The number of ASX 200 companies that have made net-zero commitments has doubled in the past year, but investors say firms are not disclosing enough detail about action to meet these targets.
Companies also need to be more ambitious when setting science-based targets that align with the Paris Agreement goal to limit global warming to 1.5 degrees, or they will face reputational risk, according to an Australian Council of Superannuation Investors report.
Investors want more detail about how ASX 200 companies plan to meet their net-zero pledges.Credit:Dominic Lorrimer
The report, which uses publicly available documents produced by ASX 200 companies, found that overall management and disclosure of climate-related risks had significantly improved in Australia, but the level of net-zero adoption still needed to increase significantly.
About 70 per cent of the ASX 200’s collective market capitalisation ($1.59 trillion) is covered by net-zero commitments, the report found, equating to 95 companies. This compares with 49 in 2020, and 14 in 2019.
The banking sector led the way in setting net-zero targets, followed by the energy and utilities, transport and real estate sectors.
Healthcare was the only sector where no ASX 200 companies have net-zero commitments. ACSI also recently found the sector was lagging other sectors on the ASX 200 for disclosing environmental, social and governance (ESG) issues.
While net-zero commitments indicate a company’s long-term ambition, the report found investors are now more concerned about the disclosure of how a company will decarbonise in line with their stated ambitions.
“It’s one thing to commit to net-zero, but we’re really not yet seeing as much detail as investors need to make an assessment of the adequacy of the work that’s being done behind the scenes by companies,” said ACSI chief Louise Davidson.
Pressure has been increasing on companies globally to improve climate reporting standards. Last year, the International Sustainability Standards Board was launched at the United Nations Climate Change Conference (COP26). The board aims to produce the new global standard to replace a confusing mixture of disclosure practices that some companies use to assess the impact of climate change.
In March, the US Securities and Exchange Commission announced a plan to require publicly listed companies to disclose climate-related risks to their business.
The proposal draws from the approach of the Task Force on Climate-Related Financial Disclosure (TCFD), an international framework used by thousands of companies in 92 countries with a combined market capitalisation of $27.2 trillion.
ACSI’s report found 103 companies in the ASX 200 are adopting and disclosing against this framework, compared with 11 companies in 2017 when it was created.
Davidson said TCFD reporting was the global standard, and the council wants it to be mandatory in Australia, to make it easier for investors to assess the merits of a company’s disclosures.
She also said there was a growing expectation from investors and stakeholders that companies should have decarbonisation targets that are aligned with the Paris Agreement goal to limit global warming to 1.5 degrees, rather than just holding it to well below 2 degrees.
“I think investors expect all companies should be stress-testing their business against a 1.5 degrees scenario … and yet we found that only a small number, I think about just under 40 companies, were using that model. From our perspective, that means that their stress-testing is inadequate if it’s not looking at 1.5 degrees,” she said.
Transition in an Australian context also needed a lot of focus, Davidson said.
“We’re seeing international companies reporting at much higher levels of detail on how they are going about that process than we are yet seeing in Australia.”
ACSI did not single out poor-performing companies in the report, but Davidson said they will be engaging with those that need to improve.
“This is an economic reality now. Nobody’s saying, ‘I believe in climate change, or I don’t believe in climate change anymore’. This is now economic reality and companies that failed to grapple with it will not survive.”
In Australia, regulators have shown increasing interest in ESG-related disclosures by fund managers and companies, warning that those falsely promoting their green credentials – “greenwashing” – will face an enforcement crackdown.
On Friday, the Australasian Centre for Corporate Responsibility accused gas and oil producer Woodside of overstating greenhouse gas emissions, enabling it to claim reductions that did not exist, for its proposal to extend the North West Shelf project until 2070.
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