$ 14 trillion investors call for consistency in corporate net zero alignment plans

Through the IIGCC, 53 leading investors, managing more than $ 14 trillion in assets, call for the implementation of new corporate governance measures to ensure that shareholders can hold them to account. companies in meeting “net zero emission commitments”.

At least one-fifth of the world’s 2,000 largest state-owned companies have pledged to achieve net zero targets, including 52% of high-emission companies engaged under the Climate Action 100+ initiative. The lack of standardization of commitments made to date poses a challenge for investors, who increasingly seek to align their overall portfolios with net zero goals, through initiatives such as Net Zero Asset Managers and the Paris Aligned Investment Initiative. . To achieve this, investors must ensure that the goals set by companies are sound and properly implemented, and that action can be taken when they are not. Otherwise, investors are more exposed to climate risk and efforts to transition to a net zero emissions future could be jeopardized.

In the statement released today, investors are calling on companies to: i) disclose a net zero transition plan, ii) identify the director responsible for the plan, and iii) provide investors with a way to vote annually on progress against it. the plan.

“For investors to do their job as custodians of capital, companies need to establish effective mechanisms to demonstrate their net zero transition plans to shareholders and describe how they will be achieved,” says Stephanie Pfeifer, CEO of the IIGCC. “It is clear that shareholder voting and director oversight is necessary for companies to be held accountable for their commitments to achieving a net zero future.”

The publication of investor expectations aims to incorporate the new corporate governance standards on “net zero alignment”. A clear precedent for wider adoption is already in place. As a result of the investor pledge from IIGCC members, more than 10 companies – including Shell, Unilever, Nestlé, Glencore, Iberdrola and TotalEnergies, among others – have already implemented the measures outlined in the statement.

The main highlights of the expectations of companies expressed by investors are:

Disclose a net zero transition plan: this should be provided as part of the climate reports of the Climate Related Financial Disclosures Working Group (TCFD) and use recent benchmarks from the company Climate Action 100+ Net-Zero as baseline metrics to demonstrate progress towards alignment to net zero. Complete information on net zero planning is presented in the annex to the declaration.

Identify which directors are responsible for planning the net zero transition: this allows investors to determine which directors on the board, in addition to the chairman, they should be involved with and potentially (as a last resort) vote against when a plan fails. not provided or that the implementation is insufficient.
Hold a routine advisory vote on the implementation of the Net Zero Transition Plan: in jurisdictions with strong governance conventions and where local law allows. Alternatively, where advisory votes are not allowed, investors might consider reflecting their opinion on the implementation of the transition plan in their voting behavior on other agenda items, such as the election. members of the board of directors.

The entire ‘Investor Position Statement’ is published by the IIGCC, the European membership body for Investor Collaboration on Climate Change and has been developed with a number of leading global investors. plan and members of the IIGCC. Investors supporting the statement include BT Pension Scheme Management, Church of England Pensions Board, GAM Investments, JP Morgan Asset Management and Ethos, among others.

“Investors are increasingly setting net zero goals to tackle climate change, but to be successful, the companies they invest in need to be aligned. A growing number of companies are developing net zero plans recognizing that climate change is a critical consideration. But we need more urgent action and more consistent disclosure. This statement emphasizes that investors want to see net zero strategies, they want the right to vote on them, and they want clear accountability, metrics, and goals. Explains Victoria Barron, Head of Sustainable Investing, BT Pension Scheme Management.

“Transparency and accountability are essential for the effective achievement of net zero commitments. Voting on the company’s net zero alignment plans will allow shareholders to send a clear message to the board of directors on the scale and pace of implementation. Adds Stephanie Maier, Global Head of Sustainable and Impact Investing, GAM Investments.

“Time is against us and if a company is to gain the trust of its shareholders, it needs credible transition plans with clear short, medium and long term objectives covering all material issues. Directors will be fired if plans are not credible, do not provide a clear basis for meeting goals, or if companies do not meet them. Adds Adam Matthews, Director of Responsible Investment, Church of England Pensions Council.

“If we have any chance of closing the gap between current carbon emissions and meeting the Paris Agreement targets, the transition to net zero must be scientifically credible. Responsibility, accountability and the implementation of a credible net zero transition plan, coupled with the provision of good quality data, must therefore be implemented by the board of directors of the issuing companies. And there is no time to waste. In partnership with our investment analysts and portfolio managers, actively engaging on how companies manage risks related to climate change and greenhouse gas emissions remains a major focus of our stewardship efforts, so that we seek to play our part to help close the current gap. added Yo Takatsuki, EMEA Head of Investment Management, JP Morgan Asset Management.

Investors involved in engaging European investors through Climate Action 100+ will put expectations into practice through related corporate commitments. IIGCC is one of the five founding investor networks of Climate Action 100 + 2. This will build on the existing process already underway and help extend this practice to all markets. Expectations also place the topic firmly on the corporate governance agenda for the 2022 corporate AGM season, before which companies will be asked to demonstrate their alignment with investor demands.

The signatories of the declaration also recognize the critical role that proxy advisers and data providers will play in assessing the quality of net zero transition plans and the progress of their implementation to date, and commit to work with these parties to ensure that effective systems are in place.

Overall, the process represents momentum towards a radical change in corporate governance on climate risk. This complements and helps to strengthen the existing activity already underway through “Say on Climate”, which has also achieved significant results alongside the results of parallel engagement of companies through IIGCC members.

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