Investors target slow climate movers including Berkshire Hathaway

Climate Action 100+, the $68 trillion investor-engagement initiative on climate change, is advising its 700 signatories to step up engagement with companies ahead of the US and European proxy season to pressure top emitters to do more to cut their carbon emissions.

Following on from a record number of majority votes on climate proposals last year that included a dramatic board shake up at ExxonMobil, the coming months will be a critical time for investors to support key climate shareholder resolutions at companies including Berkshire Hathaway and energy groups Phillips 66 and Valero Energy.

Recent analysis of climate progress at 166 companies revealed in the investor pressure group’s  Net Zero Company Benchmark gave the lowest scores to eight companies including China’s largest vehicle maker SAIC Motor and Berkshire Hathaway, which owns companies in sectors heavily exposed to climate change risk such as insurance and rail groups.

“We will continue to use the power of collaborative engagements and proxy voting to drive action at our portfolio companies to align their climate ambitions with their long-term strategies and capital allocation decisions,” says Simiso Nzima, a member of the Climate Action 100+ global steering committee and managing investment director of CalPERS global equity allocation – around 49.3 per cent of the giant $478.1 billion portfolio.

“As a long-term investor, we want our portfolio companies to execute sustainable business models and thrive in a low carbon economy.”

CalPERS is a long-term owner of Berkshire Hathaway shares and together with a group of other investors including Brunel Pension Partnership, Caisse de Dépôt et Placement du Québec and State of New Jersey Common Pension Fund is behind shareholder proposals for change at the conglomerate flagged for this proxy season.

“We know that the current climate trajectory presents a systemic risk to investment portfolios and long-term returns to funds’ beneficiaries,” adds Andrew Gray, director, ESG and stewardship at AustralianSuper, also a member of the Climate Action 100+ the global steering committee. “This demands intensified engagement from investors, calling for near-term action from the companies they are invested in. Long-term engagement works, and accountability is key.”

High level progress

Positively, the Net Zero Company Benchmark found some corporate climate progress against key climate indicators and year-on-year improvements on cutting greenhouse gas emissions, improving climate governance, and strengthening climate-related financial disclosures. For example, 69 per cent of focus companies (the world’s largest corporate greenhouse gas emitters) have now committed to achieve net zero emissions by 2050 or sooner across all or some of their emissions footprint, a 17 per cent year-on-year increase.

Elsewhere, encouraging signs of change include 90 per cent of focus companies having some level of board oversight of climate change and 89 per cent of focus companies having aligned with TCFD recommendations either by supporting the TCFD principles or by employing climate-scenario planning.

Challenges

However, the research also reveals more action is urgently needed from companies to support global efforts to limit temperature rise to 1.5°C. One of the most alarming findings reveals the vast majority of companies have not set medium-term emissions reduction targets aligned with 1.5°C or fully aligned their future capital expenditures and the future investment meeting the goals of the Paris Agreement requires, despite the increase in net zero commitments.

According to the assessments only 17 per cent of focus companies have set medium term targets that are aligned with the IEA’s 1.5°C scenario and only 5 per cent of focus companies explicitly align their capital expenditure plans with their long-term greenhouse gas reduction targets.

Elsewhere the survey found a continued failure to integrate climate risk into accounting and audit practices. “Climate accounting and audit appears to be a topic that many companies and their auditors have yet to fully consider when preparing their reports,” state the Benchmark findings. “Climate Action 100+ investor signatories should therefore engage focus companies on this topic to better understand the financial impact that climate-related matters can have on company financial statements and audit work, and the financial implications of company climate targets and decarbonisation strategies.”

Launched in 2017, Climate Action 100+ is now in its fifth and final year of its first phase. The pressure group will move onto a second phase in 2023 set to bring more ambition, urgency and accountability for both companies and signatories.