TPI State of Transition Report 2021 - Simon Dietz, Beata Bienkowska, Dan Gardiner, Nikolaus Hastreiter, Valentin Jahn, Vitaliy Komar, Antonina ...
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TPI State of Transition Report 2021 Simon Dietz, Beata Bienkowska, Dan Gardiner, Nikolaus Hastreiter, Valentin Jahn, Vitaliy Komar, Antonina Scheer and Rory Sullivan
The Transition
Pathway Initiative
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This report was first published in April 2021. Published under a Creative Commons CC BY licence.
Editing and production management by Georgina Kyriacou. Additional design by RF Design.
Contents
Foreword 2
Summary 3
1. Introduction 6
2. State of transition 2021 10
Management Quality:
climate governance 11
Carbon Performance:
alignment with the Paris
Agreement benchmarks 20
Management Quality
and Carbon Performance
by geography 25
3. The link between
Management Quality
and Carbon Performance 27
4. Sector focus:
Diversified mining 30
5. Explainer: interpreting
emissions scenarios and
benchmarks 32
6. Implications for investors 35
Appendix 1: TPI Management
Quality indicators 36
Appendix 2: Heat map
of Management Quality,
indicator by indicator 40
TPI Research Team 41
PHOTO: NUNO MARQUES / UNSPLASH
1
TPI STATE OF TRANSITION REPORT 2021
Foreword
When we established the Transition Pathway Initiative in 2017 with the
vision that it would enable asset owners and asset managers to play
their role in driving the low carbon transition, we didn’t anticipate the
scale of the impact it would be having some four years later. Today,
at the beginning of the transition decade, we have over 100 funds with
$25 trillion in assets under management (AUM) and advisement using
TPI and a strategic partnership supporting the Climate Action 100+
benchmark used by 570 investors with $54 trillion AUM.
Central to the TPI vision is having an assessment framework, based
Adam Matthews, on publicly disclosed information, that enables investors to objectively
Chair, Transition and robustly assess corporate practices and processes and their impact
Pathway Initiative in terms of real-world reductions in carbon emissions. From the start
(TPI) our view has been that corporate disclosure is fundamental to enabling
investors to understand how companies are preparing themselves
for the low carbon transition. No ifs or buts – this information must
be disclosed publicly, for all to see.
This report, and the company-by-company assessments on the
TPI website, tell investors and companies exactly where they stand.
Much has been achieved, but we are not on target and companies
must therefore accelerate their efforts. They need to move from
commitments and target-setting to publishing transition plans
that can be independently assessed by TPI, enabling equity and
debt investors to understand the company’s transition strategy and
capital investment plans. Investors also need to step up and support
Faith Ward, those companies with credible transition plans and, where needed,
Transition Pathway provide the finance needed to deliver on these plans.
Initiative (TPI) Investors and companies cannot do this alone. We need policy
frameworks that both incentivise (e.g. carbon pricing, taxes) and
mandate action, thereby helping to scale up private capital investment
in the low carbon transition. This is why it is essential that investors
also assess sovereign bonds and governmental ambition and action.
Additionally, it underlines the need for continued focus on the
relationship between corporate lobbying and influence on public policy.
As we move through this transition decade the complexity will
grow and this will require TPI to broaden and deepen our analysis
and understanding. We will do this based on the principles that have
served TPI so well: independence, academic rigour, full transparency
and no barriers or paywalls.
“As we move through this transition
decade the complexity will grow and
this will require TPI to broaden and
deepen our analysis and understanding.”
2
State of Transition 2021: Summary
Summary: key findings
401
Watch the
presentation of the
key findings from
the State of Transition
2021 report, by Simon
COMPANIES ASSESSED BY TPI. Dietz, TPI’s Head
THEY REPRESENT 16% OF GLOBAL of Research on the
TPI website
MARKET VALUE.
16
SECTORS ASSESSED BY TPI FROM
FOUR CLUSTERS: ENERGY,
401 companies from 16 business sectors
INDUSTRIALS AND MATERIALS, are covered by the TPI State of Transition
TRANSPORT, CONSUMER GOODS Report 2021. These companies represent
AND SERVICES. approximately 16% of global market value
and a much larger share of global greenhouse
gas emissions from listed companies.
2.6
Most companies in the TPI universe1 now
have basic carbon management practices
in place, such as a policy commitment
to act on climate change and disclosure
of operational greenhouse gas emissions,
AVERAGE MANAGEMENT but most companies are still not taking
QUALITY SCORE. COMPANIES ARE a truly strategic approach to the issue.
HALFWAY BETWEEN ‘BUILDING The average Management Quality score –
assessing companies’ climate governance
CAPACITY ON CLIMATE CHANGE’
– of the 401 companies in the TPI universe
AND ‘INTEGRATING CLIMATE is 2.6, which is slightly over halfway between
CHANGE INTO OPERATIONAL ‘building capacity on climate change’
DECISION-MAKING’. (Level 2) and ‘integrating climate
change into operational decision-making’
(Level 3). Strategic carbon governance and
15%
management practices are found at Level 4.
The average Management Quality score
of the TPI universe is marginally lower
than last year, when it was 2.7. This is partly
attributable to the addition of new companies
OF COMPANIES ARE ALIGNED
to the universe: companies added over the last
WITH THE BELOW 2°C year average only 2.0. This is associated with
BENCHMARK IN 2050. their relatively small size and concentration in
emerging markets. We also see limited progress
among companies scored previously by TPI:
1 The ‘TPI universe’ refers to the companies that TPI has assessed in its latest research cycle.
3
TPI STATE OF TRANSITION REPORT 2021
69% of companies have stayed on the same targets. Electricity utilities have reduced
Management Quality level, 17% have moved up their emissions the most and are on track
at least one level, while 14% have moved down to meet their 2030 targets, but even they
at least one level. Most movement is between are not on track to meet their 2050 targets.
