THE FIRST Companies and Climate Change report, developed by Fitch Solutions, the Carbon Trust, and Climate Bonds has been released. The report is the first research application of the AIIB-Amundi Climate Change Investment Framework (CCIF).
Launched in September 2020, CCIF was developed to provide investors with a benchmark tool for assessing an investment against climate change-related financial risks and opportunities.
It translates the three objectives of the Paris Agreement into fundamental metrics that investors can use to assess an investment’s level of progress towards achieving climate change mitigation, adaptation and resilience, and low-carbon transition objectives.
The report assessed the performance of 208 companies across eight sectors. Although most sectors report on climate change mitigation, the underlying data, methodology, and scope are inconsistent. For example, using the CCIF, one can observe high variation in how sectors align with the Paris Agreement objectives.
Sean Kidney, CEO and Co-founder, Climate Bonds Initiative, said “The AIIB-Amundi’s CCIF is a pioneering assessment tool for investors, and the findings of this report reveal intriguing insights about the climate performance of issuers and their sectors.
“We must accelerate our efforts to both mitigate and adapt to climate change. Adaption and resilience are now centre stage, it’s not one or the other, the climate challenge is a fight on both fronts.”
SECTORS: data availability and quality gaps drive differences in performance
- The report assessed the performance of 208 companies across eight sectors. Although most sectors report on climate change mitigation, the underlying data, methodology, and scope are inconsistent. For example, using the CCIF, one can observe high variation in how sectors align with the Paris Agreement objectives.
Concerning the financial contribution to transition, the performance among sectors varies considerably. Those with a higher correlation between direct carbon emissions and business models, for example, energy, utilities, and automotive, have more detailed policies and data related to financial contribution. Conversely, for sectors where emissions are indirect, policies and data related to financial contribution are less explicit.
COMPANIES: some progress but work remains especially on climate adaptation
- The report contains a selection of nine company case studies from the following sectors, automotive, basic industries, energy, healthcare, technology & electronics, telecom, transportation, and utilities. The target companies were among some of the more advanced organizations incorporating climate mitigation and adaptation strategies into their Asia operations.
- With regards to focusing on renewable energy and greenhouse gas (GHG) measurement, most of the companies adopted climate mitigation strategies by procuring renewable energy and measuring and reporting at least Scope 1 and Scope 2 GHG emissions. However, fewer companies had set 1.5-degree science-based targets and/or publicly committed to net zero goals.
- ISSUERS: companies contributing to the transition are not necessarily prepared for climate risks
- None of the 483 companies domiciled across 33 geographies examined in the study performed well across all three CCIF objectives. Even among green bond issuers, this analysis did not identify any issuers that did well on all three objectives of the CCIF: mitigation (target-setting and strategies), adaptation (low-risk exposure and/or adaptation plans and strategies), and financial contribution (green revenues).
- Furthermore, this analysis finds that most companies are subject to physical climate risks but are not taking actions to manage them. Only 14% of companies researched have an adaptation and resilience plan in place, leaving the rest exposed to potential loss of financial value.
While sectors and corporates are more climate mitigation focused, more concentrated efforts are needed toward climate adaptation planning and implementation. For the sampled entities, operations across diverse geographical locations, climate mitigation and adaptation data inconsistencies, and company financial capability were among the challenging factors in performing well across all three CCIF objectives.
This report offers a first snapshot of how sectors, companies, and issuers are performing and provides valuable insight for both investors and the issuers themselves.
Michelle Karavias, Global Head of Industry Research, Fitch Solutions, said “There is a high level of inconsistency in how different sectors have responded to the Paris Agreement objectives. Whilst most sectors report on carbon emissions and reduction targets (mitigation) with a level of consistency, this is much less the case for companies reporting on how they are adapting to climate change (adaptation) or contributing to the transition to a low carbon economy (contribution). Notably, there is a correlation between industries where carbon emissions are more directly related to their business models (e.g., energy, utilities, transport). These companies have developed clearer policies and report more data around their contribution to transition. There does need to be a greater level of consistency in data reporting standards to enable a comparability of company and sector performance, especially at a time when more investment managers are systematically and explicitly including ESG factors into their financial analysis and decision-making.”