Investors expect companies to set broad targets, commitments in climate change plans: report

BUSINESSES should set comprehensive science-based quantitative targets across all material emission scopes, as well as sector-specific commitments, to adequately meet climate transition plans.

These are among the 5 principles identified in a report by the Investor Group on Climate Change (IGCC) on Thursday (Mar 3), which aims to improve the quality of business transition plans by laying out investor standards for climate plans.

The IGCC, which is a collaboration of Australian and New Zealand investors, noted that while more businesses have been releasing plans to decarbonise their operations, the plans often have inadequate quality and credibility, and are inconsistent with companies' stated ambitions to reach net zero emissions.

In the report, it said businesses should set targets with independent verification. Other standards companies should look out for include separate short, medium and long-term targets, and specifying whether emissions are accounted for under the operational, financial or equity share approach.

Noting that pathways and time frames for net zero emissions differ by sector, the IGCC also said there is a shared need for investors, companies and other stakeholders to understand the net zero pathways for certain sectors and the actions required in different periods.

Companies should also identify specific actions, often at the level of the emissions source, that they will take.

The IGCC warned that an over-reliance on offsets and nature-based solutions may delay efforts to abate emissions within a company's value chain, and may not account for limited land and space available to host additional tree coverage or overestimates carbon storage potential.

In the next principle, companies should ensure that their investment commitments and capital expenditure are aligned with targets, such as by disclosing a forward-oriented capex budget and quantifying the transition plan actions in financial statements.

Furthermore, businesses should commit to transparent disclosures and monitoring with external verification annually, to assure investors that reported information is accurate, transparent and reliable.

The IGCC noted that while investors want to see consistent, annual reporting on progress, they acknowledge that some elements of transition plans may take longer than a year to demonstrate changes.

Additionally, companies should also report on broader, overarching climate-related topics including governance, just transition, climate policy and lobbying, and scenario analysis.

Laura Hillis, IGCC director of corporate engagement, said: "For the first time, public companies have a clear and comprehensive picture of what investors want in businesses' plans to get ready for a net zero economy."

She expects the report will "help raise the bar" for businesses seeking to align with the expectations of the market in a rapidly decarbonising world.

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