Levels 3 and 4 and it goes in both directions. Oil and gas companies have hardly reduced
Companies appear to be struggling to maintain their emissions intensities, while their targeted
their performance against key indicators at the intensity reductions are very modest. Diversified
corporate–policy interface, in particular in terms mining companies with targets, and aluminium
of support for climate policy and disclosure producers, have increased their carbon
of climate lobbying by trade associations. intensities in recent years.
On Carbon Performance – our measure Now that we have more data, we see a
of how current and future emissions align clearer, though still imperfect, correlation
with the goals of the Paris Agreement emerging between Management Quality
– 15% of companies now align with the and Carbon Performance. Companies at
most ambitious Below 2°C benchmark a higher Management Quality level disclose
in 2050, 2% align with 2°C, but 47% better data on emissions and activity and are
do not align with any of the benchmarks statistically more likely to be aligned with at
and 16% provide insufficient disclosure. least the Paris Pledges scenario (i.e. consistent
The pattern of alignment in 2030 is similar. with the reductions pledged by countries as
part of the Paris Agreement in the form of the
Although Carbon Performance remains
first set of Nationally Determined Contributions
weak, we see promising signs:
or NDCs). Furthermore, high Management
• The share of companies previously Quality in 2017 predicted faster emissions
scored by TPI that have increased their reductions between 2017 and 2019: companies
alignment with Below 2°C in 2030 has that were on Management Quality Level 4 in
risen slightly, and the share of previously 2017 reduced their emissions intensity by an
scored companies providing insufficient average of 5.3% between 2017 and 2019, nearly
disclosure has fallen slightly. four times more than Level 0 to 3 companies.
• Although companies’ emissions reduction Figure S1 picks out the leaders and laggards
targets are still not ambitious enough, they in the TPI universe. We define leaders as
are becoming longer-term. The average companies at Management Quality Level 4
target year is now 2039, a meaningful or 4* and aligned with Below 2°C in 2050. We
increase on the average target year of define laggards as companies at Management
2032 found in last year’s analysis. Quality Levels 0–2 and those not aligned with
any Carbon Performance benchmarks. There
• We see an encouraging momentum
are more laggards than leaders in number
behind net zero targets. A year ago, 14
and, due to the huge size of Saudi Aramco,
companies had genuine net zero targets
in market capitalisation.
covering their most material emissions.
One year later, this number has more
than doubled to 35 companies.
“The 2021 UN Climate Change
Although an increasing number of companies Conference (COP26) is an
now have net zero commitments, they often opportunity for companies
fail to cover the most significant emissions. to accelerate their efforts by
For example, net zero pledges in the oil and setting ambitious emissions
gas sector typically cover operational emissions reduction targets, both long-term and
and only sometimes include downstream intermediate, and to implement strategic
emissions from the use of companies’ products. carbon management and governance
Net zero production targets in autos similarly practices. Next year we hope to see
exclude emissions from the use phase of sold a much higher share of sectoral leaders –
vehicles (the majority of lifecycle emissions those at Management Quality Level 4
for new vehicles). or 4* and aligned with the Below 2°C
benchmark in 2050.”
In most sectors, companies are not reducing
emissions fast enough to hit their 2030 BEATA BIENKOWSKA, TPI RESEARCH DEPUTY
targets. In no sector are companies reducing AND PROJECT LEAD
emissions fast enough to meet their 2050
4
State of Transition 2021: Summary
Figure S1. The leaders and laggards in Carbon Performance and Management Quality across
the TPI universe (size of box represents relative size by market capitalisation)
Leaders: Level 4 or 4* and aligned with Below 2 Degrees Laggards: Levels 0-2 and not aligned with any benchmark
Saudi Aramco CNOOC Lukoil
SAIC Phillips
motor 66
EOG Valero
Resources Energy
Marathon TATNEFT
Petroleum
Pioneer Geely Tenaga
Natural Nasional
Resource
Oil & NTPC Novoli-
Natural petsk
Gas Steel
1 2 3
4 5 6 7 8
9 10 11 12 13
16 17 18 19
14 15
22 23 24 25
21 27 28 29 30
20
26 31 32 33 34
Enel Rio Tinto Iberdrola Dominion Orsted E.ON Endesa CMS EDP
Energy Energy
Arcelor 35 36
Public Mittal
National Grid CRH
Service
Enterprise 37
Group 38 39
40
1. Concho Resources 11. Easyjet 21. Hawaiian Electric 32. United States Steel
2. Serverstal 12. Portland General Electric 22. Buzzi Unicem 33. QAMCO
3. CenterPoint Energy 13. Kyushu Elec Power 23. Korean Air 34. Shandong Chenming
4. Petro China 14. Singapore Airlines 24. China Southern 35. Pinnacle West Capital
5. Noble Energy 15. Brilliance 25. Ovintiv 36. NRG Energy
6. China Resources Power 16. Semen Indonesia 26. Air China 37. United Continental
7. Marathon Oil 17. Lee & Man Paper 27. Azul 38. Cemex
8. HollyFrontier Manufacturing 28. Nippon Paper Industries 39. Voestalpine
9. Diamondback Energy 18. PGE 29. Kobe Steel 40. Acerinox
10. Nine Dragons Paper 19. Indah Kiat Pulp & Paper 30. Siam City Cement
Industries 20. Dangote Cement 31. Daio Paper
5
TPI STATE OF TRANSITION REPORT 2021
1 Introduction
This is the 2021 State of Transition The analysis draws on the entire database
Report from the Transition Pathway maintained by TPI, a global initiative led
Initiative (TPI). Each year we review by asset owners and supported by asset
the progress made by the world’s managers. Established in January 2017, TPI
highest-emitting public companies on is now supported by 100 investors globally with
the transition to a low-carbon economy. US$25 trillion in assets under management and
The companies analysed in this year’s advice (as of March 2021). The TPI database
report are collectively worth US$11 trillion, now covers 401 corporations worldwide (20%
approximately 16% of global market cap.2 up on last year) in 16 business sectors (Table 1.1).
