There has been a big jump in the number of companies in the ASX200 making commitments to net zero carbon targets according to new research released by the Australian Council of Superannuation Investors.
ACSI’s annual climate change disclosure report, Promises, Pathways and Performance, revealed that 49 companies have made net zero commitments for 2050 or earlier as at 31 March 2021, up from 18 compared to the previous period.
This equates to half of the collective ASX200 market capitalization, which means over $1 trillion dollars are now covered by net zero commitments. This demonstrates that capital markets and companies are responding to market signals that ratchet the global economy towards holding warming to 1.5°C
These commitments include a mix of interim targets and pathways that articulate the use of technology and energy agreements to decarbonise their operations.
The IPCC report released last week underlined that climate change presents material financial risks for investors and companies across the globe and will be a catalyst for companies to reassess and realign their targets.
In other findings:
- Eighty ASX200 companies have now adopted the global framework aimed at strengthening climate-related disclosures. TCFD adoption has grown sevenfold since the first year of TCFD disclosure in FY11. With a further 18 companies committed to disclosing against the framework and 17 reviewing this option, the majority of ASX200 companies are expected to be using the TCFD by next year.
Sixty-six companies have set short-term targets (to 2025), 54 medium-term targets (2026-2039) and 37 long-term targets (2040 and beyond). The vast majority of the long-term targets (2040-2050) are net zero targets and all but four are for 2050.
Linking climate change targets to executive remuneration and corporate scorecards is more prevalent. AGL Energy, Ampol, BHP Group, Beach Energy, BlueScope Steel, Origin Energy, Orica, Oil Search, Rio Tinto, South32, Santos and Woodside Petroleum have either set specific weightings to climate change targets, defined hurdles in the corporate scorecard to climate change transition, or disclosed plans to do so in FY21 reporting.
The number of companies disclosing scenario analysis surged 90% year-on-year to 62 in FY20, up from 32 in FY19. Most companies used modelling that results in less than 2°C of warming, with only 26 companies stress-testing their business against a 1.5°C scenario.
ACSI CEO Louise Davidson said the fact that corporate Australia has more than doubled its net zero commitments shows that many companies are adapting to a low carbon future.
“There has been a significant uplift in the management and disclosure of climate-related risks and opportunities in some of Australia’s largest companies over the past year,” she said. “We expect this trend to accelerate over the coming reporting season as companies strengthen targets and revise their net zero commitments in light of the recent IPCC Report findings.”
Ms Davidson welcomed the increase in the number of companies demonstrating how scenario analysis informed their business strategy. However, investors faced challenges in interpreting and comparing the various outcomes, with more than 70 different scenarios being stress tested. There is little disclosure on how scenario analysis is taken into account in determining long-term strategy.
“There is an opportunity for more companies to disclose how their scenario analysis informs their long-term corporate strategies,” she said. “Many Australian boards are clearly integrating climate risk into their strategic decision making by articulating long-term emission reductions targets, and investment in technologies aimed at decarbonising business operations.”
“Embedding pathways to net zero in long-term corporate planning will help close the gap between ambition and delivery of emissions reductions targets. This helps investors understand and manage the risks for the benefit of super fund beneficiaries.”
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