TPI State of Transition Report 2020 - Simon Dietz, Rhoda Byrne, Dan Gardiner, Glen Gostlow, Valentin Jahn, Michal Nachmany, Jolien Noels and Rory ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
TPI State of Transition Report 2020 Simon Dietz, Rhoda Byrne, Dan Gardiner, Glen Gostlow, Valentin Jahn, Michal Nachmany, Jolien Noels and Rory Sullivan
The Transition
Pathway Initiative
The Transition Pathway Initiative (TPI) is a Disclaimer
global initiative led by asset owners and supported
1. All information contained in this report and on the TPI
by asset managers, established in January 2017. website is derived from publicly available sources and is
for general information use only. Information can change
Aimed at investors, it assesses companies’ progress without notice and The Transition Pathway Initiative does
on the transition to a low-carbon economy, not guarantee the accuracy of information on the website,
supporting efforts to address climate change. Over including information provided by third parties, at any
particular time.
67 investors globally have already pledged support
2. Neither this report nor the TPI website provides investment
for the TPI; jointly they represent nearly US$19 trillion advice and nothing in the report or on the site should be
combined Assets Under Management and Advice. construed as being personalised investment advice for your
Using companies’ publicly disclosed data, TPI: particular circumstances. Neither this report nor the website
takes account of individual investment objectives or the
• Assesses the quality of companies’ financial position or specific needs of individual users. You must
not rely on this report or the website to make a financial or
management of their carbon emissions investment decision. Before making any financial or investment
and of risks and opportunities related to decisions, we recommend you consult a financial planner
the low-carbon transition, in line with the to take into account your personal investment objectives,
financial situation and individual needs.
recommendations of the Task Force on
3. This report and the TPI website contain information
Climate-related Financial Disclosures (TCFD). derived from publicly available third party websites. It is the
responsibility of these respective third parties to ensure this
• Assesses how companies’ planned or information is reliable and accurate. The Transition Pathway
expected future Carbon Performance Initiative does not warrant or represent that the data or other
compares with international targets and information provided in this report or on the TPI website is
accurate, complete or up-to-date, and make no warranties
national pledges made as part of the 2015
or representations as to the quality or availability of this data
Paris Agreement on climate change. or other information.
• Publishes the results via an open-access online 4. The Transition Pathway Initiative is not obliged to update or
keep up-to-date the information that is made available in this
tool: www.transitionpathwayinitiative.org. report or on the TPI website.
TPI strategic relationships 5. If you are a company referenced in this report or on the
TPI website and would like further information about the
The Grantham Research Institute on Climate methodology used in our publications, or have any concerns
about published information, then please contact us. An
Change and the Environment at the London School overview of the methodology used is available on the TPI
of Economics and Political Science (LSE) is TPI’s website.
academic partner. It has developed the assessment 6. Please read the Terms and Conditions which apply to use
framework, provides company assessments, and of the TPI website.
hosts the online tool. FTSE Russell is TPI’s data For the avoidance of doubt, clause 3.3 of the LSE Terms and
Conditions shall be varied and replaced by the following clause:
partner. FTSE Russell is a leading global provider
3.3. You may download information from the Website for
of benchmarking, analytics solutions and indices. personal or commercial use. In the event of any copying,
The Principles for Responsible Investment (PRI) redistribution or publication of copyright material, no changes
provides a secretariat to TPI. PRI is an international in or deletion of author attribution, trademark legend
or copyright notice shall be made. You acknowledge that
network of investors implementing the six Principles you do not acquire any ownership rights by downloading
for Responsible Investment. copyright material.
Research funding partners
We would like to thank our research funding partners for their ongoing support to TPI and for enabling
the research behind this report and its publication.
This report was first published in March 2020. Published under a Creative Commons CC BY licence.
The authors thank Alexa Beaucamp and Saskia Straub for their research assistance.
Editing, design and production management by Georgina Kyriacou. Additional design by RF Design.
Foreword Contents
Summary 3
1. Introduction 6
2. State of transition 2020 9
Management Quality level 10
Management Quality: 12
Adam C.T. Matthews and Faith Ward, Co-chairs, indicator by indicator
Transition Pathway Initiative (TPI)
Trends in Management Quality 14
Heart-breaking scenes of devastation caused by the heatwave
Carbon Performance: 16
and fires that swept through Australia in December 2019 ended alignment with the Paris
what had already been a year during which many lives were Agreement benchmarks
lost, biodiversity destroyed and billions of dollars of damage
incurred. The physical impacts of climate change were felt on
Management Quality 18
every continent in every economy. 2019 was also the year that and Carbon Performance
saw millions of people across the world take to the streets and by geography
protest at the lack of action on climate change.
The clock is ticking – according to the Intergovernmental Panel Corporate emissions 20
on Climate Change’s Special Report on Global Warming of 1.5 reduction targets
Degrees, we have now entered the final decade in which to take
action to avoid catastrophic climate change. 3. Sector focus: Shipping 22
We established the Transition Pathway Initiative (TPI) in 2017
with the aim of defining what the transition to a low-carbon 4. Emerging issues: 24
economy looks like for companies in high-impact sectors such corporate net zero
targets and offsetting
as oil and gas, mining, and electricity generation. Our mission
was to enable asset owners and other stakeholders to make
informed judgements about how companies with the biggest 5. Key sectoral opportunities 26
impact on climate change are adapting their business models for improvement
to prepare for the transition to a low-carbon economy. This
would then enable asset owners to include this information 6. Implications for investors 27
in their investment decision-making, to support their funds’
alignment with the goals of the Paris Agreement and to inform References 31
their engagement with companies.
