Climate Action 100+ global Steering Committee members Anne Simpson and Mindy Lubber share their reflections on their second tenure as chair and vice-chair, respectively, between April and September 2021. The positions are rotated around the Steering Committee to build global leadership. Anne and Mindy were the inaugural chair and vice-chair of the Steering Committee when Climate Action 100+ launched in December 2017.
Q: The last six months have seen historic shareholder action on climate change. What are your reflections and what role has Climate Action 100+ played in driving this?
Mindy: Bringing the voice of investor shareholders to engagement with companies has been a key part of Ceres’ mission for the last 31 years. What we’ve seen recently is a growing evolution of this movement in real time. To put it in perspective, there were six shareholder resolutions on climate change 20 years ago, with vote results averaging 9%. This year, there were over 147 climate-related resolutions filed, with 47 going to a vote, and vote results averaging 40%. Climate Action 100+ has turbocharged climate action by bringing together investors and investor organisations from around the world under one umbrella. When we bring together more than 600 investors responsible for $60 trillion in assets under management around a common engagement agenda, it’s an extraordinary force of nature.
Anne: I agree, it’s been a truly remarkable year for climate action and one that has seen investors stepping up their engagements with companies, building on years of dialogue. I would say we’ve seen two key areas of acceleration. The first is a willingness from investors to hold boards accountable and support new directors and the second is the tracking of progress of focus company commitments and action through the Climate Action 100+ Net-Zero Company Benchmark. Making commitments is one thing, delivering on them is another, and that’s what we’re watching closely now.
Mindy: The progress being achieved by investors through Climate Action 100+ is emblematic of how times have changed and reinforces how seriously large investors are in addressing climate change as a financial risk. The days are over when companies could hope that shareholder resolutions would fade away. With the largest investors engaging 167 focus companies that are responsible for up to 80% of global emissions, you can really make a difference and that’s what we’re seeing.
Anne: We are targeting systemically important emitters through Climate Action 100+. We aren’t aiming for the low hanging fruit; we’re reaching for the fruit at the top of the tree. A recent BNEF analysis, building on the initiative’s Net-Zero Company Benchmark, found that 111 focus companies have set net zero targets for 2050 or before. To demonstrate the scale of impact, it is estimated that these net zero targets – which Climate Action 100+ investors have played a significant role in securing – will reduce greenhouse gas (GHG) emissions by 9.8 billion metric tons annually by 2050, roughly equivalent to China’s annual emissions[1].
Q: 29 May was hailed as a day of reckoning for corporate emitters. What role did Climate Action 100+ and investor signatories play in supporting the board changes at ExxonMobil?
Anne: Whilst much progress is being made, there is still a huge amount of work to do. And where we don’t see the required progress being made from companies, the next step is not to sell shares but to ask board directors to respond to these challenges and bring about the required change. This year, investors have demonstrated their willingness to hold boards accountable on climate change and that’s the real story of what happened at ExxonMobil in May. CalPERs has been engaging with Exxon for many years, as it did not have anyone on the board with experience in the energy industry. This poses a governance issue and building on previous asks for targets, commitments and reporting, we wanted to ensure that the company had directors with experience developing the strategies we need to accelerate the net zero transition. We worked closely with CalSTRS, New York City Comptroller’s Office and New York State Common Retirement Fund and other Climate Action 100+ signatories to support the changes put forward by Engine No.1. Climate Action 100+ played an important role in achieving the result, not only in flagging the vote as it was aligned with the goals of the initiative, but hosting a webinar so all investor signatories had the opportunity to hear from the new candidates, which helped to garner wider support.
Q: The stakes have been irreversibly raised – what do you think this means for the next cycle of engagement and the 2022 proxy season in the US?
Mindy: I expect to see deeper investor engagements with focus companies and more results focused on delivering action against goals. Shareholder resolutions used to be about transparency and disclosure, then transparency and goals, and now there is a laser focus on how goals are going to be met with short-, medium- and long-term targets and transition plans. I also expect higher votes because more and more shareholders are getting involved every day. For example, Blackrock and State Street are signatories to Climate Action 100+ – if they continue to vote with us, we are going to see huge change.
Anne: If companies aren’t willing or able to respond to the challenge of moving towards a net zero transition, we will look for new leadership. It cannot be an option that we simply stand still, we need to move at pace and scale. There may be board directors who don’t feel compelled or have the expertise to get this transition done – but they must then make way for those that do. This is concentring minds in boardrooms and across the investor community and is a new, welcome dynamic to engagement and stewardship.
Q: Climate Action 100+ formally launched its Global Sector Strategies workstream this year – why is it important to look at sector-specific decarbonisation?
