Benchmark CA100+: an improved but still flawed methodology

 The Climate Action 100+ is the largest investor coalition seeking to engage with the world’s largest greenhouse gas emitting companies in the climate transition. In 2021, the initiative developed the Net Zero Company Benchmark tool to assess the performance of these companies against investors’ climate demands. As the second phase of the initiative begins, Climate Action 100+ has updated the benchmark methodology. This revision makes welcome changes that strengthen the requirements and robustness of the methodology, but it does not address all the flaws and limitations of the methodology. Investors should therefore use the benchmark with caution in their engagement and voting processes, particularly in the current context of the 2023 annual general meetings. 

The Climate Action 100+ benchmark relies on ten disclosure indicators, which verify the publication of certain key information about the company’s decarbonization, and three alignment indicators, which assess the alignment of the company’s actions with the Paris Agreement. Currently, the CA100+ targets 166 high-emitting companies globally.

This tool allows investors to identify issues that need to be addressed in their engagement efforts, as well as companies that should be sanctioned when their climate strategy falls short. The updated methodology is the result of a consultation with investors and other stakeholders during 2022. The first assessments based on this revised methodology will be published in September 2023.

Most of the benchmark methodology remains unchanged. The changes made do not alter the structure of the benchmark, except for the addition of an eleventh disclosure indicator relating to the historical decrease in greenhouse gas emissions.

The adopted changes improve the robustness of the pre-existing indicators:

• The definition of absolute emission reduction targets is now taken into account for medium-term targets.
• The new version of the benchmark is now largely based on the International Energy Agency’s Net Zero Emissions by 2050 scenario, which aims to limit global warming to 1.5°C and projects a halt to the development of new fossil fuel production projects, LNG terminals and coal-fired power plants [1].

• The benchmark asks companies to disclose more information on their use of carbon offsets and negative emission technologies in the decarbonization strategy indicator.
• The criteria for the investment plan indicator are changed and the indicator now requires disclosure of capital expenditures on carbon-intensive assets or products.

Despite these clarifications, the benchmark still has important limitations that require investors to be cautious in its use.

First, the benchmark does not prioritize criteria according to their importance for climate action:

• All disclosure indicators are put on an equal footing while some focus on elements directly related to the transition and the transformation of the business model (e.g., the definition of decarbonization targets) while others are only enabling criteria (e.g., the existence of climate governance or TCFD-aligned reporting).
• Furthermore, the tool focuses mainly on disclosure, to the detriment of alignment. The three alignment indicators are far fewer in number than the eleven disclosure indicators, and they do not cover all sectors. This situation is problematic because the disclosure indicators aim to evaluate the publication of certain key information by the company, but they say nothing about the quality of the information published. It is crucial that investors focus on the alignment of target companies, not simply on improving transparency. Furthermore, the current alignment indicators assess some aspects of the transition (the integration of climate-related risks in financial accounts and audit, the alignment of capital expenditure with the Paris Agreement, and the compatibility of the company’s lobbying policy with the Paris Agreement), but they could be complemented by indicators on other key issues (e.g., the compatibility of decarbonization targets with a 1.5°C scenario).

On the other hand, the methodology used for some transparency indicators is questionable:

• The definition and use of scope 3 is still too limited, even though several leading actors, such as the Glasgow Financial Alliance for Net Zero (GFANZ) and the United Nations High-Level Expert Group (HLEG) [2], have stressed the importance of taking this scope into account. Thus, scope 3 is not applicable to certain sectors (steel, air transport, etc.).
• The setting of greenhouse gas emission reduction targets is mainly based on intensity metrics, to the detriment of absolute metrics, which are not taken into account for all the indicators concerned (short, medium and long-term emission reduction targets, decarbonization strategy).
• The indicators relating to the setting of short- and medium-term targets consider carbon offsetting, whereas it should be reserved for residual emissions, as recommended by the Science Based Targets and Race to Zero initiatives.
• The benchmark could strengthen its requirements on the closure and sale of carbon-intensive assets by requiring the publication of a plan for the closure of carbon-intensive assets, as well as the definition of precise conditions for the sale of carbon-intensive assets.

Reclaim Finance believes that the Climate Action 100+ tool is useful for investors in their engagement and voting decisions, particularly in the context of the 2023 AGMs. However, it is important to keep in mind that its methodology is incomplete and insufficient to ensure that companies are fully aligned with their climate objectives. Investors will therefore need to use other tools – such as Reclaim Finance’s analysis of the transition plans of the oil and gas majors – to ensure that the plans presented to them are appropriate.