Table 1.1. TPI sectoral coverage and Carbon Performance measures associated
with the sectors
Sector No. of companies No. of companies Sectoral Carbon
assessed on assessed on Carbon Performance measures
Management Quality Performance
Coal mining 35 - -
Energy
Electricity utilities 68 66 Carbon intensity
of electricity generation
Oil and gas 54 53 Carbon intensity of
primary energy supply
Oil and gas 7 - -
distribution
Automobiles 23 23 New vehicle carbon
Transport
emissions per kilometre
Airlines 23 23 Carbon emissions per
revenue tonne kilometre
Shipping 16 16 Carbon emissions per
tonne kilometre
Aluminium 19 13 Carbon intensity of
Industrials/materials
aluminium production
Cement 33 33 Carbon intensity of
cementitious product
Chemicals 36 - -
Diversified mining 13 13 Carbon emissions
per tonne of copper
equivalent
Paper 23 23 Carbon intensity of pulp,
paper and paperboard
production
Steel 32 29 Carbon intensity of crude
steel production
Other industrials 18 - -
Consumer goods 9 - -
Consumer Services 6 - -
Total* 401 292
Notes: *Companies assessed in more than one sector are counted once. For definitions of Management Quality and Carbon
Performance, please see p7-8.
2 This is based on the World Bank’s estimate of global market capitalisation in 2018.
6
State of Transition 2021: Introduction
Focusing on the sectors of the global Overview of methodology
economy with the highest greenhouse
Using public disclosures, TPI assesses
gas emissions, TPI selects the largest
companies on their Management Quality
public companies, based on market
and Carbon Performance, two different
capitalisation. These companies usually
but related elements of how companies
constitute the largest holdings in investor
are approaching the low-carbon transition.
portfolios, as well as usually being the highest
The former focuses on inputs and processes,
emitters of greenhouse gases. TPI also covers
the latter on outcomes. Together, these
a number of additional companies that are
assessments provide a holistic view
subject to engagement by the Climate Action
of companies’ progress, both backward-
100+ investor initiative. These additional
and forward-looking.
companies are large within their sector, often
regional if not global, and have high lifecycle Management Quality
greenhouse gas emissions or are strongly
dependent on high-emitting companies. TPI’s Management Quality framework
is currently based on 19 indicators,
The data in this report were published
each of which tests if a company
on the online TPI database3 between mid-2020
has implemented a particular carbon
and early 2021. The next comprehensive update
management practice (Yes /No), such
of the database will be carried out in stages
as formalising a policy commitment to action
over the rest of 2021. This year, we also plan
on climate change, disclosing its emissions,
to expand our coverage to new companies,
or setting emissions targets. The indicators
including major corporate bond issuers, and new
are described in detail in Appendix 1. See also
sectors, including food producers and banks.
our latest Methodology and Indicators Report.4
Figure 1.1. Management Quality levels and indicators
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building capacity Integrated into Strategic assessment
operational
decision-making
Company has set
Company has nominated long-term quantitative
a board member/ targets (>5 years) for
committee with explicit reducing its GHG
Company has set GHG responsibility for oversight emissions
emission reduction of the climate change Company has
Company recognises targets policy incorporated climate
climate change as a
Company does not Company has Company has set change performance into
relevant risk/opportunity
recognise climate published information quantitative targets executive remuneration
for the business
change as a significant on its operational GHG for reducing its GHG Company has
issue for the business Company has a policy emissions emissions incorporated climate
(or equivalent)
Company reports on its change risks and
commitment to action
Scope 3 GHG emissions opportunities in its
on climate change
strategy
Company has had its
operational GHG Company undertakes
emissions data verified climate scenario planning
Company supports Company discloses an
domestic and internal carbon price
international efforts to Company ensures
mitigate climate change consistency between
Company discloses its climate change policy
membership and and position of trade
involvement in trade associations of which
associations engaged it is a member
on climate
Company has a process
to manage climate-
related risks
Company discloses
Scope 3 GHG emissions
from use of sold products
(selected sectors only)
3 At https://transitionpathwayinitiative.org/sectors
4 Dietz S et al. (2019) Methodology and indicators report: Version 3.0. TPI.
7
TPI STATE OF TRANSITION REPORT 2021
These 19 indicators are then used to map into benchmarks, against which the
companies on to five levels, as shown performance of individual companies can
in Figure 1.1. Companies need to be assessed be compared. We take a sector-by-sector
as ‘Yes’ on all of the questions pertaining approach, recognising that different sectors
to a level before they can advance to the next, of the economy face different challenges arising
with the exception of Level 0. Companies that from the low-carbon transition, including where
have been assessed as ‘Yes’ on all the Level emissions are concentrated in the value chain
4 questions (and thus all questions in the and how costly it is to reduce emissions.
framework) are described as 4* companies.
Table 1.1 above lists the Carbon Performance
The data underpinning the indicators
measures used in each sector we cover. These
are provided by FTSE Russell, based on
measures are intended to cover the majority
companies’ public disclosures.
of lifecycle emissions in a sector, while also taking
Carbon Performance into account issues of data availability. We
benchmark emissions in most sectors against
TPI’s Carbon Performance assessment three scenarios that are derived from modelling
translates emissions targets made by the International Energy Agency (IEA), as
at the international level under the 2015 summarised in Table 1.2 and depicted in Figure
UN Paris Agreement on climate change 1.2, using the example of the cement sector.