Use of TPI data has continued to grow considerably with Appendix 1: TPI Management 32
67 funds representing nearly US$19 trillion in Assets Under Quality, indicators
Management now using TPI’s insights. The period 2017 to 2020
was very much about proof of concept, demonstrating that it Appendix 2: Heat map 36
was feasible to objectively and robustly assess these companies’ of Management Quality
quality of management and current and future carbon indicator by indicator
at the sector level
performance in a readily accessible way to influence investment
decision-making and corporate behaviour. TPI has created a
common assessment framework that supports a new form
of robust, outcome-oriented engagement. We were delighted
that TPI was selected to provide the assessment framework for
1
TPI STATE OF TRANSITION REPORT 2020
Climate Action 100+, the US$40 trillion-backed • Extending the TPI assessment framework
global engagement initiative. In January 2020 to include sovereign bonds.
we also saw the launch of the FTSE TPI Climate
• Extending the TPI framework to analyse
Transition Index series, which provides the first
the role investors and finance can play
passive product imbedding forward-looking
in supporting net zero pathways for key
climate data and enables passive investing
sectors and subsectors such as aviation,
to support the low-carbon transition.
automotives, shipping, road freight, steel
Priorities for 2020 and beyond and cement. Through adding a sector-wide
lens to TPI’s company-specific framework,
In 2019 we reviewed TPI’s progress from when we can better understand how investors
it was first established. While there was much can finance the low-carbon transition.
to be proud of, we recognised that we needed
• Building analytical tools that enable asset
to scale up and accelerate our efforts in
owners and asset managers to assess
response to investor demand for independent,
whether their investment portfolios are
academically robust and non-commercial tools
aligned with a 2°C or 1.5°C temperature
to support the transition. Our workplan for the
rise, and that enable stakeholders to assess
period 2020 and beyond reflects that urgency.
the credibility of net zero commitments.
We will be developing and implementing our
priorities in partnership with TPI supporters, • Building a framework that enables investors
and alongside our partners in research (the to assess if corporate lobbying is aligned
London School of Economics’ Grantham with the goals of the Paris Agreement.
Research Institute on Climate Change and
We are immensely grateful to all the
the Environment), data (FTSE Russell) and
organisations that have worked with us over
administration (Principles for Responsible
the first three years of TPI. Based on all that
Investment [PRI]). Those priorities include:
has been achieved in that time we have a high
• Extending the coverage of our listed equity ambition agenda and look forward to working
universe to encompass approximately with all partners and supporters to enable us,
800 listed companies. In total, these the investment community, to take action that
companies account for around 80 per seeks to protect the investments of our clients
cent of the greenhouse gas emissions and beneficiaries and to protect the world into
associated with listed markets. which they and their families will live.
• Extending the TPI assessment framework
to include corporate fixed income. March 2020
“TPI has created a common assessment
framework that supports a new form of
robust, outcome-oriented engagement”
2
State of Transition 2020: Summary
Summary
This 2020 State of Transition Report from the companies are on Levels 0–2, meaning they
Transition Pathway Initiative (TPI) is the latest are demonstrably unprepared for the transition
in a series of annual stocktakes of the progress (Figure S1).
being made by the world’s biggest and most
The average Management Quality level
emissions-intensive public companies on the
of all companies in the TPI database is now
transition to a low-carbon economy.
2.7, more than halfway between ‘building
We have assessed 332 companies on their capacity on climate change’ (Level 2) and
‘Management Quality’ and 238 of these on their ‘integrating climate change into operational
‘Carbon Performance’. Management Quality decision-making’ (Level 3). In summer 2019
tracks companies’ management/governance the average company score was 2.5, so we
of greenhouse gas emissions and the risks and can see modest progress.
opportunities arising for those companies from
Ten out of the 332 companies assessed
the low-carbon transition. Carbon Performance
(3 per cent) are on Level 0: still unaware
measures companies’ emissions intensity and
of or not acknowledging climate change
benchmarks the extent to which the companies
as a business issue. This is the same share
are, or will be, aligned with the global
as in summer 2019. 128 companies (38 per
temperature goals set out in the 2015 UN Paris
cent) are on Levels 0–2. These companies are
Agreement on climate change. Together, these
yet to implement at least one of the following
assessments provide a holistic, backward- and
four basic carbon management practices:
forward-looking view of companies’ progress,
explicitly recognising climate change as a
in terms of both inputs and outputs, in line
relevant business risk/opportunity; having a
with the recommendations of the Task Force
policy commitment to act on climate change;
on Climate-related Financial Disclosures (TCFD).
disclosing operational emissions (Scope 1 and
On Management Quality, nearly 2); setting a target to reduce emissions (even
40 per cent of companies are a qualitative target). Ninety-two companies
demonstrably unprepared for are now on Level 3 and 112 are on Level 4,
the transition a total of 62 per cent across these two levels,
up from 54 per cent a year ago. The share
Management Quality continues to improve, of Level 4 companies has increased from
but only slowly. Nearly 40 per cent of 28 to 34 per cent.
Figure S1. Management Quality level of all TPI companies
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building capacity Integrated into Strategic assessment
operational
decision-making 112 companies: 34%
92 companies: 28% 18 Transport
38 Industrials /materials
15 Transport
45 Energy
34 Industrials /materials
54 companies: 16% 11 Consumer goods
40 Energy
and services
8 Transport 3 Consumer goods
64 companies: 19% and services
19 Industrials /materials
14 Transport 27
10 companies: 3% Energy
25 Industrials/materials 0 Consumer goods
2 Transport 25 Energy and services
3 Industrials/materials 0 Consumer goods
4 Energy and services
1 Consumer goods
and services
3
TPI STATE OF TRANSITION REPORT 2020
More advanced carbon management Performance in nine sectors: airlines; aluminium;
practices are needed autos; cement; electricity; oil and gas; paper;
shipping; and steel. That is 78 more than in the
The vast majority of companies have basic
summer 2019 assessment.
climate governance, emissions metrics and
targets in place. Ninety-seven per cent of Figure S2 shows the results of our assessment.
companies acknowledge climate change Only 31 per cent of the 238 companies are,
as a significant issue for the business and or will be, aligned with the Paris /International
95 per cent have a policy commitment to Pledges benchmark in 2030/50 – the benchmark
act on climate change. Seventy-six per cent that reflects the emissions reductions pledged
of companies disclose their Scope 1 and in the Nationally Determined Contributions
2 emissions and 70 per cent have set an (NDCs) offered by countries as part of the Paris
emissions reduction target. Agreement (and also country commitments
made through other international forums, such
However, fewer companies are implementing
as the International Maritime Organization).
more strategic and long-term carbon
The NDC commitments will be insufficient
management practices. For example, only
to limit global warming to 2°C or below and
41 per cent of companies have incorporated
will have to be upgraded in 2020 as part of
climate change performance in executive
the Paris Agreement process. Just 18 per cent
remuneration; only 40 per cent have
of companies will be aligned with the 2°C
incorporated climate change risks and
benchmark in 2030/50 and just 13 per cent will
opportunities in their strategy. Investors
be aligned with our most ambitious benchmark,
should engage companies to take a more
‘Below 2 Degrees’. These shares are very similar
strategic approach to climate change.
to a year ago.
