Companies are too slow with shift to carbon neutral, say investors with $35 trillion at stake

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Oil giants Royal Dutch Shell and BP may be yielding in part to investor pressure to align with the Paris Climate accord, but they’re still a rarity.

That’s according to a two-year report card of a five-year initiative called Climate Action 100+ taken on by major global investors who want companies from fossil fuel producers to consumer-product conglomerates to be carbon neutral by 2050. This adoption, the advocates believe, will reduce investment risk and embrace the opportunities that come with environmental change — new technologies, for instance, or a shift in resource demand, such as the copper needed for electric vehicles.

An analysis released Wednesday of 161 focus companies found that 70% have set long-term emissions reduction targets, but just 9% have targets that are in line with or go beyond the minimum goal of the Paris Agreement to keep the rise in global temperature to below 2 degrees Celsius.

The target companies — which are under no obligation to follow the investor group’s prodding, but are increasingly exposed in the public arena and through shareholder action — are responsible for more than two-thirds of global industrial greenhouse gas emissions and have a combined market capitalization in excess of $8 trillion.

“Cutting carbon in half by 2030 and reaching net zero carbon before 2050 will help avoid the most catastrophic impacts of climate change on our economy, communities and environment,” said Mindy Lubber, CEO and president of Ceres, the 30-year-old, California-based sustainable investing advocate, and a steering committee member at Climate Action 100+.

“In the first two years of Climate Action 100+, we have already seen progress towards this goal. But time is running out,” Lubber added. “We need more investors to join us in our efforts and more companies to act on the global climate crisis more quickly, boldly and broadly than ever before.”

Climate Action 100+, launched in 2017, includes roughly 370 global investors overseeing a combined $35 trillion. Some of its largest asset-management members include Allianz, with $2.1 trillion under management, and Pimco, with $1.8 trillion under management.

Climate Action 100+

Pension-concentrated Europe has racked up the most Climate Action 100+ signatories to date.

Progress has been seen across a range of industries and countries, many of which are among the most challenging to decarbonize, the Climate Action group said. In addition to actions at Shell and BP, focus companies making substantial net-zero commitments over just the past seven months alone include: HeidelbergCement HEI, -3.79%  , Duke Energy DUK, +0.34%  and Nestle NESM, -0.16%. Add to the list: Daimler DAI, -0.93%  , VW VW, +0.23%  , Thyssenkrupp TKA, -1.67%  , ArcelorMittal MT, -3.72%  , BHP Billiton BHP, -0.75%  , Centrica CNA, -3.26%   and Saint-Gobain SGO, -2.25%

The report also shows that among the 161 target companies: 40% undertake and disclose climate scenario analysis and 30% of companies have formally supported recommendations of the task force on climate-related financial disclosures; 77% have defined board level responsibility for climate change.

There are clearly regional differences in climate-change priorities, with investor action much more likely in Europe over the U.S., for instance. In Asia, which featured as a special section in the report, private-sector action is having to step up where government efforts are not. Regional noncompliance, alleged in China for instance, is the primary reason President Trump said he withdrew the U.S. from the Paris pact to the frustration of allies.

Read: This German utility — the EU’s largest emitter — has a 2040 pledge to be carbon neutral

Climate Action 100+

Consumer-product companies are leading the emissions goal-setting.

Investor action through formal channels directly to the company is also on the rise. The advocacy group finds that new records for investor support of climate-change shareholder resolutions have been set. This includes the largest ever climate-change shareholder resolution at BP BP, -0.76%   from investors owning equivalent to 10% of the company, or a $12 billion stake.

In the U.S., shareholder support for climate-related resolutions at the companies they invest in hit an all-time high of 30% in the latest proxy filing round, Morningstar’s Jon Hale and Jackie Cook have reported.

Read: Demand for climate-proofed portfolios was a key proxy-season theme this year

Even with investor interest on the rise, these voices are often little match for corporate lobbying interests. Reform in this area remains a key focus of the Climate Action 100+ group as investor advocates believe that many companies still engage in “obstructive, negative or evasive lobbying” usually in favor of fossil fuels over cleaner alternatives.

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Analysis shows that 77% of the companies targeted by the group have clear board responsibility for climate, but nearly all companies perform very poorly on alignment of their climate lobbying activities. Less than 8% of companies have alignment between the lobbying undertaken by their industry associations and their stated policy position.

In September, 200 institutional investors with a combined $6.5 trillion in assets under management announced they are calling on 47 of the largest U.S. publicly traded corporations to align their climate lobbying with the goals of the Paris Agreement, warning that lobbying activities that are inconsistent with meeting climate goals are an investment risk.

The group’s leadership claims that even if the two-year participation results have been slower than hoped for, mounting interest even as recently as the last few months has been notable. “We must now build on the momentum achieved to date if we are to succeed in addressing the climate crisis and safeguarding investments on which the futures of millions of pensioners depend,” said Stephanie Pfeifer, CEO of the Institutional Investors Group on Climate Change and a Climate Action 100+ steering committee member.

Institutional investor buy-in is established, but anecdotal evidence and polling show that individual investors near to or in retirement tend to consider climate risk a low priority.

Cynthia McHale, senior director of insurance with Ceres and a senior director of the Climate Action 100+, was asked by MarketWatch in an interview why individual investors appear more reluctant to add climate worries to their portfolio checklists.

“There are still instances of heads-in-the-sand, but money managers get it,” she said. “Innovation should lead the decision-making. After all, venture capital is not going to oil and gas but into the materials we need for decarbonization. Investors should be asking, Where’s the money flow? Look at the S&P 500 SPX, -1.23%  [in which the energy-stock weighting has steadily dropped to about 5% by mid-2019 compared to the 21% for index-leading information technology].”

“Is this climate-issue reluctance among dividend investors? These are not growth investors,” McHale said.