PHOTO: AARON BURDEN/UNSPLASH
PHOTO: ALEXANDER ABERO/UNSPLASH
8State of Transition 2021: Introduction
Table 1.2. Description of TPI’s Carbon Performance benchmark scenarios
PARIS PLEDGES 2 DEGREES
Consistent with the emissions Consistent with the overall aim of the
reductions pledged by countries as Paris Agreement to hold “the increase
part of the Paris Agreement in the in the global average temperature
form of the first set of Nationally to well below 2°C above pre-industrial
Determined Contributions (NDCs) levels and to pursue efforts to limit
from 2015. In the case of international the temperature increase to 1.5°C
shipping and aviation, we use an above pre-industrial levels”, albeit at
‘International Pledges’ scenario based the low end of the range of ambition.
on emissions commitments made by This scenario gives a probability of 50%
the International Maritime Organisation of holding the global temperature
(IMO) and the International Civil Aviation increase to 2°C by 2100.
Organisation (ICAO). Both existing
NDCs and international commitments
are insufficient to limit global warming BELOW 2 DEGREES
to 2°C or below. This has become more
apparent with the recent announcement Consistent with a more ambitious
of net zero goals by several national interpretation of the Paris Agreement’s
governments, which, if delivered, overall aim. This scenario gives a
can close the gap between national 50% probability of holding the global
pledges and the 2°C ceiling on warming. temperature increase to 1.75°C by 2100.
Figure 1.2. TPI benchmark scenarios – example of cement production
Paris Pledges 2 Degrees Below 2 Degrees
(tonnes of CO₂ per tonne of cementitious product)
0.7
Carbon intensity of cement production
0.6
0.5
0.4
0.3
0.2
0.1
0.0
40
46
48
44
50
30
20
36
26
38
28
34
42
24
32
22
6
8
14
1
1
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Year
More detailed information on the TPI methodology can be found here.5
5 https://www.transitionpathwayinitiative.org/methodology
9TPI STATE OF TRANSITION REPORT 2021
2 State of Transition 2021
In this section, we present TPI’s latest findings on Management Quality and Carbon
Performance, and we compare them with our findings from previous years.
PHOTOS: SCIENCE IN HD/UNSPLASH
10State of Transition 2021: Management Quality – climate governance
Management Quality:
climate governance
Management Quality levels At the lower end of the staircase,
The average Management Quality level 38% of companies are on Levels 0 to 2.
of all companies in the TPI database These companies are yet to undertake some
is now 2.6, slightly over halfway between or all of four basic climate management
‘building capacity on climate change’ practices: recognising climate change as
(Level 2) and ‘integrating climate change a relevant business risk or opportunity, having
into operational decision-making’ (Level 3). a policy commitment to act on climate
This average score means that most companies change, setting an emissions target, and
in the TPI universe meet the two requirements disclosing their operational emissions.
for rising from Level 2 to 3: setting an emissions
reduction target (qualitative or quantitative)
and disclosing operational emissions (Scope 1
and 26) – see Figure 2.1.
Figure 2.1. Management Quality level of all TPI companies, on aggregate and by cluster of sectors
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building capacity Integrated into Strategic assessment
operational
decision-making
106 companies: 26%
144 companies: 36% 14 Transport
25 Transport 43 Industrials/materials
64 companies: 16% 61 Industrials/materials 50 Energy
74 companies: 18% 51 Energy 4 Consumer goods
5 Transport
10 Consumer goods and services
26 Industrials/materials
13 companies: 3% 16 Transport and services
34 Energy
32 Industrials/materials
2 Transport 0 Consumer goods
26 Energy and services
7 Industrials /materials
0 Consumer goods
3 Energy
and services
1 Consumer goods
and services
Note: 10 companies appear in two sectors and two companies appear in three sectors
6 nder the Greenhouse Gas Protocol, “Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions
U
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 Greenhouse Gas Protocol, https://ghgprotocol.org/sites /default /files /standards_
supporting/FAQ.pdf, for definitions.
11TPI STATE OF TRANSITION REPORT 2021
Table 2.1. 4* companies, their sectors and their Carbon Performance
Company Sector Carbon Performance
Anglo American Coal and diversified mining Paris Pledges
BMW Autos Paris Pledges
Eni Oil and gas Paris Pledges
Equinor Oil and gas Paris Pledges
Klabin SA Paper Paris Pledges
Total SE Oil and gas Paris Pledges
BHP Coal and diversified mining Not aligned
BP Oil and gas Not aligned
Galp Energia Oil and gas Not aligned
Hess Oil and gas Not aligned
Vale Coal and diversified mining Not aligned
Air Liquide Chemicals Not assessed on Carbon Performance
Philips Other industrials Not assessed on Carbon Performance
Terna Electricity utilities Not assessed on Carbon Performance
The remaining 62% of companies are six are aligned with the Paris Pledges but none
on the top two levels of the staircase: is aligned with 2°C or below – see Table 2.1.
36% are on Level 3 and 26% of companies
Of the core TPI sectors,7 electricity
are on Level 4. Reaching Level 4 requires
utilities and diversified miners perform
the implementation of a wider variety of
the best on Management Quality, followed
carbon management practices, including
by chemicals companies. Shipping and
assigning board responsibility for climate
coal mining are the worst performing
change, disclosing Scope 3 emissions,
sectors. The average Management Quality
supporting domestic and international
scores of the core sectors assessed by TPI are
efforts to mitigate climate change, and
fairly uniformly distributed in an interval from
setting quantified emissions targets.