Lack of consistency between company
New net zero announcements imply the
and trade association positions
use of offsetting, which presents risks
A slight majority of companies disclose their
Over the past year, the race to reach net zero
involvement in trade associations’ lobbying on
emissions has been heating up, with many
climate change but barely any have measures
countries setting net zero targets and worried
to ensure consistency between company and
investors engaging with companies to do the
trade association positions.
same. As a result, companies are beginning to
Corporate climate lobbying is increasingly act. Twenty-one of the 132 TPI-assessed energy
a focus of investor attention, partly because companies have now set a net zero target,
of a fear that companies may be directly or although the scope of emissions covered
indirectly engaged in activities that run counter varies and is usually much less than 100 per
to their publicly stated positions on climate cent of lifecycle emissions (Scope 1 to 3).
action. Therefore, in this assessment cycle Outside the energy sector, companies including
we introduced two new Management Quality EasyJet, HeidelbergCement and ThyssenKrupp
indicators. First, we asked if companies disclose have also announced net zero targets.
their membership and involvement in trade
With net zero targets often comes a reliance,
associations engaged in climate issues; 54 per
to a greater or lesser extent, on offsetting:
cent of companies do so. Second, we asked if
that is, purchasing emissions reductions from
companies ensure consistency between their
beyond companies’ boundaries. Investors
own climate change policies and the positions
should ask what the costs and risks of offsets
taken by trade associations of which they are
are compared with companies’ own emissions
members; only 6 per cent of companies do so.
reductions, and whether or not they will help
On Carbon Performance, more than in achieving the goals of the Paris Agreement.
80 per cent of companies remain off Offset prices vary hugely, but the average price
track for a 2°C world is currently very low, well under what has been
recommended in order to deliver the Paris goals.
Carbon Performance assessment involves Part of the discrepancy reflects the fact that
quantitative benchmarking of companies’ the market is still small; as demand grows, we
emissions pathways against the international would expect prices to do the same. However,
targets and national pledges made as part the price difference may also partly reflect
of the Paris Agreement on climate change. concerns about the reliability of very cheap
We now assess 238 companies on Carbon offsets in the voluntary market at present.
4
State of Transition 2020: Summary
Figure S2. Carbon Performance alignment with the Paris Agreement benchmarks
(number and percentage of companies)
30
13% 37
15%
No disclosure
13
5%
Not aligned
30
13% Paris Pledges
2 Degrees
128
54%
Below 2 Degrees
“Investors should ask what the costs
and risks of offsets are compared
with companies’ own emissions
reductions, and whether or not they
will help in achieving the goals of the
Paris Agreement”
5
TPI STATE OF TRANSITION REPORT 2020
1 Introduction
This is the 2020 State of Transition Report, the making on climate change. Established in
latest in a series of annual stocktakes of the January 2017, TPI is now supported by 67
progress being made by the world’s largest, investors globally with nearly US$19 trillion
most emissions-intensive public companies in Assets under Management and Advice
in the transition to a low-carbon economy. (as of February 2020).
The analysis draws on the entire database The TPI database now covers 332 corporations
maintained by the Transition Pathway Initiative worldwide (up from 268 in 2019) in 16 business
(TPI), a global initiative, led by asset owners sectors assessed on Management Quality, 238
and supported by asset managers, which of them also assessed on Carbon Performance
assesses the progress large corporations are (up from 160 in 2019) (Table 1.1).
Table 1.1. TPI sectoral coverage and Carbon Performance measures
Sector No. of companies No. of companies Carbon
currently assessed on currently assessed on Performance
Management Quality Carbon Performance measure
Oil and gas 50 50 Carbon intensity of
primary energy supply
Electricity utilities 62 59 Carbon intensity of
electricity generation
Coal mining* 23 – –
Automobiles 22 22 New vehicle carbon
emissions per kilometre
Airlines 22 22 Carbon emissions per
revenue tonne kilometre
Shipping 13 13 Carbon emissions per
tonne kilometre
Cement 22 22 Carbon intensity of
cementitious product
Steel 24 24 Carbon intensity of
crude steel production
Aluminium 15 8 Carbon intensity of
aluminium production
Paper 18 18 Carbon intensity of pulp,
paper and paperboard
production
Chemicals 21 – –
Oil and gas 6 – –
distribution
Services 6 – –
Consumer goods 9 – –
Other basic materials 5 – –
Other industrials 18 – –
Total** 332 238
Notes: *TPI will shortly be publishing a discussion paper on the Carbon Performance of diversified mining companies.1
**Companies assessed in more than one sector are counted once.
6
State of Transition 2020: Introduction
In each sector, TPI selects the largest provide a holistic view of companies’ progress,
public companies globally, based on market both backward- and forward-looking.
capitalisation. These companies usually
constitute the largest holdings in investor Management Quality
portfolios, as well as usually being the highest
TPI’s Management Quality framework is
emitters of greenhouse gases. We also cover
currently based on 19 indicators (up from 17
a number of additional companies that are
in the previous iteration), each of which tests
being engaged by the Climate Action 100+
if a company has implemented a particular
investor initiative. These additional companies
carbon management practice (Yes /No), such
are large within their sector, often regional if
as formalising a policy commitment to action
not global, and have high lifecycle greenhouse
on climate change, disclosing its emissions, or
gas emissions or are highly dependent on high
setting emissions targets. These 19 indicators
emitting companies.
(described in detail in Appendix 1) are then used
The data presented in this report were originally to map companies on to five levels, shown in Box
published in the TPI database on its website 1.1. Companies need to be assessed as ‘Yes’ on
(‘the TPI tool’) between mid-2019 and early all of the questions pertaining to a level before
2020. The next annual update of the entire TPI they can advance to the next, with the exception
database will be carried out in stages over the of Level 0. Companies that have been assessed
remainder of 2020. as ‘Yes’ on all Level 4 questions (and thus all
questions in the framework) are described as 4*
Overview of methodologya companies. The data underpinning the indicators
are provided by FTSE Russell on the basis of
Using public disclosures, TPI assesses companies
companies’ public disclosures.
on their Management Quality and Carbon
Performance, two quite different elements
Carbon Performance
of how companies are approaching the low-
carbon transition. The former focuses on TPI’s Carbon Performance assessment
inputs and processes, the latter on outcomes. translates emissions targets made at the
Together, these assessments are intended to international level under the 2015 UN Paris
Box 1.1. TPI levels of Management Quality
• Level 0 – Unaware of (or not acknowledging) climate change as a business issue.
