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Climate plans of big companies need substance

What will you be doing in 2050? As individuals, most of us struggle to picture what our lives will be like almost 30 years from now. But many of the world’s largest companies and their bankers sound serenely sure of the future. 

To believe their press releases, the midpoint of this century will be the moment when they will no longer emit a single puff of greenhouse gas into the atmosphere without doing something that removes a similar amount. 

Companies as diverse as 3M and Mastercard, and as fossil-fuelled as BP and Shell, have set “net-zero” goals for 2050. Forests will be planted, supply chains will be cleaned up and new technologies will replace dirty power plants, belching trucks and inefficient office buildings. 

The world’s largest lenders to carbon-emitting industries are following suit, with Wells Fargo’s wind farm-illustrated announcement earlier this month making it the last of the big six US banks to set such a target. A search on the financial data service Sentieo shows that mentions of 2050 in corporate announcements have doubled in the past two years. 

But much like Saint Augustine asking to be made chaste (just not yet), such far-off goals raise the suspicion that some executives would like more time before they — or, preferably, their successors — must embrace environmental virtue. 

Today’s CEOs “will all be retired or dead” by 2050, says Patrick McCully, Rainforest Action Network’s climate and energy programme director, a little harshly. Boards may have felt under pressure to come out with net-zero commitments, he says, but he fears that they will now “take the pedal off the metal in terms of how they’re actually implemented”. Such concerns are understandable. A PwC survey released earlier this month showed that climate change ranked only ninth among global CEOs’ perceived threats to growth. More than a quarter of the executives polled claimed to be unconcerned by a warming planet. 

The scepticism is reinforced by the lack of detail most companies have given investors on how they intend to hit their distant targets and, most importantly, how they plan to start working towards them now. 

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But about a quarter of S&P 500 members had made net-zero commitments by the end of 2020, according to FCLTGlobal, which champions long-term investing, and the number is growing fast. Some, such as FedEx and Walmart, aspire to emissions equilibrium in 2040, while less carbon-intensive businesses from PwC to Sky hope to get there as soon as 2030.

Critics have spent decades complaining that companies cannot see beyond the next quarter, so even environmentalists agree that their apparent willingness to tackle such long-term challenges is welcome, especially given that it has emerged despite the short-term pressures of the pandemic. 

It is also increasingly good business. With President Joe Biden promising to put the US on “an irreversible path” to net-zero carbon emissions by 2050, most major economies are leaning on the private sector to meet the goals set out in the Paris climate agreement, which will require trillions of dollars of investment in green technologies.

Their shareholders, too, are turning up the heat. In 2019, 34 asset owners managing $5.5tn pledged to zero out the net emissions from their portfolios within 30 years. BlackRock, the world’s biggest asset manager, has warned it may vote against directors who do not take the issue seriously. 

Most companies with the sense and resources to make even minimal environmental, social and governance commitments have benefited from the vast sums poured into such funds in recent years. But investors are getting choosier, and influential new EU rules on which investment products can call themselves “sustainable” are expected to make them more alert to greenwashing

“Net-zero pathways” have slipped easily into the corporate jargon. But investors need to see meaningful milestones along those paths to 2050, starting with a clear plan for aligning with the UN goal of halving emissions from their 2010 level by the end of this decade.

Companies cannot get away with doing little towards their 2050 goals until 2049, says Bob Eccles, the Saïd Business School professor and sustainability expert. “Give me interim targets,” he says. “Give me the narrative and then tell me what is the logic behind why [you think] you’re going to get to x per cent by 2030 and y per cent by 2040.”

The expected launch this year of a sustainability standards board by the IFRS Foundation, which oversees international accounting standards, should make ESG reporting more consistent. But for now investors are suffering from a shortage of meaningful data by which they can track progress and dissuade executives from fudging the numbers if they miss their targets, Eccles warns.

Without measurable commitments about what changes must be made in the near term, companies’ 30-year plans will ring hollow, however well-intended they may be. 

If investors are as serious as they claim to be about ESG, they should insist on meaningful annual reporting on companies’ progress towards those goals, and hold directors to account who continue to see the challenge as a problem for the next generation. And if they really want to focus attention on the task, they might also encourage boards to tie more executives’ pay to the progress they make in fulfilling it.

andrew.edgecliffe-johnson

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