1.8 to 3.1 (see Figure 2.2). Manufacturers of
The number of 4* companies, which meet basic materials (aluminium, cement, paper
every Management Quality indicator, and steel) tend to perform poorly as a group
has risen to 14. Six of these are oil and gas and sit at the lower end of this interval.
companies and three are diversified mining Meanwhile, energy sectors excluding coal,
companies with coal businesses. Of the 4* and transport sectors excluding shipping,
companies assessed on Carbon Performance, sit at the higher end.
“Reaching Level 4 requires the
implementation of a wider variety
of carbon management practices.”
7 TPI’s core sectors are those listed in Figure 2.2, excluding consumer goods, services and other industrials.
12State of Transition 2021: Management Quality – climate governance
Figure 2.2. Management Quality by company and sector
Key: Market capitalisation Small Medium Large
Average Management Quality score shown in parentheses
Level 0 Level 1 Level 2 Level 3 Level 4
Unaware Awareness Building Integrating into Strategic
capacity operational assessment
decision making
Airlines (2.8)
Aluminium (2.3)
Autos (2.7)
Cement (2.1)
Chemicals (3.0)
Coal mining (2.0)
Consumer goods (3.2)
Diversified mining (3.1)
Electricity utilities (3.1)
Oil and gas (2.8)
Oil and gas distribution (2.9)
Other industrials (3.4)
Paper (2.5)
Services (2.8)
Shipping (1.8)
Steel (2.3)
13TPI STATE OF TRANSITION REPORT 2021
Indicator by indicator companies satisfy Q11, making performance
on both of these Level 3 indicators noticeably
Companies assessed by TPI tend
worse than most other indicators on the same
to have implemented the basic carbon
level. Only 7% of companies satisfy Q19, making
management practices but are less likely
this the most difficult of all TPI’s Management
to have implemented strategic practices.
Quality indicators to achieve.
Across sectors, 94% of companies now
have a policy commitment to act on climate Among the more advanced indicators,
change, 80% explicitly recognise climate companies perform well on managing
change as a business risk/opportunity, climate risk (Q12) and setting long-term
79% disclose their Scope 1 and 2 emissions, emissions reduction targets (Q14).
and 69% have some form of emissions These are management practices familiar
reduction target in place – see Figure 2.3. in corporate decision-making, making
it perhaps unsurprising that companies
Companies struggle on key indicators
perform relatively well on them.
at the corporate–policy interface. Three
of TPI’s indicators evaluate companies based Performance on the various indicators
on their involvement in the broader climate differs significantly between sectors.
policy sphere. This involvement is important, Although most sectors mirror the aggregate
because climate change is a problem replete distribution in Figure 2.3, there are several
with market failures that require government outliers (see Appendix 2). Only 38% of assessed
intervention in the form of regulations, shipping lines recognise climate change as
taxes and subsidies. Companies should a relevant business risk/opportunity, while
demonstrate support for domestic and scarcely one-third of coal mining companies
international mitigation efforts (Q10), disclose and only half of steelmakers have set even a
their membership and involvement in trade qualitative emissions reduction target. Sectors
associations engaged in climate issues (Q11), with notably stronger performing companies
and manage inconsistencies between their include electricity, chemicals, other industrials,
positions on climate issues and those of these and consumer goods and services. In all five
trade associations (Q19). Forty-seven per cent of these sectors, more than three-quarters of
of companies satisfy Q10 and only 39% of companies have set long-term targets (Q14).
PHOTO: BOBBY STEVENSON/UNSPLASH
14State of Transition 2021: Management Quality – climate governance
Figure 2.3. Management Quality, indicator by indicator, mapped against TCFD* themes
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? 80% 20%
1 3. Policy commitment to act? 94% 6%
2 4. Emissions targets? 69% 31%
2 5. Disclosed Scope 1 & 2 emissions? 79% 21%
3 6. Board responsibility? 63% 37%
3 7. Quantitative emissions targets? 66% 34%
3 8. Disclosed Scope 3 emissions? 59% 41%
3 9. Had operational emissions verified? 62% 38%
3 10. Support domestic and international mitigation? 47% 53%
3 11. Disclosed trade association involvement? 39% 61%
3 12. Process to manage climate risks? 65% 35%
3 13. Disclosed use of product emissions? 43% 57%
4 14. Long-term emissions targets? 58% 42%
4 15. Incorporated climate change in to exec. renumeration? 40% 60%
4 16. Climate risks/opportunities in strategy? 35% 65%
4 17. Undertakes climate scenario planning? 29% 71%
4 18. Discloses an internal price of carbon? 33% 67%
4 19. Consistency between company and trade assocs.? 7% 93%
TCFD themes
Governance Strategy Risk management Metrics and targets
Note: *TCFD = Task Force on Climate-related Financial Disclosures
15TPI STATE OF TRANSITION REPORT 2021
Figure 2.4. Trends in Management Quality between 2019/20 and 2020/21
Not
researched 2.6 Current average MQ level 226 Companies stayed at the same level
73 5 Companies no longer researched 46 Companies moved down at least 1 level
73 Newly researched companies 56 Companies moved up at least 1 level
Not researched 5
Level 4:
Level 4: Strategic
Strategic assessment
assessment 106
113
Level 3:
Integrating
into operational
decision making
144
Level 3:
Integrating
into operational
decision making
93
Level 2: Level 2:
Building Building
capacity capacity
54 64
Level 1:
Building
Level 1: capacity
Building
capacity 74
63
Level 0: Unaware 10 Level 0: Unaware 13
2019 2020
16State of Transition 2021: Management Quality – climate governance
Trends in Management Quality in trade associations that are active in climate
lobbying (Q11), followed by a failure to continue
On aggregate, there has not been
demonstrating support for domestic and
much progress on Management Quality
international efforts to mitigate climate change
since the last research cycle. The majority
(Q10). These two indicators focusing on the
of companies are standing still, and nearly
corporate–policy interface are closely related.
as many companies are moving down
They are also responsible for many of the
levels as are moving up. We have trend
upward movements from Level 3 to 4. Figure
data on 328 companies that were in 2020’s
2.5 visualises the indicators driving movement
State of Transition Report and are assessed
between Levels 3 and 4.
again this year. Of these, 226 (69%) have
stayed on the same level, up from 62% that On Levels 0 to 2 we see less movement,
remained static last year; 56 (17%) have but what movement we do see is mostly
moved up at least one level, which is a marked upwards. Thirty-four companies (10 per cent)
reduction on the 29% that moved up last moved up from Levels 0, 1 or 2 last year. Nine
year; and 46 (14%) have moved down of these companies moved up two levels from
at least one level – an increase from the Level 1 to 3. Only 4 companies on Levels 0 to 2
9% that moved down last year (see Figure moved down.