• Level 1 – Acknowledging climate change as a business issue: The company
acknowledges that climate change presents business risks and/or opportunities,
and that the company has a responsibility to manage its greenhouse gas emissions.
This is the point at which companies adopt a climate change policy.
• Level 2 – Building capacity: The company develops its basic capacity, its management
systems and its processes, and starts to report on practice and performance.
• Level 3 – Integrating into operational decision-making: The company improves its
operational practices, assigns senior management or board responsibility for climate
change and provides comprehensive disclosures on its carbon practices
and performance.
• Level 4 – Strategic assessment: The company develops a more strategic and holistic
understanding of risks and opportunities related to the low-carbon transition and
integrates this into its business strategy decisions.
a. Further details of our methodology can be found on the TPI website at https://www.transitionpathwayinitiative.org/tpi/methodology and
in Carbon Performance methodology notes for each sector, available from the Publications menu on the website. The Sectoral Decarbonization
Approach (SDA) was created by CDP, WWF and WRI in 2015 (see https://sciencebasedtargets.org/sda/).
7TPI STATE OF TRANSITION REPORT 2020
Agreement on climate change (and through • Paris Pledges, consistent with the emissions
other international forums) into benchmarks reductions pledged by countries as part of
against which the performance of individual the Paris Agreement in the form of the first
companies can be compared. We take set of Nationally Determined Contributions
a sector-by-sector approach, recognising (NDCs).b These are insufficient to limit
that different sectors of the economy face global warming to 2°C or below.
different challenges arising from the low-
• 2 Degrees, consistent with the overall
carbon transition, including where emissions
aim of the Paris Agreement to hold
are concentrated in the value chain and how
“the increase in the global average
costly it is to reduce emissions. Table 1.1 lists
temperature to well below 2°C above
the Carbon Performance measures used in each
pre-industrial levels and to pursue efforts
sector we cover. These measures are intended
to limit the temperature increase to 1.5°C
to cover the majority of lifecycle emissions, while
above pre-industrial levels”, albeit at
taking into account issues of data availability.
the low end of the range of ambition.
We benchmark emissions in most sectors
• Below 2 Degrees, consistent with a
against three scenarios, derived from
more ambitious interpretation of the
modelling by the International Energy
Paris Agreement’s overall aim.
Agency (IEA):
b. Note that in 2020, all signatories to the Paris Agreement will have to submit new NDCs.
82 State of Transition 2020 In this section we summarise TPI’s latest findings on Management Quality and Carbon Performance, and compare them with our findings from previous years. As well as our familiar methods of analysing companies, we focus this year on regional differences, and on companies’ emissions reduction targets, i.e. looking at how prevalent quantitative targets are, how forward-looking they are, and if companies are on track to meet their targets.
TPI STATE OF TRANSITION REPORT 2020
Management Quality level
Figure 2.1 shows the number of companies on relevant business risk or opportunity; having
each of the five TPI Management Quality levels, a policy commitment to act on climate
both overall and broken down into four clusters change; disclosing operational greenhouse gas
of sectors: energy (comprising coal mining, emissions (Scope 1 and 2c); setting a target to
electricity, and oil and gas production and reduce emissions (even a qualitative target).
distribution), transport (airlines, automobile
Ninety-two companies are now on Level 3
manufacturing and shipping), industrials/
and 112 are on Level 4, a total of 62 per cent
materials (including aluminium, cement,
across these two levels, up from 54 per cent
chemicals, paper and steel), and consumer
a year ago. Reaching Level 3 requires both
goods/services.
disclosure of Scope 1 and 2 emissions and
The average Management Quality level setting emissions reduction targets, which
of all companies in the TPI database is now can be quantitative or qualitative. The share
2.7, more than halfway between ‘building of Level 4 companies has increased from 28
capacity on climate change’ (Level 2) and to 34 per cent. Reaching Level 4 requires the
‘integrating climate change into operational implementation of a wider variety of carbon
decision-making’ (Level 3). A year ago, the management practices, including, among
average company scored 2.5, so we can see others, assigning board responsibility for
modest progress. climate change, disclosing Scope 3 emissions,
supporting domestic and international climate
Ten out of the 332 companies assessed (3 per
policy, and setting quantified emissions
cent) are on Level 0, still unaware of or not
reduction targets.
acknowledging climate change as a business
issue. This is the same share as a year ago. Of the core, high-emitting TPI sectors,
While some companies moved off Level 0 automobile manufacturers, electricity utilities
over the past year, new companies have been and chemical companies lead the way on
added to the database that start on Level 0. Management Quality, all averaging a score
of 3.0 (Figure 2.2). Shipping and coal mining
No fewer than 128 companies (38 per cent)
are currently the worst performing sectors.
are on Levels 0–2. These companies are yet
The average score in these two sectors is
to implement at least one of the following
fractionally below 2, making them the only
four basic carbon management practices:
sectors to fall below this mark.
explicitly recognising climate change as a
Figure 2.1. Management Quality level of all TPI companies
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building capacity Integrated into Strategic assessment
operational
decision-making
112 companies: 34%
92 companies: 28% 18 Transport
15 Transport 38 Industrials/materials
54 companies: 16% 34 Industrials/materials 45 Energy
64 companies: 19% 40 Energy 11 Consumer goods
8 Transport
3 Consumer goods and services
19 Industrials/materials
10 companies: 3% 14 Transport and services
27 Energy
25 Industrials/materials
2 Transport 0 Consumer goods
25 Energy and services
3 Industrials /materials
0 Consumer goods
4 Energy
and services
1 Consumer goods
and services
c. Under the Greenhouse Gas Protocol, “Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from
the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company,
including both upstream and downstream emissions.” See https://ghgprotocol.org/sites/default/files/standards_supporting/FAQ.pdf.