Mindy: Sector decarbonisation is a key priority for Climate Action 100+. Fundamentally companies compete, and when one company in a sector takes action, the others usually follow. The Climate Action 100+ Global Sector Strategies are empowering companies to follow best practices, demonstrate climate leadership and to prove to others what can be done. We’ve seen this here in the US where shareholders have been pushing auto companies for a number of years. Whilst they have been previously slower on setting goals, companies like General Motors are now making significant commitments to produce only electric vehicles by 2035.
Anne: Sector-specific decarbonisation is vitally important at this stage. We’re not going to get to net zero by just bringing down the supply of oil, gas and coal. We need the broader economy to shift demand to low carbon energy – and this requires whole sectors to transition. The Global Sector Strategies will play an important role in helping us to understand this evolving demand in heavy emitting sectors. And whilst all companies need to be providing detailed transition plans that align with a 1.5C scenario, we recognise that decarbonisation strategies are going to look different for each sector – for example, what a steel company needs to do looks quite different to what a food and beverage company needs to do. The global sector strategies, published so far for the aviation, steel, food and beverage and electric utilities sectors, aim to provide that detail and clarity for companies, whole sectors and investors.
Q: Why is the Net-Zero Company Benchmark such a critical tool for the initiative and what do you expect to see from companies in the next round of company assessments in March 2022?
Anne: We dream of a common language – we can’t have disconnected reporting that isn’t coherent. The benchmark is an essential, transparent and objective way of measuring company progress. It enables us to measure corporate climate action against 10 key indicators, including short-, medium- and long-term emissions reduction targets, capex and political lobbying. V1.1 of the Benchmark will also feature a new indicator for a ‘just transition’ that is focused on the workforce, communities and supply chain. A ‘just transition’ was set out in the preamble to the Paris Agreement, which almost 200 governments agreed to, and so we’re calling on companies to set out their approaches to managing the human impact of the net zero transitions. There is more for us to do on the financial side going beyond TCFD disclosure, which is why we’re adding an indicator on accounting, to ensure the price and risk of the transition are being reflected in accounts.
Mindy: It’s one thing to get global climate commitments but they must be met with specifics. We’re working with companies to increase the ambition of their goals – and it is then our job to check who is doing it and who isn’t. This is why we rolled out the Net-Zero Company Benchmark – being able to accurately track how companies are progressing, that’s urgent for investors and their engagements. I hope to see companies meeting their goals in the next round of March 2022 assessments, demonstrating further proof of delivery against commitments through concrete action.
Q: What are your hopes for COP26 from an investor perspective and how will these accelerate the decarbonisation strategies of large corporate GHG emitters?
Mindy: My hopes are high and my impressions so far are positive that there will be action at COP26, both on short- and long-term goals. Climate change is a global issue that affects us all. What happens in Rio affects London, what happens in Mumbai affects Boston. We can’t go at this country by country; it is a global problem with global solutions and we need more clarity and teeth to come out of COP26. Investors are doing an extraordinary job. A record 733 investors with $52 trillion in assets have signed the Global Investor Statement to Governments on the Climate Crisis, a statement urging government on the very specific things they should be doing to accelerate the net zero transition. This is one of the most important voices for policymakers to listen for. Investors need market signals from policymakers that signal clear action to build public/private partnerships – these are all crucial to helping us meet the goals of the Paris Agreement.
Anne: I echo Mindy, we need partnership between the private sector, public sector and civil society, grounded in science – this is fundamental to achieving our ambition on climate change. Our world leaders must set policies that make it possible for finance to play its part. To enable this, as outlined in the Global Investor Statement, we need action from policymakers in five key areas. I want to call out a couple specifically that will empower finance to accelerate change. One is mandatory climate risk reporting, integrated into financials – markets need information. The second is incentives. At the moment, government subsidies for fossil fuels distort economic decision making, costing hundreds of billions of dollars and this has to stop. Carbon pricing is more complicated but hugely important. If carbon gets a free ride and causes tremendous damage, we must count this cost and bring it back to the balance sheet. Through this, we can unleash tremendous economic force towards 2050.
Mindy: Companies cannot do it alone, and neither can investors. Policy is absolutely critical to create a level playing field. As Anne said, we need mandatory climate change disclosure to move things on scale. Rather than 100 companies moving, we need 100,000 companies to move. Rather than 500 investors coming together, we need 50,000 to come together. We need to move at pace and scale unlike anything we’ve ever done. But without policy to mandate a level playing field, we can’t get there. Government must play its role and COP26 is the perfect place to start.
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Anne Simpson is the Managing Investment Director of Board Governance and Sustainability at CalPERS and a member of the Climate Action global Steering Committee. She served as chair from 1 April to 30 September 2021.
Mindy Lubber is the CEO and President of Ceres and member of the Climate Action 100+ global Steering Committee. She served as vice chair from 1 April to 30 September 2021.
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[1] BNEF analysis, published September 2021: https://about.bnef.com/blog/two-thirds-of-the-worlds-heaviest-emitters-have-set-a-net-zero-target/