Corporate Climate Survey

Corporate Engagement Survey Responses Add Insights to Engagement Meetings

In addition to company specific inquiries, during our engagement meetings with corporate bond issuers, we surveyed management teams using a set of questions about climate risk preparedness and mitigation. The inquiries were either posed during the conversation or researched by going directly to the company’s corporate sustainability disclosure. Our climate risk survey questions are provided in Table 1.

The climate risk categories and underlying questions were informed by the objectives of the Climate Action 100+ (CA 100+). Established in 2018, the CA 100+ is an effort among investors to urge the 160 largest GHG emitters to address their climate risks. (See more on our engagement with Climate Risk 100+ in Teaming Up for Impact: Climate Action 100+ Engagement Efforts in the Corporate Engagements section of this report).

A summary of the results of our survey for the 28 companies we engaged with is provided in Table 2.

The survey results offer a few interesting takeaways among corporate bond issuers. First, boards of directors for most of the companies we spoke with (89 percent) are directly involved in overseeing climate risks. The results align with Climate Action 100+ 2020 Progress Report, which found that 78 percent of the CA 100+ companies have “disclosed clear evidence” of board surveillance of climate risks.

Less favorably, many companies we engaged with have not made the extra step to a designate a board member with direct climate risk oversight responsibilities. CA 100+ benchmark report outcomes were more positive; 45 percent of CA 100+ companies assigned climate risks to a specific board director.

Our survey results also made clear how companies have not coalesced around a strategy for determining whether and which board committee should oversee climate, and ESG risks more generally. For example, climate risks fall under the purview of the board risk committee for two-thirds of the banks we spoke with. For other companies, climate risks are monitored in general board meetings, not by a committee. Others put climate and ESG risk in the charter of committees with sustainability or responsibility in their titles. Interestingly, the nominating and governance committee was cited most often as being in charge of climate risks, at 28 percent for our surveyed companies. As noted here, the nominating and governance committee has assumed an expanded corporate governance role. Once primarily focused on identifying worthy director candidates, “today’s nominating committees are often at the very heart of the most pressing governance debates impacting a company, from oversight of ESG, to gender diversity and corporate culture…”.

From a GHG emission reduction perspective, 71 percent of our surveyed companies have set a target to achieve Scope 1 and 2 net zero emissions by 2050. Our results exceed the conclusion of the CA 100+ benchmark report, which found that 43 percent of the 160 companies have established a Scope 1 and 2 net zero target. The relatively lower results of the benchmark report, published in December 2020, may reflect our lower sample size, the timing of the benchmark report’s research, as well as the acceleration in corporate net zero target setting. For example, according to McKinsey Sustainability, the number of companies globally with net-zero pledges doubled, from 500 in 2019 to 1,000 in 2020. Moreover, a report published in March 2021 highlights that one-fifth of the world’s largest public companies have committed to net zero goals. The pace of net zero goal setting gain momentum in 2020 and continues to set a quick pace in 2021.

Looking at near term and/or incremental GHG reduction goals, we found that climate ambitions differ widely with 40 percent of surveyed companies setting a target below the necessary Paris Agreement-aligned 1.5°C pathway. Per the IPCC 2018 Special Report, to limit warming to 1.5°C from pre-industrial levels, “global net human-caused emissions of carbon dioxide (CO2) would need to fall by about 45 percent from 2010 levels to 2030, reaching ‘net zero’ by 2050.” Company interim goals as well as the 1.5°C emissions trajectory are plotted in Figure 1.

Three companies that have already achieved net zero Scope 1 and 2 emissions are all banks. A fourth bank plans to meet a net zero objective by 2022. We commend the performance but also view Scope 1 and 2 carbon emissions a relatively minor ESG issue for the banking sector. Scope 3 emissions in lending and investing activities are more significant and we would expect these banks to focus on quantifying these exposures through disclosure frameworks such as PCAF.

However, carbon is a financially material ESG consideration for the energy and transportation sectors. GHG target setting is less impressive for the energy companies we surveyed. Of the six energy companies we engaged with, only two plan to cut emissions at a Paris Agreement-aligned rate. On the other hand, for the six companies in the transportation sector, five have set science-based targets.

Finally, we found that approximately 43 percent of the companies we engaged with in Table 2 offer disclosure aligned with the Task Force on Climate-Related Financial Reporting (TCFD) framework. Given the need for standardization in ESG reporting as well as for climate risks specifically, Breckinridge signed on as a supporter of TCFD in 2018. For the energy sector, all surveyed companies provide TCFD reporting, including standalone TCFD reports. The high adoption rate reflects the impact of climate change on the business model and pressure from investors and other stakeholders for the disclosure. On the other end, none of the five retailers we spoke with are in alignment with TCFD. This is an opportunity for further engagement.