10State of Transition 2020: Management Quality level
Figure 2.2. Management Quality by company and sector
Key: Market capitalisation Small Medium Large
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building Integrating into Strategic
capacity operational assessment
decision making
Airlines
Aluminium
Autos
Cement
Chemicals
Coal mining
Consumer goods
Electricity utilities
Oil and gas
Oil and gas distribution
Other basic materials
Other industrials
Paper
Services
Shipping
Steel
Note: Companies appear in each sector they are assessed in, even if the same company is assessed in multiple sectors
11TPI STATE OF TRANSITION REPORT 2020
Management Quality:
indicator by indicator
Most companies implement basic per cent of companies disclose an internal price
carbon management practices of carbon (Q18) and only 26 per cent undertake
and disclose climate scenario planning (Q17).
Showing little change from a year ago, 97
However, these shares are significantly up on
per cent of companies acknowledge climate
our last assessment.
change as a significant issue for the business
(Question 1d), 79 per cent recognise climate New indicators on corporate climate
change as a business risk/opportunity (Q2) lobbying
and 95 per cent have a policy (or equivalent)
commitment to action on climate change Corporate climate lobbying is increasingly
(Q3). As such, the vast majority of companies a focus of investor attention, partly because
have basic climate governance measures in of a fear that companies may be directly or
place (Figure 2.3). indirectly engaged in activities that run
counter to their publicly stated positions on
Basic emissions metrics and targets are
climate action. Therefore, for this assessment
disclosed more, and more widely, than a
cycle we introduced two new Management
year ago. Seventy-six per cent of companies
Quality indicators:
disclose Scope 1 and 2 emissions (Q5). Seventy
per cent of companies have set some form • Q11. Does the company disclose its
of emissions reduction target (qualitative or membership and involvement in trade
quantitative; Q4), an improvement of almost associations engaged in climate issues?
10 percentage points compared with a year Fifty-four per cent of companies do so.
ago. Sixty-eight per cent of companies have
• Q19. Does the company ensure
set a quantitative emissions target, compared
consistency between its climate change
with less than 60 per cent of companies a year
policy and the positions taken by trade
ago (Q7). Fifty-seven per cent of companies
associations of which it is a member?
have now set a long-term quantified target to
Only 6 per cent of companies do so.
reduce emissions (i.e. of more than five years in
duration; Q14), up from 45 per cent a year ago. Aggregates hide some large
differences between sectors
Fewer companies disclose
the more advanced carbon While on aggregate TPI-assessed companies
management practices perform well on the basic indicators, some
sectors that are key to the transition do not
Fewer companies are implementing more
(see Appendix 2). In particular, within the coal
strategic and long-term carbon management
mining sector only 39 per cent of companies
practices. Although 62 per cent of companies
have explicitly recognised climate change
have nominated a board member/committee
as a relevant business risk/opportunity,
with explicit responsibility for oversight of
and only 35 per cent have set some form of
their climate change policy (Q6), only 41
emissions reduction target, lagging far behind
per cent have incorporated climate change
other sectors. In shipping, only 15 per cent of
performance in executive remuneration (Q15).
companies have nominated a board member/
Fifty-six per cent of companies now committee with explicit responsibility for
demonstrate support for domestic and oversight of their climate change policy, in
international efforts to mitigate climate contrast to electricity utilities where 76 per
change, such as the Paris Agreement (Q10). cent of companies have done so. More analysis
Despite that, only 40 per cent of companies of how individual sectors vary from the TPI
have incorporated climate change risks and average on an indicator-by-indicator basis
opportunities in their strategy (Q16), only 31 can be found in our sector reports.
d. These numbers correspond to the questions used to assess companies on the TPI Management Quality indicators – see Appendix 1.
12State of Transition 2020: Management Quality – indicator by indicator
Figure 2.3. Management Quality, indicator by indicator, mapped against TCFD themes
(% of companies assessed)
Key: Yes No
TPI TCFD
level theme 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0 1. Acknowledge? 97% 3%
1 2. Recognises as risk/opportunity? 79% 21%
1 3. Policy commitment to act? 95% 5%
2 4. Emissions targets? 70% 30%
2 5. Disclosed Scope 1 & 2 emissions? 76% 24%
3 6. Board responsibility? 62% 38%
3 7. Quantitative emissions targets? 68% 32%
3 8. Disclosed Scope 3 emissions? 61% 39%
3 9. Had operational emissions verified? 60% 40%
3 10. Support domestic and intl. mitigation? 56% 44%
3 11. Disclosed trade association involvement? 54% 46%
3 12. Process to manage climate risks? 66% 34%
3 13. Disclosed use of product emissions? 45% 55%
4 14. Long-term emissions targets? 57% 43%
4 15. Incorporated climate change in to exec. renumeration? 41% 59%
4 16. Climate risks/opportunities in strategy? 40% 60%
4 17. Undertakes climate scenario planning? 26% 74%
4 18. Discloses an internal price of carbon? 31% 69%
4 19. Consistency between company and trade assocs.? 6% 94%
TCFD themes
Governance Strategy Risk management Metrics and targets
13TPI STATE OF TRANSITION REPORT 2020
Trends in Management Quality
By the end of the last assessment cycle in up is because they have nominated a board
early 2019, we had researched 272 companies member/committee with explicit responsibility
in 14 different sectors. Since then, we have for oversight of the company’s climate change
reassessed 268 of these companies and have policy for the first time, moving climate change
assessed 64 new companies, including 35 in into the C-suite. Four of the 30 have moved
two new sectors (international shipping, and up because they have had their Scope 1 and 2
chemicals), delivering a total of 332 companies emissions verified for the first time.
in the database as of February 2020. Four
On the other hand, 13 companies (5 per cent)
companies assessed in the last cycle cannot
have moved down from Level 4 to 3. This is
be reassessed, due to corporate restructuring.
partly due to these companies disclosing less.
Out of the 268 companies for which we have Three of these 13 have stopped disclosing
trend data, 165 (62 per cent) have stayed support for domestic and international efforts
on the same level as their last assessment, to mitigate climate change. Two have stopped
79 (29 per cent) have moved up at least one disclosing Scope 3 emissions from use of sold
level, and 24 (9 per cent) have moved down products (applicable to selected companies
at least one level (Figure 2.4). Therefore, we with large downstream emissions only). For
can see that progress is being made by some some companies, similarly to the loss of 4*
companies but the majority are standing still, status described above, the move from Level
and progress is being partly offset by other 4 to 3 is due to our introduction of Q13 on the
companies moving backwards. disclosure of membership and involvement in
trade associations engaged in climate issues:
Only two of the 68 companies that stood
four companies have moved down on account
on Level 4 in their previous assessment have
of failing to satisfy this new indicator.
since attained a 4* rating (E.On and Unilever).
