Assessing corporate action on climate change at the Transition Pathway Initiative

by Will Irwin (London School of Economics and Political Science) and Bruno Rauis (London School of Economics and Political Science).
Assessing corporate action on climate change at the Transition Pathway Initiative

The paper in Nature Climate Change is here:

In the space of a couple of years, the Transition Pathway Initiative (TPI) has come a long way. The initiative is supported by asset owners and managers weighing over US$10 trillion of assets under management. Assessments of the carbon management and emissions performance of large global corporations in seven (and counting) high-emitting sectors receive generous press coverage and are shared at well-attended events taking place in locations such as the London Stock Exchange. We won a prestigious Finance for the Future Award earlier this year, we have been chosen as an official data provider to Climate Action 100+, the largest global investor shareholder engagement initiative, and we even have a brand-new TPI video gathering likes, praise and encouragement on social media.

However, things were not always so glossy. On a Monday afternoon in January 2017, Professor Simon Dietz convened us four fresh TPI recruits to a meeting room at the London School of Economics, to explain everything about this new and exciting initiative. At the time, ‘everything’ could be explained in about an hour. Back then, the supporters only represented less than US$3 trillion in assets under management. 

In the following weeks the real work started for the four of us, as we took on the task of benchmarking the emissions of the twenty largest electricity utilities globally (by market capitalisation). The task seemed rather simple: for each company, divide greenhouse gas emissions by total power generation, and then compare to the IEA two-degrees and Paris pledges benchmarks. Easy? Not quite so.

We quickly discovered the deceptive difficulty of this apparently simple task. Soon, we were in Simon’s office debating a laundry list of questions such as: Which scope of greenhouse gas emissions should we focus on for this sector?’ Is this company disclosing the emissions of all of its operations? We have two disclosures of emissions for the same company, but they don’t match – which one should we take? Or – a classic and a favourite – are we sure that this company’s emissions disclosure is comparable to that company’s emissions disclosure? The answers to these questions were far from obvious because climate-related disclosures have a habit of being remarkably ambiguous.

Under Simon’s guidance, we did the best we could – and two years and about a dozen reports on, we are glad to say that the TPI methodology has so far endured the test of time. We also have a good amount of data which we have been building from the ground up, and are therefore comfortable with. This has allowed us to take a more academic perspective on our findings, asking what they show overall about the climate action that companies are taking. 

This study takes 19-20 of the world’s largest publicly listed companies in some of the highest emitting sectors: automotive, cement, coal mining, electricity, oil and gas, paper and steel. 138 companies in total are included. Large companies are responsible for the lion’s share of global emissions, if you combine their direct, indirect and value-chain contributions (so-called Scope 1, 2 and 3 emissions). Understanding their policies on climate change is vital information. Looking at this issue over such a wide variety of companies had the potential to yield some interesting results.

The TPI and FTSE Russell team dutifully collected data on companies’ carbon management policies in four thematic areas: acknowledgement of climate change, disclosures of emissions and costs of climate change, company emissions reduction targets, and climate change as a ‘c-suite’ issue.

Perhaps most significantly, the analysis shows that companies generally group into one of two classes: those that undertake most of the policy measures assessed, and those that undertake very few or none. Corporate climate leaders and corporate climate laggards, if you like.

Looking at the whole sample, the majority of companies have taken initial steps to manage climate change and their carbon emissions, including having some policy and acknowledgement of climate change as an issue. Automobile and electricity manufacturers implement the most positive practices, whilst coal and steel companies have the fewest in place. 

Company carbon intensity data shows that there is no correlation between companies’ historical emissions intensities and their management practices. However, companies with better management practices have set more ambitious future emissions targets, which put them on lower emissions pathways. 

We encourage readers to explore the article for the full suite of conclusions.

The recent IPCC 1.5 Degrees report forced home how quick and dramatic change must be to decarbonise the global economy. Clear-headed analysis and reliable information is one piece of this picture; if we know what companies are doing, investors and society at large can hold them to account. It’s clear from this analysis that companies are making progress; there is still time for companies’ practices and carbon intensities to swing within target-compliant pathways. However, it seems that today progress isn’t being made quickly enough, as the results of this paper underline. We at TPI are proud to inform readers on this as well as of the growth of the initiative, and the team is currently working on a number of exciting expansions in coverage. Results will only become more interesting as data richness grows over time. 

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