the Climate Action 100+ website, including which exact criteria have been met. There is also an excel spreadsheet which provides a high-level overview of focus company results for the Climate Action 100+ Net Zero Company Benchmark and shows whether the companies have made progress from previous assessments.

I scored the 11 FTSE 100 companies that are assessed by Climate Action 100+. I gave equal weight between the 10 assessed categories and equal weight within the subcomponents of each category, to give a mark out of 100.

Interestingly, using this methodology, some of my perceptions of these companies have been challenged. On climate issues, I had thought Anglo American (LSE:AAL, Financial) was better than Glencore (LSE:GLEN, Financial), but based on the Climate Action 100+ criteria, I was wrong. I also thought BP (BP, Financial) was better than Shell (SHEL, Financial), but it appears this was wrong too. National Grid (NGG, Financial), which claims to be “the energy transition company,” scored lowest due to meeting no criteria and thus scoring zero in short-term GHG targets, capital alignment and climate policy engagement.

The analysis is somewhat subjective, as I have arbitrarily assigned equal weight to each category assessment. There would be a legitimate argument that Decarbonization Strategy or Capital Alignment should be weighted higher, but I believe each category is important. Glencore scores well because its management has thought and very carefully communicated about climate strategies and decarbonization, given its thermal coal portfolio and its exposure to green metals. By having net-zero ambitions and relatively good medium and long-term targets, it can better justify to its institutional investors its coal position.

Unfortunately, the exact nature of why an assessment was given cannot be accessed through information available on the Climate Action 100+ website, which is frustrating as it means that it's harder to assess what the exact risks with any company are, as well as giving information to analyze how a company can improve its climate positioning.

Conclusion

Climate Action 100+ is a good yard stick by which investors can measure a company’s reputation with institutional investors, and how investible a company is with respects to its contributions (or intended contributions) to the climate crisis. It gives an impression on whether companies that claim they are "going green" are actually putting their efforts in the right place or are simply greenwashing.

However, the lack of information regarding whether a company’s goals are realistic, if they have been reached, or exactly which performance or disclosure resulted in the company being scored a particular way, means these scores can only go so far for a climate analysis of a company.

Companies with high scores can justify investments from climate-conscious investors, which these days should be all big institutional investors if they want to remain relevant in the long-term. Companies with low scores cannot easily receive investments from these big investors, although as with all things in investing, often it will be the rate of change in a positive direction that will be most important for the stock price. So, expect Climate Action 100+ data to become more important as it builds up a track record of climate assessments on these systemically important companies for the climate.