Of the eight companies that achieved a Movement at the bottom
4* rating a year ago, six have lost it, due of the staircase
mainly to our newly introduced assessment
of consistency between company climate Forty-nine companies (18 per cent) have
change policies and the positions taken by moved up from Levels 0, 1 or 2 since our last
trade associations of which companies are a assessment. Thirteen of the 22 companies
member (Q19). The two companies to hold on to have moved beyond Level 2 are in the
to their 4* rating are BHP Billiton and Equinor. energy sector, and eight of these are in
the oil and gas sector. To move to Level 3
Movement at the top of the or beyond, a company must set emissions
Management Quality staircase reduction targets, which 21 companies did
for the first time in the last assessment cycle,
Thirty companies (11 per cent) have moved
as well as publish information on their Scope 1
up from Level 3 in their last assessment to
and 2 emissions.
Level 4. For 12 of these companies, the move
“Progress is being made by some
companies but the majority are
standing still, and progress is being
partly offset by other companies
moving backwards.”
14State of Transition 2020: Trends in Management Quality
Figure 2.4. Trends in Management Quality between the previous and current assessments
Not 165
researched
2.7 Current average MQ level Companies stayed at the same level
64 4 Companies no longer researched 24 Companies moved down at least 1 level
64 Newly researched companies 79 Companies moved up at least 1 level
Not researched 4
Level 4:
Strategic
assessment
Level 4:
Strategic 112
assessment
77
Level 3: Level 3:
Integrating Integrating
into operational into operational
decision making decision making
71 92
Level 2:
Building Level 2:
capacity Building
57 capacity
54
Level 1:
Level 1: Building
Building capacity
capacity
64
58
Level 0: Unaware 9 Level 0: Unaware 10
2018 2019
15TPI STATE OF TRANSITION REPORT 2020
Carbon Performance:
alignment with the Paris
Agreement benchmarks
TPI’s assessment of companies on their Carbon Performance assessments in the
Carbon Performance consists of a quantitative oil and gas sector and have performed our
benchmarking of companies’ emissions first ever Carbon Performance assessment
pathways against the international targets of the shipping sector. We now assess 238
and national pledges made as part of the companies on Carbon Performance in nine
Paris Agreement on climate change. The key sectors: airlines; aluminium; autos; cement;
question the Carbon Performance assessment electricity; oil and gas; paper; shipping; and
seeks to answer is: are companies aligned with steel. This is up from 160 companies in eight
the Paris Agreement goals, and, if not, will they sectors in July 2019. We will also be publishing
be in the future? a discussion paper1 on how to assess Carbon
Performance in the diversified mining sector
Figures 2.5 and 2.6 summarise the TPI Carbon
later in 2020.
Performance data across all sectors, classifying
whether a company is aligned with the Paris Our latest assessment shows that in 2030/50:
Pledges/NDCs benchmark, with a pathway
• 73 companies (31 per cent) are aligned
to limit global warming to 2°C, or with a more
with the least ambitious Paris /International
ambitious pathway to limit global warming to
Pledges benchmark. This means they have
below 2°C.
either already achieved their 2030/50
To summarise these data, we compare a Paris/International Pledges benchmark
company’s emissions intensity in the last year emissions intensity, or they will do so
for which we have data with the benchmarks by 2030/50 based on targets they have
in 2030 (2050 in the oil and gas sector only). set. (Recall that the Paris Pledges/
The group of companies considered to be NDCs benchmark are insufficient to
aligned by 2030/50 comprises: limit global warming to 2°C or below.)
a. Those with explicit 2030/50 emissions • 43 companies (18 per cent) are
reduction targets that are below the aligned with the 2°C benchmark.e
relevant benchmark in 2030/50
• 30 companies (13 per cent) are aligned with
b. Those with explicit targets expiring the most ambitious Below 2°C benchmark.f
before 2030/50, but which would bring
• 128 companies (54 per cent) are not
them below the 2030/50 benchmark
aligned with any of the benchmarks.
c. Those whose current performance is
• 37 companies (15 per cent) do not
already below the 2030/50 benchmark
provide sufficient disclosure for TPI to
In cases (b) and (c), we therefore assume calculate their Carbon Performance.
companies’ emissions intensity does not increase
The share of companies aligned with each
after the last year for which we have data.
of the benchmarks is very similar to a year
Across the database we find that companies’ ago, when 12 per cent were assessed as
emissions intensity is almost always on a being aligned with the most ambitious Below
declining trend. 2 Degrees benchmark, 16 per cent were
assessed as being aligned with the 2 Degrees
Since our last State of Transition Report
benchmark, and 30 per cent were assessed
(published July 2019), we have added 40
e. In the airline and auto sectors, this benchmark corresponds with ‘2 Degrees (Shift-Improve)’. This assumes that transportation will be decarbonised
through a combination of shifting passengers to lower-carbon modes of transport alongside increased fuel efficient and low-carbon technology.
f. In the airline and auto sectors, this benchmark corresponds with ‘2 Degrees (High Efficiency)’. This assumes there is no shift in passengers to
lower-carbon modes of transport; instead all emissions reductions are delivered through increased fuel efficiency and low-carbon technology.
16State of Transition 2020: Carbon Performance – alignment with the Paris Agreement benchmarks
Figure 2.5. Carbon Performance alignment with the Paris Agreement benchmarks
(number and percentage of companies)
30
13% 37
15% No disclosure
13
5%
Not aligned
30
13% Paris Pledges
128 2 Degrees
54%
Below 2 Degrees
Figure 2.6. Carbon Performance alignment with the Paris Agreement benchmarks by sector
and cluster (number and percentage of companies)
100%
2 2 1 1
1 3 1 1
13
5 3
80% 2
1 7
5
8
60% 11 5
39 5 9
13 19
40%
1
25 5 12
1
20%
8
2 5 3
9 3
5 1 1
0%
Electricity Oil & gas Aluminium Cement Paper Steel Airlines Autos Shipping
utilities
Energy Industrials and materials Transport
Below 2 Degrees 2 Degrees Paris Pledges Not aligned No disclosure
as being aligned with the least ambitious 3, our sector focus on shipping for more
Paris/International Pledges benchmark. details). Such companies are unlikely to be
representative of the wider sector, however.
