Companies are doing better on combatting the climate crisis and yet there is a “performance gap” to confront, especially in the FTSE 100.
This conclusion comes from EcoAct, an environmental consultancy, in its tenth annual examination of some of the world’s largest companies and their approach to sustainability.
There is much to note. Looking at the FTSE 100, the CAC 40, the IBEX 35 and the Dow30, EcoAct finds the number of companies committed to “net zero” emissions, or something equally ambitious, has risen significantly from 20% last year to 45% in June this year when annual reports were examined.
Attitudes to management and their relationship with sustainability is also changing. EcoAct’s study finds that the proportion of companies where senior managers work to financial incentives set against sustainability performance has risen from 40% to 56%.
Likewise on the reporting front, there are other improvements. The number of companies declaring they are aligned with guidelines published by the G20’s Task Force on Climate-related Financial Disclosures (TCFD) has risen from just 12% in 2018 to 50% this year. Warnings in the press about the laggardly take-up of TCFD reporting appears to have paid off.
However, the FTSE 100 is behind the CAC 40 and Ibex 35 when it comes to the proportion of companies undertaking climate-related risk assessments, and behind again when it comes to those with declared mitigation plans.
This chimes with Board Agenda’s own research, conducted with professional services firm Mazars and INSEAD business school, looking at the state of risk management. When asked to prioritise the risks they faced, respondents placed climate last on a list of nine. The risks rated as the top three were regulation and compliance, finance and reputation.
EcoAct ranks companies for their sustainability performance, scoring them across four categories: measurement and reporting; strategy and governance; targets and reduction; and engagement and innovation.
Though Microsoft scores highest and leads the companies in all four indexes, the FTSE 100 could boast three of the top five (Unilever, BT and LandSec). It could also claim to have the most improved company: Informa, the publishing house.
And yet there are worries about the FTSE 100. Scores for the UK’s largest listed companies ranged all the way from a worrying zero to 92% (Unilever, down one place to second in the top ten).
“This suggests that the overall performance of the index continues to be pulled up by the high performers, and that those lower-scoring companies are still failing to step up and address the ever-advancing risks of climate change,” says the EcoAct report.
“All organisations, particularly those who have the influence of the FTSE 100, must urgently transform their business models to address the global climate emergency.”
Last week there was dispiriting news on sustainability when the United Nation’s biodiversity report revealed the world has failed to hit a single ten-year target. The report expressed concern that businesses are not yet doing enough on sustainability.
Investors have been pushing the sustainability message. In January Larry Fink, chief executive of BlackRock, the world’s biggest asset manager, warned companies that sustainability was the key issue for their business models. His annual letter to corporate leaders issued a warning.
“Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” he wrote.
Outside of Covid-19 sustainability remains the biggest issue for the world and business. Some companies have embraced the issue. Many others appear to be struggling. All that is clear is that if the planet is to meet the Paris Agreement target of maintaining global warming to 2℃ above pre-industrial levels, much more will need to be done.