2.4).To an extent, this may be a natural
Newly added companies tend to start
consequence of companies gradually moving
from a lower base than those previously
up the Management Quality staircase. As
assessed by TPI. The addition of 73
they do so, it becomes harder to progress
companies to the TPI universe since 2020’s
further. Nonetheless, the increasing share
State of Transition Report has resulted
of companies moving down levels stands out.
in the average Management Quality score
Most movement this year is between decreasing from 2.7 to 2.6. Sixty per cent
Levels 3 and 4 and it goes in both directions. of the new companies start on Levels 0 to 2.
The largest flow of companies is downward The average Management Quality score
from Level 4 to 3 (38 companies). The second of the new companies is 2.0, which contrasts
largest flow is upward from Level 3 to 4 with an average score of 2.8 for companies
(22 companies). Although the number of assessed previously. Therefore, it is the
companies moving down from Level 4 to 3 addition of new companies that has brought
has been unusually large this past year, it is the universe-wide average down.
in line with previous years that we see most
Newly added companies tend to be smaller
movement between these two levels.
because within each sector our sampling
procedure prioritises the largest companies
by market cap first. This could help to explain
“The TPI universe has
the relatively poor performance of the new
become more stagnant
companies, as our previous work has identified
and where there is movement
company size/value as being correlated
it is now about as likely
with Management Quality. Another possible
to be downward as upward,
explanatory factor is geography. The newly
in stark contrast to previous years.”
added companies are more likely to be
VALENTIN JAHN, POLICY OFFICER headquartered in emerging markets. Our
work usually finds Management Quality scores
are lower in emerging markets. Of the new
Just a few indicators are responsible for companies, the average Management Quality
the majority of this movement between score of those headquartered in North America,
Levels 3 and 4. The single biggest factor behind Europe, Japan, Australia and New Zealand
companies moving down from Level 4 to 3 is 2.3, whereas the average score of those
is a failure to continue disclosing involvement headquartered in emerging markets is only 1.4.
“The newly added companies are more likely
to be headquartered in emerging markets.”
17TPI STATE OF TRANSITION REPORT 2021
Figure 2.5. Indicators responsible for companies moving between Levels 3 and 4
a. Indicators responsible for downward movement
Q6: Has the company
Q11: Does the company disclose nominated a board member
5
its membership and involvement 2 or board committee with
in trade associations engaged explicit responsibility for
in climate issues? 1 oversight of the climate
change policy?
12
7 3 Q10: Does the company
support domestic and
international efforts to
1 1 mitigate climate change?
Q7: Has the company set 2
quantitative targets for 2
reducing its greenhouse 3 Q9: Has the company had
gas emissions? its operational (Scope 1
and/or 2) greenhouse gas
emissions data verified?
b. Indicators responsible for upward movement
Q6: Has the company
Q11: Does the company disclose 5 nominated a board member
its membership and involvement
3 or board committee with
in trade associations engaged explicit responsibility for
in climate issues? oversight of the climate
1
1 2 change policy?
Q10: Does the company
Q8: Does the company report 3
3 support domestic and
on Scope 3 emissions?
international efforts to
mitigate climate change?
1
Q9: Has the company had
4
its operational (Scope 1
and/or 2) greenhouse gas
emissions data verified?
Note: Overlapping circles indicate that companies move down/up by changing their score on multiple indicators.
18State of Transition 2021: Carbon Performance – alignment with the Paris Agreement benchmarks
PHOTO: DANIST / UNSPLASH
19TPI STATE OF TRANSITION REPORT 2021
Carbon Performance: alignment
with Paris Agreement benchmarks
TPI’s Carbon Performance assessments look alignment in 2030 and on companies assessed
at whether companies’ emissions intensity both last year and this year. Doing so, we find
pathways are aligned with the Paris a 3 percentage point increase in the share
Agreement goals. This year’s report assesses of companies aligned with Below 2°C and
292 companies on Carbon Performance, an a 5 percentage point decrease in the share
increase of 54 companies on last year. We now of companies providing unsuitable disclosure.
cover 10 sectors, including diversified mining
The sectors most aligned with Below 2°C
for the first time. We now look out to 2050
are diversified mining (38% of companies
in all sectors, whereas in the 2020 State of
in 2030 and 31% of companies in 2050) and
Transition report we did this only for oil and gas.
electricity (27% and 35%, respectively).
Figures 2.6 and 2.7 summarise Carbon Lagging far behind is the oil and gas sector,
Performance data across all sectors, classifying where no company is aligned with 2°C or
whether a company is aligned with the Paris below, either in 2030 or 2050. Note that due
Pledges established in 2015, with a pathway to their publication dates this report excludes
to limit global warming to 2°C, or with a more the most recent emissions reduction targets
ambitious pathway to limit global warming announced by oil and gas companies, such as
to below 2°C. the new net zero targets of Royal Dutch Shell
and Occidental Petroleum. These could change
Alignment can be tested on different
the picture slightly and will be covered in our
timeframes. We look at alignment in both
next energy report later this year.
