Investors want more information from companies about their pledges to meet net zero emissions, says a new report.
According to interviews conducted with investors, companies should be detailing how their net zero commitments impact strategy and business models, as well as providing information on transition plans, working assumptions, risks and opportunities.
Impact information is one of three areas investors want to see improved, along with more detailed information from companies on the level of their net zero ambitions and disclosures on how they will judge their own performance.
The report, from the Financial Reporting Council, comes after an earlier investigation found that climate reporting is “too often aspirational and high level”.
What’s it going to cost?
Investors want impact details on how net zero might affect business models and transition planning; how risks and opportunities are “framed” by net zero; estimates of the future costs for green operating expenditure; explanations of the “uncertainties and assumptions” embedded in moving to net zero.
While there is much talk about the role of corporates in achieving a reduction in greenhouse gases and committing to net zero emissions, it is clear investors felt they were being served too little detail to assess what companies are up to. They were also blunt about it.
One investor told the FRC: “Some companies are great at setting targets and publishing a shiny website, but then don’t have any published plans on how to get there.” Another highlighted the hard choices companies must address: “We need to talk about what may be impossible to cut—or that we might need to live without those products.”
Investors want to understand how a company reaches carbon neutrality. One commented: “We’re looking for evidence they’ve done their homework before they think about metrics. Have they done a deep dive investigation of the breadth of the business?”
How’s it going to happen?
Another wants to know about the means of getting to net zero. “I’m interested in understanding what management sees as enabling the change—is it business change? R&D? Public policy? What would help them accelerate action.”
There are some tough comments about needing to know the potential future costs of reaching carbon neutrality. “If you’re still investing in exploration or development of carbon intensive projects, that’s questionable. If you don’t allocate CapEx to low carbon technologies, it raises the question that you’re not getting ready for transition.”
Another investor was forthright about the “assumptions” underlying net zero declarations. “We’re missing assumptions—for example, clarity on key technologies they’ll invest in; the projects they’re undertaking for reductions; what the financial, operational and people commitment will be.”
Investors are harsh when it comes to being offered a glimpse of company performance. “It shouldn’t just be a pretty brochure. It has to be hard data,” says one. Another adds: “It’s sometimes hard to square the numbers and how they link together with the business model.”
Some want short and medium-term targets for emissions reduction, in addition to the net zero objective. Others want targets broken down by region, sector and product line.
Some investors detect a skills gap. “Please invest in human capital and develop teams to report on net zero and sustainability issues properly,” says one.
Net zero is a crucial target and investors are interested. This new report suggests they don’t want to be fobbed off in corporate reporting.