When disaggregating our results by sector,
we see alignment with the Paris goals most In electricity, 49 per cent of utilities assessed
frequently in the shipping sector, followed in are aligned with the Paris Pledges benchmark,
order by paper, electricity utilities and autos just under half of which are aligned with the
(Figure 2.6). Below 2 Degrees benchmark. This partly reflects
benchmarking of European electricity utilities,
The shipping sector stands out from its peers.
which typically have a low emissions intensity
Its high rate of alignment can be attributed
and ambitious targets under the EU’s regulatory
to the fact that the largest publicly owned
regime, with global goals. Outside the EU, the
shipping companies operate relatively young
picture in the electricity sector is less positive.
fleets of large, fuel-efficient vessels (see Section
17TPI STATE OF TRANSITION REPORT 2020
Management Quality and Carbon
Performance by geography
European companies lead the way on European companies also lead the
Management Quality while Chinese way on Carbon Performance, driven
companies lag behind in part by a tough regulatory regime
The bar charts in Figure 2.7 give a breakdown The share of companies aligned with the Paris
of Management Quality score by region using Agreement benchmarks is higher in Europe
individual country data (that is, from the than it is in other geographies (see the pie
country in which the company is listed). charts in Figure 2.7). Fifty-eight per cent of
European companies are aligned with the Paris
The average Management Quality score of
Pledges /NDCs and 36 per cent are aligned
European companies across all assessed sectors
with 2 Degrees or Below 2 Degrees. This relatively
is 3.4 and 63 per cent of European companies
large share of companies in alignment with
are on Level 4. There are no Level 0 companies
the benchmarks is partly due to the relatively
listed in Europe. The average Australian
tough regulatory regime for carbon emissions
company posts a Management Quality score
in Europe compared with other regions; this
of 3.0, while North American companies lag
has driven emissions intensity improvements
slightly behind, averaging 2.9. While the share
in electricity and autos, for instance. Forty per
of companies on Level 1 is similar in Europe
cent of Japanese companies are aligned with the
and North America, Europe has a significantly
Paris Pledges/NDCs benchmark, although only
larger share of Level 3 and 4 companies.
10 per cent are aligned with 2 Degrees or Below
The average Chinese company across all 2 Degrees. Twenty-six per cent of companies
assessed sectors has a Management Quality in North America are aligned with the Paris
score of just 1.1. A particularly large share of Pledges /NDCs benchmark and 16 per cent
Chinese companies sits on Level 1, just at the are aligned with 2 Degrees or Below 2 Degrees.
point of acknowledging climate change as a Disclosure of emissions is particularly lacking
business issue for the first time. in China and ‘Other Asia’, which includes India.
18State of Transition 2020: Management Quality and Carbon Performance by geography
Figure 2.7. Carbon Performance alignment with the Paris Agreement benchmarks and Management
Quality by geography
Russia
1 1 1 China
5%
North America 14% 5%
6 19
34 34 Europe 86%
4 7
24 44
63% 33%
20 3
36% 12
8 1 3 3 2
8 57%
5% 49 0
2 11% 12
7 7 22% 1
10% 10% 15
27% 0 0 Japan
5
9% 17 2
4 3
6% 6% 4
7 5 10% 13%
0 Other Asia 4
12% 10 9
29% 30%
16 16 14
47%
14
Latin America Africa 8
18 12
53%
6 9
3 3 1 4
13%
2
25% 3
3 0
1 1 Australia and
5 2 New Zealand
0 63% 100%
1 1
3
27%
0 0
7
1 7
9% 64%
4
3
1 1
Carbon Performance (No. and % of companies)
No disclosure Not aligned Paris Pledges 2 Degrees Below 2 Degrees
Management Quality (No. of companies)
Level 0 Level 1 Level 2 Level 3 Level 4
Note: We have clustered the companies according to the following breakdown: North America (102 companies); Europe (78); Russia (8);
Japan (38); China (27); Other Asia (50); Latin America (8); Australia and New Zealand (16); Africa (5).
19TPI STATE OF TRANSITION REPORT 2020
Corporate emissions
reduction targets
A key ingredient in TPI’s Carbon Performance has advanced for all sectors except airlines.
assessment is companies’ quantified emissions We see a particularly large jump in steel, where
reduction targets. This section focuses on these the average target year has recently moved
targets in more detail. out from 2018 to 2026, reflecting a number of
leading steel makers setting long-term targets
How many companies have set for the first time.
quantitative targets?
Are companies on track to hit
Using our Management Quality data, we their targets?
find that 67 per cent of the 238 companies
we assess on Carbon Performance have set a To help answer this question, we compare
quantitative emissions reduction target, while company targets with recent trends in
55 per cent have set a long-term quantitative their historical emissions. We do this in Figure
target (of more than five years in duration). 2.9 for all companies assessed on Carbon
Performance that have also set a long-term
How far forward-looking target extending to at least 2025. To make
are company targets? the comparison, we first measure by how
much these companies reduced their emissions
To help answer this question, we calculate
intensity between 2014 and 2018. We then
the average target year for all TPI-assessed
calculate how much further they must reduce
companies for which we could calculate
their emissions intensity to hit their targets.
Carbon Performance (Figure 2.8). In 2019,
the average target year across all companies The average annual reduction rate for all
was 2027. At the sector level, electricity companies with a 2025 target was 2.23
utilities are the most forward-looking, with per cent between 2014 and 2018, while
an average target year of 2033, while airlines the reduction rate for all companies with
are the least forward-looking, with an average historical data was 1.91 per cent, meaning
target year of 2020.g Among the cluster of that companies with targets have reduced
industrial/materials sectors, the average target emissions relatively more than companies
year ranges from 2024 (in the aluminium without targets. Compared with other sectors,
sector) to 2026 (steel). Among the cluster of paper producers and electricity utilities reduced
transport sectors there is more variance, with their emissions intensity the most between
the average target year ranging from 2020 2014 and 2018. In both of these sectors,
in airlines to 2030 in shipping. Despite the continuing on the same pathway would more
significance of emissions from the oil and gas than deliver companies’ 2025 targets. In autos
industry to climate change and the need to set and shipping, on average companies reduced
out a long-term pathway to decarbonisation, their emissions intensity between 2014 and
the average target year in oil and gas is 2023. 2018, but delivering on long-term targets
will require an increase in the annual rate
Figure 2.8 also shows trends over the last three
of reduction. Steel, cement and oil and gas
TPI assessment cycles in the average target
producers did not reduce their emissions
year. We would expect the average target year
intensity between 2014 and 2018. Steel and
to advance from one assessment cycle to the
cement producers’ intensity marginally
next as a matter of course. In that sense the
increased, in fact. Hitting long-term targets
‘run rate’ is a one-year increase in the average
will require these sectors to significantly step
target year, each year we reassess a sector.
up their efforts.