2030 and 2050, which means that we can
look for differences in medium- and long- With the exclusion of diversified mining,
term corporate ambition. Both horizons are the addition of new companies drags down
important. If all companies wait until 2050 to Carbon Performance, just as it has done
align with the benchmarks, cumulative carbon to Management Quality. In the last year,
emissions will have exceeded the carbon budget we have added 47 companies on Carbon
for capping warming at 2°C or below. Section Performance, excluding diversified mining.
5 provides a more in-depth explanation of the Of these, only 11% align with Below 2°C
benchmarks we use and what alignment entails. in 2030, 5 percentage points lower than
the share of existing companies. The gap
Looking out to 2050, 15% of companies
is even wider in 2050. Moreover, 47% of the
align with the most ambitious Below 2°C
new companies (excluding diversified mining)
benchmark,8 2% align with 2°C,9 and 20%
provide insufficient disclosure, more than four
align with the least ambitious Paris Pledges
times larger than the corresponding share of
benchmark. Forty-seven per cent of companies
existing companies. Again, the relatively smaller
do not align with any of the benchmarks.
size of the newly added companies, and their
Sixteen per cent provide insufficient disclosure
relative concentration in emerging markets, are
for TPI to calculate their Carbon Performance.
likely to be explanatory factors for this disparity.
This is either due to missing disclosure, or
companies disclosing their emissions or activity Although 2030 and 2050 alignment
data in an unsuitable form. The pattern are similar on the aggregate level, there
of alignment in 2030 is similar to 2050. are striking differences in autos, cement
and electricity, all of which show much
We can identify some modest improvements
stronger alignment in the long term. This
in Carbon Performance compared with last
indicates that these sectors are currently
year’s State of Transition Report. A like-
planning to backload their decarbonisation
for-like comparison is possible by focusing on
efforts, banking on rapid reductions post-2030.
8 In the airline and auto sectors, this benchmark corresponds to ‘2°C (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.
9 In the airline and auto sectors, this benchmark corresponds to ‘2°C (Shift-Improve)’. This assumes that transport will be decarbonised through
a combination of shifting passengers to lower-carbon modes alongside increased fuel efficiency and low-carbon technology.
20State of Transition 2021: Carbon Performance – alignment with the Paris Agreement benchmarks
Figure 2.6. Carbon Performance alignments with the Paris Agreement benchmarks in 2030 and in 2050
(number and percentage of companies)
2030 alignment 2050 alignment
47 47 44 47
16% 16% 15% 16% No or unsuitable disclosure
6
12 2%
4% Not aligned
58 Paris Pledges
42
15% 20%
2 Degrees
144 137
49% 47%
Below 2 Degrees
Figure 2.7. Carbon Performance alignments with the Paris Agreement benchmarks in 2030 and in 2050
by sector and cluster (number and percentage of companies)
2030 alignment
100% 2 1 1 1
1 1 4 1 2
18 3 7
2 5
80% 4
2 9
13 2 4 9
60% 4
18
3
47 20
40% 10 1
7 1
8
24 6 15 10
20%
5
7
3
4 4 1 1 1
0%
Electricity Oil & gas Aluminium Cement Paper Steel Diversified Airlines Autos Shipping
utilities mining
Energy Industrials and materials Transport
2050 alignment
100% 1
5 1 3 2
5 5 1
1
23 1 1 4
80%
12 5
5 12 7 8
60% 2
4
17
44 20
40% 9
1
8 6
22 6 15 10
20%
5
7
4 3
4 1 1 1
0%
Electricity Oil & gas Aluminium Cement Paper Steel Diversified Airlines Autos Shipping
utilities mining
Energy Industrials and materials Transport
Below 2 Degrees 2 Degrees Paris Pledges Not aligned No or unsuitable disclosure
21TPI STATE OF TRANSITION REPORT 2021
Corporate emissions reduction targets Many more companies have set net zero
targets, but they often cover a limited
Emissions reduction targets are central
scope of lifecycle emissions. For example,
to most companies’ Carbon Performance.
net zero pledges in the oil and gas sector
This section focuses on these targets in
typically cover operational emissions and only
more detail. Of the 292 companies assessed
sometimes include downstream emissions from
on Carbon Performance, 67% have set
the use of companies’ products. None includes
a quantitative emissions reduction target
third-party energy sales.12 Overall, none of
(Q7), although not all of them are useable
the oil and gas companies we have assessed
in calculating company emissions intensities.
on Carbon Performance would reach net zero
by 2050, although pledges made since we
How ambitious are company targets?
completed this assessment may change the
Most companies’ emissions targets picture slightly.13 There are similar limitations
are not ambitious enough. Using the in other sectors: several auto manufacturers
results of our Carbon Performance assessment, have defined net zero production targets,
we find that only 30% of companies with which exclude emissions from the use phase of
emissions targets are aligned with the Below sold vehicles (the majority of lifecycle emissions
2°C benchmark. Four per cent align with 2°C, for new vehicles). In short, a net zero target
but 38% do not align with any benchmark. does not necessarily mean that a company’s
Note that companies without targets are material emissions reach net zero. Investors
excluded from these figures, in contrast should pay close attention to target coverage.
to the data provided in the previous section.10
How forward-looking are company targets?
