The first edition of a climate benchmark for TSX-listed companies has found almost every company is disclosing climate risk, but none have openly committed the capital to turn their words into actions.
Members of the CEC, an investor-led engagement initiative, manage $5.2 trillion in assets. Its founding members include BMO Global Asset Management, Desjardins Global Asset Management and the Healthcare of Ontario Pension Plan.
The 41 companies on the benchmark’s focus list come from a variety of industries and sectors, from Alimentation Couche-Tard Inc. (retail), Enbridge Inc. (energy), Barrick Gold Corp. (mining) and Brookfield Infrastructure Partners LP (infrastructure management).
The benchmark establishes a baseline and a guide to engage with listed companies, Kevin Thomas, the CEO of Shareholder Association for Research and Education and CEC steering committee member, said in an interview with Sustainable Biz Canada.
“We’re at that stage where the conversation is not about whether a company needs to take climate action, but how. That’s what I think is most positive about the benchmark itself is that it does speak to that how, it really gives you a sense of if we were to take climate seriously, we know what that looks like now for a company.”
Ambitions and goals
All but one company on the list (Stelco Holdings Inc.) committed to aligning disclosures with the Task Force on Climate-Related Financial Disclosure or have publicly supported the organization.
Over half of the companies have not implemented a net-zero greenhouse gas (GHG) emissions target by 2050 or earlier. Only 44 per cent have such an ambition or a partial plan.
Air Canada, Canadian National Railway Co., Canadian Pacific Kansas City Ltd., Empire Company Ltd. and TransAlta Corp. made the list of companies that have a 2050 net-zero commitment.
Thomas interpreted the number for the 2050 net-zero target as a positive sign. “We have a lot of companies who’ve recognized the long-term challenge and made net-zero 2050 targets. So we know where we need to get to in the long-run,” he said.
When it comes to GHG reduction targets, no company has a short-term goal that aligns with the most ambitious Paris Agreement target of holding global warming to 1.5 C. Thirty-seven per cent of companies have partial targets.
The benchmark indicates progress on a medium-term GHG reduction target, with 12 per cent having such a goal and 66 per cent with a partial plan. But in the long-term, the numbers fall to five per cent having a target and 41 per cent maintaining a partial goal.
Actions from companies
Tangible actions tend to be lacking from the benchmark companies.
Only seven per cent were named as having a decarbonization strategy (Enbridge, First Quantum Minerals Ltd, GFL Environmental Inc.), with 61 per cent lacking a decarbonization strategy.
No company has explicitly aligned its capital expenditures to its disclosed climate target, and only five per cent are partially aligned with a just transition.
Despite some significant absences of actions, Thomas said the benchmark is not intended to punish companies. Some companies may not yet feel confident about publicly disclosing their investments.
“A benchmark isn’t supposed to be a report card where someone can get sent to the principal’s office for not doing well on it,” he said. Rather, it is a guide for dialogue on the important topics for investors, where the position of the company stands now and how to use the benchmark as a guide for action.
To date, the benchmark has already prompted companies to make progress, Thomas noted, giving the example of guiding Metro to its medium-term climate target aligned with the Paris Agreement.
Areas for improvement
The easiest starting point for improvement stems from a company’s governance, Thomas said. The benchmark shows 98 per cent of the companies are partially or sufficiently meeting the standard for climate governance.
He said it is key to ensure the corporate board is equipped, knowledgeable and committed to addressing climate risk. Steps can include setting up board committees and board education to understand climate change as a systemic risk. Once the governance is established, then the company can move toward target setting and capital allocation, he added.
“If you get the governance right, a lot more can flow from that.”