A powerful and improved framework ahead of the 2022 AGM season
The proposed revision of the Benchmark for 2022 (3) provides welcome improvements. Most notably, it now uses the IEA’s Net Zero Emissions (NZE) scenario by 2050 for sectors where data is available, instead of the less ambitious “Beyond 2 Degrees” scenario used last year. Other improvements concern scope extension (eight additional companies analyzed), the inclusion of an alignment indicator assessing climate policy engagement and lobbying (based on Influence Map’s methodology) and new indicators on “Just Transition” and climate accounting.
Therefore, the CA100+ Benchmark has the potential of becoming an essential tool for engagement. Being produced by a coalition that gathers 615 investors with $60 trillions of assets under management, the benefits from a high degree of legitimacy, confidence and recognition by both investors and emitters (2). Moreover, it provides public and comparable data on a very wide range of companies and criteria. Results are also disclosed publicly, well ahead of the US and European AGM seasons.
Three points of attention to have in mind when using the Benchmark
To materialize the Benchmark’s potential, investors must be aware of (and address) some of its weaknesses that currently prevent it from becoming a central and effective tool for engagement:
- On a formal level, the Benchmark is too complicated and undifferentiated to be used “as is” by investors to inform pre-AGM engagements and votes. It collects over 20 data points aggregated in 10-disclosure-related indicators and tracks alignment on a dozen of sector-specific metrics. This plethora of information tends to iron out the differences between essential criteria that are relevant markers of a company’s transition (greenhouse gas – GHG – emissions reduction targets, CAPEX alignment) and desirable criteria for this transition (climate governance and reporting, lobbying alignment, etc.).
- As regards its content, the Benchmark focuses heavily on commitments and disclosure-related indicators. The “alignment” component is relatively weak in comparison: it does not cover all sectors, does not always provide actionable aggregated results (4), and omits some key sector-specific alignment criteria. For example, the oil & gas assessment does not examine whether a company has ceased new investment in exploration and production, despite this issue being a key prerequisite to stay on a 1.5°C pathway according to the IEA.
- Finally, the methodology used for some indicators is questionable. This is especially the case for GHG emissions reduction targets, which are based on carbon intensity instead of absolute emissions (thus allowing companies increasing their absolute emissions to meet the criteria under certain conditions). Moreover, the methodology for sub-indicators testing whether the GHG targets are aligned on a 1.5°C pathway is flawed and should not be taken into account by investors (5)
These weaknesses may partly explain the unfortunate paradox we witnessed during the 2021 AGM season: despite the fact that investors heavily used the Benchmark to engage companies, their voting behavior was totally uncorrelated with its results and prescriptions. TotalEnergies is a particularly striking example. 34 investors published an AGM statement implicitly criticizing TotalEnergies’s climate plan by pointing out its failure on most of the CA100+ Benchmark indicators. Yet a few days after signing the statement, some large investors, such as Amundi or AXA IM, approved TotalEnergies’ failing climate plan as if the CA100+ Benchmark had never been published.
Ahead of the 2022 AGM season, Reclaim Finance believes that there is still room for investors to adress the Benchmark’s shortcomings and establish it as a central and credible tool for effective shareholder engagement. A simplified and operationalized version of the Benchmark could notably guide investors’ expectations on “Say on Climate” resolutions and allow them to automatically reject failing climate plans presented by management.