By Joshua BledsoeSara Orr, and Bobbi-Jo Dobush

Major investors with collective control of more than US$26.3 trillion are continuing to push for an increase in public companies’ governance, oversight, and disclosure of climate-related risk. Unveiled on December 12, 2017 at the One Planet Summit in Paris, the Climate Action 100+ is designed to promote the goals of the 2015 Paris Agreement. The Paris Agreement provides a global action plan to limit global temperature rise to well below 2 degrees Celsius.

A group of 225 investors, led by California Public Employees’ Retirement System (CalPERS) and other major investors, have signed on to the Climate Action 100+ since the invitation to join was issued in September 2017. The signatories will be led by five coordinating partners including Asia Investor Group on Climate Change (AIGCC), Ceres; Investor Group on Climate Change (IGCC), Institutional Investors Group on Climate Change (IIGCC), and Principles for Responsible Investment (PRI).

Greenhouse Gas Emitters as an Initial Focus

Investors indicated they will initially focus on 100 greenhouse gas emitting companies (primarily in the oil and gas, electric power, and transportation sectors) based on reported and modeled emissions data provided to Climate Action 100+ by CDP. The list was developed using CDP’s combined direct and indirect (scope 1, 2, and 3) emissions, including emissions associated with the use of companies’ products.

The signatories expect to add additional companies to the target list in advance of the 2018 Investor Summit on Climate Risk in New York City. This list of target companies will be revised annually, and companies that make sufficient progress toward the goals of the initiative (as deemed by the Climate Action 100+ Steering Committee) may be removed from the list.

Climate Action 100+ investors will work with the targeted companies to encourage and ensure that those companies are both minimizing and disclosing climate-related risks. Investors will base their leadership and engagement with companies on the UN Principles for Responsible Investment. Each investor signatory has agreed to directly engage with at least one company on the target list.

The Ask

Climate Action 100+ signatories believe that influencing 100 of the largest emitters will have trickle-down effects. A spokeswoman said that investors’ “collaborative engagements with the largest emitters will spur actions across all sectors as companies work to avoid being vulnerable to climate risk and left behind.” Investor proposals and boardroom discussions are among the forms of engagement being contemplated.

The signatories will seek commitments from boards and senior management of the target companies to perform the following actions. Climate Action 100+ signatories see these actions as consistent with their fiduciary duty to address risks posed by a changing climate:

  • Implement a strong governance framework focusing on climate change risks and opportunities
  • Take concrete action to reduce greenhouse gas emissions consistent with the Paris Agreement and the Paris Agreement’s objective to keep global rise in average temperature below 2 degrees Celsius
  • Provide enhanced corporate disclosures aligning with the Task Force on Climate-related Financial Disclosures (TCFD), established in 2015 by the Financial Stability Board (an international body established in 2009 that monitors and makes recommendations about the global financial system). There are various environmental, social, and governance (ESG) corporate disclosure frameworks that address climate change, among other factors. The TCFD’s June 2017 Final Recommendations document explains how TCFD’s disclosure requirements align with Global Reporting Initiative, Sustainability Accounting Standards Board, and other reporting frameworks.

Growing Investor Interest in Sustainable Business Models

Climate Action 100+ implements the commitment articulated in the Global Investor Statement on Climate Change. In recent years, investor focus on climate risks — as well as what may interchangeably be referred to as sustainability, ESG, or corporate social responsibility (CSR) — has grown steadily. In response, many publicly traded US companies increasingly are releasing voluntary ESG information in response to demands by a variety of stakeholders, including investors, consumers, supply-chains, nongovernmental organizations (NGOs), competitors, and the public.

Climate Action 100+ and its focus on reducing greenhouse gas emissions as a response to climate change may potentially facilitate increasing assertive investor engagement and activism. As investors continue to focus on addressing environmental and sustainability risks at the boardroom level in an effort to address climate change, companies may face both reputational and litigation risks, particularly vis-à-vis financial disclosures. Given the broad reach of climate-related impacts within companies and across industries, comprehensive risk assessments and strategic thinking will prove essential for companies moving forward.