We see an encouraging momentum behind
genuine net zero targets. A year ago, Company targets across sectors are
14 companies had genuine net zero targets, becoming increasingly long-term. The
by which we mean net zero targets covering average target year for all sectors is now 2039,
their most material emissions. One year later, a meaningful increase on the average target
this number has more than doubled to 35 year of 2032 in last year’s assessment;14 see
companies. Unsurprisingly, the electricity Figure 2.8. Shipping lines’ targets are the most
sector has taken the lead, with 23 companies forward-looking, with an average target year
pledging to reach net zero by 2050. According of 2050, although only five companies assessed
to modelling by the IEA11, global electricity in that sector have any target at all. Shipping
generation must become carbon negative is followed by diversified mining and auto
by 2049 to keep global warming below 2°C. manufacturers, which have average target
The first corporate net negative target years of 2046 and 2044, respectively. Aviation
assessed by TPI was set by the Indian continues to be the least forward-looking
cement manufacturer Dalmia Bharat. sector, but it too has increased its average
target year from 2021 in last year’s assessment
to 2029 in this year’s. Recall that our
assessment of airlines excludes net emissions
targets with unspecified use of offsetting.
10 Within the whole TPI universe, 15% of companies assessed on Carbon Performance are aligned with Below 2°C in 2050 (see Figure 2.6 earlier
in this section).
11 International Energy Agency [IEA] (2017) Energy Technology Perspectives.
12 Some other net zero declarations in the oil and gas sector do cover emissions from all energy sales but state emissions intensity reductions
that are incompatible with our 2°C and Below 2°C benchmarks.
13 See TPI’s Briefing Paper of May 2020 for a detailed discussion of net zero targets set by European oil and gas companies (Dietz et al.,
Carbon Performance of European Integrated Oil and Gas Companies).
14 Note that we exclude from this analysis companies without any targets, and we exclude all intermediate targets.
22State of Transition 2021: Carbon Performance – alignment with the Paris Agreement benchmarks
Figure 2.8. Average year of company targets by sector over the last four TPI assessment cycles
Average target year assessment cycle
2015 2020 2025 2030 2035 2040 2045 2050 2055
Electricity utilities
Oil & gas
Airlines
Autos
Shipping
Aluminium
Cement Assessment cycle
Diversified mining
2020
Paper 2019
Steel 2018
2017
Note: This is the first year that diversified mining companies are assessed. Oil and gas and shipping have been assessed twice by TPI,
airlines and aluminium three times, and the remaining sectors four times.
Figure 2.9. Historical rates of reduction in emissions intensity (‘actual reduction’) compared
with required rates of reduction to meet companies’ own emission reduction commitments
(‘committed reduction’)
Actual annual reduction in emissions intensity (2014–19) of the whole sector
Actual annual reduction in emissions intensity (2014–19) of only companies with targets
Committed annual reduction in emissions intensity (2019–30)
Committed annual reduction in emissions intensity (2019–50)
Electricity utilities
Airlines
Shipping
Autos
Paper
Cement
Aluminium
Steel
Oil & gas
Diversified mining
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2
Annual average rate of emissions reduction (%)
Note: For some companies, the 2030 target is a linear interpolation between their current emissions intensity and their longer-term target.
Algonquin Power was excluded from this analysis as an outlier, due to its large increase (154%) in emissions.
23TPI STATE OF TRANSITION REPORT 2021
Are ambitious long-term targets targets. Note that company targets are not
underpinned by intermediate targets? necessarily aligned with TPI’s emissions intensity
benchmarks. That would require, in many cases,
Out of the 42 companies that have set
even faster reductions.
targets aligned with Below 2°C,15 19 (45%)
have not set any intermediate targets. Electricity utilities have reduced their emissions
This suggests that these companies are yet the most: they are on track to meet their
to define a precise roadmap from now until 2030 targets, but their ambitious 2050 targets
their target year, which tends to be relatively are still well out of reach at current rates.
far off (their average target year is 2047). This Airlines and shipping lines with targets follow
absence of information makes it more difficult and are similarly on track to meet their 2030
for investors to hold companies accountable targets but not their 2050 targets. Oil and gas
for their commitments. The remaining 23 companies have hardly reduced their emissions
companies have all set at least one interim intensities, while their targeted intensity
target, seven have set two interim targets reductions are very modest. Steel companies
and two companies have set three. perform similarly poorly, although their
ambitions have increased in line with other
industrial sectors. Diversified mining companies
“In addition to setting with targets and aluminium producers have
ambitious long-term targets, increased their carbon intensities; they must
it is important that companies begin reducing emissions even faster to meet
define clear milestones along their targets.
the way to avoid backloading
Companies with targets have reduced
decarbonisation efforts to the more
emissions slightly faster than companies
distant future.”
without targets. Among all companies
NIKOLAUS HASTREITER, TPI RESEARCHER assessed by TPI on Carbon Performance, the
average annual reduction rate was 1.6% between
2014 and 2019, while the reduction rate for those
Are companies on track to hit their with targets was 1.9%. We find the same pattern
targets? in most sectors, with the exceptions being autos,
cement and diversified mining.
In most sectors, companies are not reducing
emissions fast enough to hit their 2030
targets. In no sector are companies reducing
“The slow emissions
emissions fast enough to meet their 2050
reductions we see in emitting
targets. Figure 2.9 compares the annual
sectors highlight the need for
reductions needed to meet company targets
further investor and regulatory
with trends in historical emissions intensity,
pressure on companies
looking at both the entire sector and the subset
to drive the decarbonisation measures
of companies that have targets. To make the
needed to meet corporate targets.
comparison, we calculate an annual average
In many cases, these targets must
reduction rate for company emissions intensities
also become much more ambitious.”
between 2014 and 2019. We then calculate how
much companies must reduce their emissions ANTONINA SCHEER, TPI RESEARCHER
intensities annually to reach their future
“Electricity utilities have reduced their
emissions the most: they are on track
to meet their 2030 targets, but their
2050 targets are still well out of reach”
15 Out of the 42 companies, Tesla and Eversource Energy already align with a Below 2°C scenario with their current performance. Their targets aim
to keep their emissions intensities at zero.
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