Glencore PLC, the British-Swiss multinational trading and mining company, is one of the latest to commit to take steps in line with investor initiative Climate Action 100+. In what some are calling a potential tipping point in shareholder engagement on climate issues, Glencore committed to cap coal production at current levels, prioritize investment in commodities supporting low-emissions technology, and continue to disclose climate-related risks and opportunities in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Prior to this commitment, Glencore had been an outspoken proponent of increased investment in coal. As discussed below, this development may be significant not only for the current companies on the Climate Action 100+ priority list but also for companies who could find themselves on that list in future years and other companies engaged by investors on climate issues.
Climate Action 100+, 2017 to Present
This initiative started in 2017 as “Climate Action 100” by environmental non-governmental organizations (ENGOs) and investors CERES, AustralianSuper, California Public Employees’ Retirement System (CalPERS), HSBC Global Asset Management, Ircantec and Manulife Asset Management, and others. Since then, according to its website, it has grown to “323 investors from across dozens of countries, who collectively manage more than USD $32 trillion in assets under management.” In December 2017, an initial list of 100 focus companies was identified from a list of major companies based on ENGO CDP’s Scope 1, 2, and 3 emissions data. For an explanation of the differences in these emissions, please refer to prior V&E Climate Change Blog posts. In July 2018, the initiative changed its name to “Climate Action 100+” and added another 61 companies to its focus list. This second list of companies was chosen by investor nomination. The complete list is available on the initiative’s website. It remains to be seen whether Climate Action 100+ will add more companies to its priority list in 2019.
Climate Action 100+ Engagement Topics
Climate Action 100+ typically engages with companies to seek their commitment to undertake the following actions:
- Implement a strong governance framework which clearly articulates the board’s accountability and oversight of climate change risks and opportunities;
- Take action to reduce greenhouse gas emissions across the value chain, consistent with the Paris Agreement’s goal of limiting global average temperature increase to well below 2 degrees Celsius above pre-industrial level; and
- Provide enhanced corporate disclosure in line with the final recommendations of the TCFD.
Although seemingly straightforward, there are a wide variety of options for companies to consider under each of these three requests, each with potentially different consequences in terms of shareholder reception and attainability. For example, there are a number of approaches to address climate governance that could make sense for a company, depending on its size and industry as well as the types of climate risks and opportunities the company could face. And while the TCFD broadly recommends that companies undertake and disclose climate scenario analysis, this kind of analysis could be either be a straightforward exercise or a significant undertaking depending on the industry in which the company operates, among several other factors. A company in the energy industry, for example, could potentially rely on currently available climate analyses for its disclosures, while a company in the technology or financial services industries may be required to pioneer and develop new scenarios.
Glencore’s Statement on Climate Action 100+
On February 19, 2019, Glencore released a statement referencing its “engagement with investor signatories of the Climate Action 100+ initiative” and signaling the significance of its commitment by noting its “key role to play in enabling transition to a low carbon economy” as “one of the world’s largest diversified resource companies.” Among other things, Glencore voiced strong support for the goals of the 2015 Paris Agreement:
We recognise climate change science as set out by the United Nations Intergovernmental Panel on Climate Change. We believe that the global response to climate change should pursue twin objectives: both limiting temperatures in line with . . . the Paris Agreement (‘the Paris Goals’) and supporting the United Nations Sustainable Development Goals, including universal access to affordable energy.
Glencore also announced that it would begin reporting its Scope 3 emissions in 2020 and that it “will consider whether its membership in relevant trade associations aligns with the company’s stated positions in this statement. The result of this review, including any material misalignments identified and actions that will be taken, will be made public in 2019.”
Glencore Just the Latest Data Point
Climate Action 100+ has broadly publicized its engagements with major companies, including engagement that led to significant announcements by energy companies BP and Shell. In early 2019, BP announced that it would be supporting greater alignment between its business strategy and the goals of the Paris Agreement. At the end of 2018, Shell announced plans to set short-term emission reduction targets in addition to previously set long-term reduction targets.
In considering potential investor engagement on climate, an initial step for companies could be consulting the Climate Action 100+ list and comparing profiles to those of the companies currently on the list. A next step could include proactively learning about the limitations of current scenario analyses and other potential feasibility issues with common shareholder requests. This can help ensure that the outcome of any engagement meets shareholder expectations within a company’s broader strategy to evaluate and mitigate climate risks. For companies that have been or may be engaged by Climate Action 100+ or other activist investors on climate issues, understanding the reasonableness of the scope of certain requests can go a long way in ensuring companies’ interests are protected in both the short and long term. For many other companies that expect to be engaged on climate issues in the near future, there could be significant value in assessing their current climate governance strategies and developing proactive guidelines for fielding, and comprehensively responding to, any shareholder requests.