Companies defy investor demands on climate change

Companies are failing to respond to investor demands on climate change, according to a new analysis that examines how prepared businesses are for the transition to a low-carbon economy.

Despite the rise in “net zero” announcements from businesses across the world, few public companies are likely to meet the targets of the Paris agreement to tackle climate change, according to the research from J Safra Sarasin, the Swiss bank. The 2015 Paris agreement aims to limit global warming to well below 2 degrees Celsius.

According to the analysis, which focused on past, current and future emissions of 6,000 groups, businesses globally appear on course for a 4 degrees rise, while in Europe that number stands at 3.5 degrees.

This is despite big shareholders demanding companies cut emissions as concerns mount that businesses that fail to take global warming seriously could become investment pariahs.

Sasja Beslik, head of sustainable finance development at J Safra Sarasin, said although there had been an “explosion” in environmental, social and governance investing, companies were still failing to take action on climate change.

“There is this rush into ESG. But you have a stock market that is not corresponding [in terms of climate change action] with what investors are trying to do,” he said.

“It is quite obvious that there is a disconnect between all of the pledges investors are making [about pushing companies to tackle climate change] and what corporates are doing. It doesn’t look like the push from investors on the planned and forward-looking emissions is working.”

ESG investing has grown rapidly in recent years, as investors sought out investments that are beneficial to the health of the world as well as generating solid returns.

At the same time, big asset managers have become outspoken about the risks of climate change to investment returns. BlackRock boss Larry Fink this year said climate change represented a risk to markets unlike any previous crisis.

Mr Beslik said it was very difficult for investors to obtain accurate data on how prepared companies were for the shift to a greener world. For the analysis, he said J Safra Sarasin used an external data provider, as well as factoring in companies’ future plans and their past action on tackling carbon emissions in order to rule out so-called greenwashing.

He said a company’s current emissions and the “trajectory they are on” should be reflected in stock valuation.

Robyn Hugo, director of climate change engagement at Just Share, an investor advocacy group, called on asset managers to take a more forceful approach when discussing global warming with companies.

“If there’s a disconnect between what investors are asking for and what companies have pledged to do, it’s entirely plausible that investors are not forcefully pushing for the sort of business-wide changes that would see global heating limited to 1.5 degrees, not 3.5-4,” she said.

“It’s well within their duties and interests to turn their tea-and-biscuits engagement into forceful stewardship.”

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