EcoAct’s upcoming annual climate reporting and performance report will look at corporate climate progress following a global pandemic, rising climate impacts and a stark warning from scientists that the window for climate action is rapidly closing.
Global context: The significance of reporting climate action in 2021
For more than a decade EcoAct has assessed corporate climate reporting. During that time, we have witnessed huge progress across the reporting landscape and, in recent years, a rapid rise in commitments to climate action. However, this year the Intergovernmental Panel on Climate Change (IPCC) published the first part of its landmark report, warning that we now have less than a decade left to halve greenhouse gas (GHG) emissions to limit global warming to 1.5°C and that we must reach net-zero carbon no later than 2050. This dwindling window of opportunity means it is now more important than ever for businesses to be transparent on their climate actions. But not only this, it is now vital that commitments are turned into actual emissions reductions.
This is why we’ve updated our research this year to place more emphasis on climate action.
Our 11th annual report, which will be released on the 25th October 2021, follows 18 months of disruption due to COVID-19 as well as more devastating impacts of climate change through extreme weather events experienced across the globe. Despite the challenges, there have also been positive signs for international governance on climate, with the change of administration in the United States and the European Commission’s “Fit for 55” plan being made into legally-binding European climate law. As host of the upcoming COP26, the UK is keen to present itself as a leader on climate and has now set a target of reducing emissions by 78% by 2035. Immediately following the release of our report is COP26, which will have significant implications for the direction of climate action. The science is clear and there is rising ambition internationally but the question is whether we can turn this into a successful transition to net zero.
About the climate reporting performance research
2021 is EcoAct’s 11th year of conducting research into the climate-related sustainability reporting performance of some of the largest publicly traded companies across Europe and North America. The research aims to identify trends in best practice and evaluate of the progress of these companies towards the collective goal of net-zero emissions. This year, the indices reviewed are the DOW 30, EURO STOXX 50 and the FTSE 100, totalling 178 companies across 31 sectors and 13 countries. Companies are scored on a range of different criteria to assess transparency and performance against a range of climate reporting best practices.
Our assessment will offer an international view across the three indices, as well as a regional view of climate action and reporting in Europe, the US, and the UK. This research has always been based on readily accessible information to any interested party. This is because with the urgency of our collective net-zero goal, it is essential that organisations are demonstrating transparency on how they’re managing their environmental impact. This year we have also included information from CDP submissions to provide the most comprehensive view of climate performance possible.
Previous trends in climate reporting
Mind the gap
Every year we see year-on-year improvements to corporate climate reporting. But there has always remained a large gap between high and low scoring companies showing that best practice climate reporting is still not a given.
Each year we have seen a general increase in utilisation of renewables, supply chain engagement, energy efficiency measures and innovation. We have also seen the number of companies making net-zero commitments rise rapidly. Last year we reported that 45% of companies were committed to net zero – more than double the previous year. Whilst this is encouraging, the absence of a universal definition of net zero, means that most companies were unable to demonstrate a clear pathway to net zero, calling into question the validity of the commitments.
Investor-led climate action
Another clear trend is the influence of investors demanding better climate-related disclosures. Since the Task Force on Climate-related Financial Disclosures (TCFD) published its recommendations in 2017 we have seen a sharp rise in businesses assessing climate risks and opportunities and disclosing them as part of annual business reporting. Alignment to TCFD grew rapidly from only 15% of FTSE 100 companies in 2018 to 56% in 2020 and with it the number of companies demonstrating board-level governance on climate change The power of the investment community to drive forward progress in climate reporting has been widely evident in the last two years of our research. This can be seen in 2020’s report which saw 7 industry sectors where all of the companies were aligned to the TCFD’s recommendations. This was mostly due to the fact that these sectors are particularly vulnerable to the physical impacts of climate change, which could pose a huge risk to investors.
Science Based Targets (SBTs) are ambitious emission reduction targets aligned to a decarbonisation pathway required to limit global warming to 1.5°C above pre-industrial levels as advised by climate scientists. The Science Based Targets initiative (SBTi) was founded at COP21 in 2015 when our research showed only one FTSE company with an SBT. Since then, we have seen a large increase in SBTs year-on-year culminating in 38% of all the companies researched having set one in 2020. We expect to see this percentage rise again this year, and for more of these targets to be aligned to the most ambitious 1.5°C trajectory now that the SBTi has revised its criteria.
What is new about the climate reporting performance research in 2021?
Updated methodology – additional focus on achieved results This year the methodology has further evolved to reflect the urgent need for transparency on value chain emissions, ambitious target-setting and achieved emissions reductions. Here are the four categories of our research and the major updates this year:
1. Measurement and Reporting:
With 31 sectors included in the research, we are introducing sector-based weighting to our scoring of Scope 3 emissions reporting. This is to ensure that companies are disclosing the most material emissions within their specific value chains.
2. Ambition and Objectives:
As always, ambitious targets are rewarded with more points. Companies are awarded the most points for targets that are aligned with a 1.5oC pathway. To assess whether net-zero commitments are backed up by a robust strategy, we are also assessing whether companies have long-term emissions reduction targets (beyond SBT timescales but in line with their net-zero timescales) and are disclosing any sequestration targets to demonstrate how they intend to achieve this goal.
3. Strategy, Governance Action Plan:
This year, we have broadened the range of emissions reductions strategies considered, specifically in regards to Scopes 1, 2 and 3 with a focus on renewable energy purchase or production and supplier engagement.
This is a new category that represents the need to take action now to minimise the worst impacts of climate change. This includes points for actual reductions in Scopes 1 and 2, further points for reductions in Scope 3, particularly reductions that are aligned to the 1.5oC trajectory. We have also awarded points for companies that are purchasing credits from verified carbon projects to offset residual emissions, particularly across all three Scopes of emissions.
Is there enough corporate action on climate change in 2021?
The results of this report, will be a clear indicator of both where we are in terms of current emissions reductions and climate action. The report may also provide a small reflection of our ability to adapt to drastic changes with the impacts of the pandemic, homeworking and resulting economic slump being tangible. 2020 has been a tumultuous year for businesses and society alike but we hope this year reflects the turning point in climate action that is so urgently required.
Who will be at the top of climate leadership ranking? What progress are companies making towards net zero? Is there enough climate action to achieve our climate targets?
Original source: EcoAct