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Business strategies failing to keep pace with the need to decarbonise

2nd Jul 2018 /

Transition Pathway Initiative new analysis of the electricity, coal and oil and gas sectors

The Transition Pathway Initiative, now backed by over £7/$9.3 trillion in assets under management, released today its report The State of Transition in the Coal Mining, Electricity and Oil and Gas Sectors.

The report analyses 105 of the world’s largest public companies in three key sectors: coal mining, electricity, and oil and gas.

The report shows significant improvement in companies’ carbon policies and management processes but concludes that most are yet to adopt business strategies that align with the goals of the Paris Agreement.

The report was released today at the Asset Owners’ State of Transition Climate Summit held in partnership with FTSE Russell and the London School of Economics at the London Stock Exchange, where the world’s leading asset owners worked together to identify interventions that asset owners can make to help shape the transition to a low carbon economy.

Key findings

  • The electricity sector and general mining companies are best prepared in terms of their overall quality of management.
  • In contrast, nine pure-play coal companies are stuck on levels 0 and 1 of the management quality assessment.
  • Oil and gas companies acknowledge the importance of climate change but most do not have emissions reduction targets.
  • There is clear progress across all three sectors, with 17 out of the 54 companies improving since TPI’s previous assessment. Progress is related to implementing new carbon management practices, such as explicitly recognising climate change as a business risk / opportunity, and setting emissions reduction targets.
  • Of the 37 electricity utilities assessed, 26 have targets extending to at least 2020, but only 19 have targets encompassing 2030. Of these, over half are projected to be aligned with at least the Paris Pledges in 2020, and most of these also align with a Below 2 Degrees scenario.
  • Only 5 of the electricity companies – E.ON, EDF, Enel, Iberdrola and SSE – are aligned with Below 2 Degrees by 2030.
  • In the oil and gas and mining sectors, very few companies have set emissions targets reduction targets for the carbon emissions from the use of coal, oil and gas in buildings, electricity generation, industry and transport.

Emma Howard Boyd, Chair of the Environment Agency, said:“It’s heartening to see many companies have implemented a wide range of carbon management practices, but it is concerning that companies are yet to align their business strategies with the goals of the Paris Agreement. On current trajectories, global temperature rise is expected to exceed 2°C by 2100, and a 3 to 4°C rise is likely. If investors are to have confidence risks are managed appropriately we need to see more on resilience to the physical threats of climate change in addition to better carbon management.”

Adam Matthews, Co-Chair of the Transition Pathway Initiative and Director of Engagement for the Church of England Pensions Board, said: “Today’s report identifiers that Increasing numbers of electricity utilities are making the transition to renewable energy. However, most companies still do not take a strategic approach to climate change, and most electricity utilities either do not have quantitative, long-term emissions targets, or their targets do not keep pace with what the Paris Agreement requires.”

Professor Simon Dietz at the London School of Economics, who led the analysis, said:“Carbon performance is a crucial measure and in March 2018 we published a discussion paper, which sets out a proposal for how Carbon Performance could be assessed in the oil and gas sector in future.We are now working with companies in the sector to encourage them to provide the disclosures we need to assess their future performance.”

Download the report – The State of Transition in the Coal Mining, Electricity and Oil and Gas Sectors

Download the presentation given by Professor Simon Dietz at the Asset Owners’ State of Transition Climate Summit

 

ENDS

Notes to editors

The latest report updates assessments published by TPI in 2017, extending coverage in the electricity sector from 20 to 41 companies and in the oil and gas sector from 20 to 45 companies. The report also covers 19 of the world’s largest publicly listed mining companies that were engaged in mining coal in 2017/18.

TPI makes two assessments of companies: i) their corporate governance of climate change issues (‘management quality’), and ii) a forward-looking assessment of companies’ CO2 emissions and how they align with international targets (‘carbon performance’).

 

TPI Management Assessment

  • Management Quality is TPI’s framework for assessing the quality of companies’ governance/management of greenhouse gas emissions and of risks and opportunities related to the low-carbon transition.
  • Companies are assigned to one of five levels, from Level 0 (Unaware of, or not Acknowledging, Climate Change as a Business Issue) to Level 4 (Strategic Assessment).

TPI Performance Assessment

  • TPI’s Carbon Performance assessment translates emissions targets made at the international level under the 2015 UN Paris Agreement into benchmarks, against which the performance of individual companies can be compared.
  • We take a take sector-by-sector approach, recognising that different sectors of the economy face different challenges arising from the low-carbon transition, including where emissions are concentrated in the value chain and how costly it is to reduce emissions.
  • In this report we assess the Carbon Performance of 37 electricity utilities that have a significant electricity generation business.)

About TPI

The TPI is an asset owner-led and asset manager-supported global initiative which identifies companies’ preparedness for transition to the low carbon economy, supporting efforts to address climate change. Launched in January 2017, academically-robust and publicly available online, it is now supported by over 25 global asset owners with more than £7 trillion/$9.3 trillion combined AUM.