At the sector levelh the average target year
g. We deem a number of company targets in the airline sector ineligible for Carbon Performance assessment because they target net emissions
reductions and are insufficiently clear on how much the airlines in question will reduce their own, gross, emissions. See Dietz et al. (2019).2
h. Comparing how the average target year changes across all sectors is not meaningful here as we assess more sectors in 2019 than in 2017 and 2018.
20State of Transition 2020: Corporate emissions reduction targets
Figure 2.8. Average year of company targets by sector over the last three TPI assessment cycles
Average target year Assessment
cycle
2020 2025 2030
2017
Oil & gas
2018
Electricity utilities 2019
Airlines
Autos
Shipping
Aluminium
Note: The oil and gas and shipping
Cement sectors have been assessed once
by TPI, airlines and aluminium
Paper assessed twice, and electricity
Steel utilities, autos, cement, paper
and steel three times.
Figure 2.9. Historical rates of reduction of emissions intensity (‘actual reduction’) compared with
required rates of reduction to meet companies’ own emission reduction commitments extending
to 2025 (‘committed reduction’)
Actual reduction in emissions intensity, 2014–18
Committed reduction in emissions intensity, 2018–25
Paper
Electricity utilities
Autos
Shipping
Note: For some companies
Oil & gas the 2025 target is an
interpolation between their
current emissions intensity
Cement and their longer-term target
(e.g. 2030 target). Airlines
and aluminium are excluded
Steel because there are too few
data points by 2025.
-4 -3 -2 -1 0 1
Annual average rate of emissions reduction (%)
Are company targets aligned with Paris Agreement goals. This is the purpose
the Paris Agreement goals? of our Carbon Performance assessment.
Comparing companies’ own targeted Of the 89 assessed companies with a target
reduction rates with the rates they extending to 2025 or beyond, 51 (57 per cent)
accomplished historically tells us something are projected to be aligned with the Paris
about companies’ ambitions but it does Pledges. Only 33 companies (37 per cent) will
not tell us whether or not the targets will be aligned with 2 Degrees and only 28 (31 per
bring companies into alignment with the cent) will be aligned with Below 2 Degrees.
21TPI STATE OF TRANSITION REPORT 2020
3 Sector focus: Shipping
In terms of carbon emissions intensity, the Carbon Performance
largest publicly owned international shipping
In contrast to Management Quality, the
companies have surprisingly clean operations.
Carbon Performance of the largest publicly
Sixty-one per cent are already aligned with the
owned companies in international shipping
Below 2 Degrees benchmark. However, these
is relatively good, with the majority already
companies are unlikely to be representative
aligned with our most ambitious Below 2
of the sector as a whole.
Degrees benchmark for 2030 (Figure 3.2).
TPI published its first assessment of In fact, five of the 13 companies have set long-
international shipping in December 2019, term targets stretching to 2050, most of which
showing that the sector makes a significant are aligned with – or are more ambitious than
and growing contribution to climate change – the International Maritime Organization (IMO)
– currently accounting for over 2 per cent of industry target for that date. In addition, one
global CO2 emissions.3 Like aviation, shipping company, A.P. Moller-Maersk, has set a net zero
is considered to be one of the sectors in which CO2 emissions target for 2050.i
emissions abatement is harder to achieve than
The level of alignment with the TPI benchmarks
in others, mainly due to the high cost of and
is significantly higher in shipping than in
lack of availability of low-carbon technologies,
any other TPI sector. It is important to note,
but also due to the fragmented structure
however, that this strong Carbon Performance
of the industry.4
is unlikely to be representative of the shipping
We assessed the Management Quality and sector as a whole, for two reasons:
Carbon Performance of the international
1. Company size – Our research focuses on
freight shipping sector’s 13 largest publicly
the largest publicly owned companies
owned companies, selected on the basis
engaged in international freight shipping.
of market capitalisation.
Large companies tend to operate
Management Quality newer, larger vessels, which have lower
emissions intensities than smaller vessels.
Overall, the international shipping sector This is particularly true of container
performs poorly on Management Quality shipping: the emissions intensity of the
(Figure 3.1). The average Management largest containerships is less than half
Quality score of the companies assessed that of the smallest containerships.5
is 1.9, putting the average company just
2. Fleet composition – The emissions intensity
below Level 2, building capacity. This is lower
of a shipping company is determined
than TPI’s other transport sectors: autos
not only by its emission mitigation efforts,
and airlines have average scores of 3 and 2.6
but also by the composition of its fleet.
respectively. In fact, international shipping,
For example, this is because emissions
along with coal mining, is the joint-worst
intensity varies widely by vessel type.
performing sector on Management Quality
in the TPI database at present. A final point to note is that there are well
recognised data quality issues in the shipping
Nearly half of the shipping companies
sector, at both an industry and a company
we assessed fail to explicitly recognise the
level. We would expect the quality and
business risks and opportunities presented
consistency of emissions data to improve in the
by climate change, and almost 40 per cent
future, particularly with the introduction of the
fail to disclose their Scope 1 and 2 emissions.
IMO’s new mandatory Data Collection System
Only 15 per cent of companies have allocated
and the expected publication of the Fourth IMO
board responsibility for climate change.
Greenhouse Gas Study later in 2020.
i. The company states that its aim is to achieve net zero emissions from its own operations, through the use of alternative fuels, rather than
by purchasing carbon offsets from other sectors. This contrasts with the net zero targets set by several airlines, which are expected to be met
in part through carbon offsetting.
22You can also read
