The Transition Pathway Initiative (TPI), a global, asset-owner led initiative hosted by London School of Economics, published its Annual State of Transition Report, 2020 on March 20. TPI evaluates what the transition to a low-carbon economy looks like for companies in sectors with a high impact on climate change to help investors assess climate risks. 238 companies were assessed on “Carbon Performance” and 332 on “Management Quality”.

On Carbon Performance, that represents a quantitative benchmarking of companies’ emissions pathways against the 2015 Paris Agreement goals, only 18% of the companies have emissions trajectories in line with a 2° climate change limitation (compared to 16% the previous year). The report finds that the most performant companies with 2025 targets are the electric utilities and paper companies whose emissions intensity has decreased by 4%. Meanwhile, the emission intensity of the oil & gas and shipping companies has not decreased and that of the steel and cement companies have even increased.

 

Number of companies aligned with the Paris Agreement benchmarks by sector

Source: TPI “State of transition 2020: Over 80% of companies remain off track for a 2°C world”

Investors say these results raise a red flag for COP26 when the Paris agreement aspirations are due to become tougher national commitments leading to a possible capital to flow away from the companies that could not align with the 2° trajectory. Investors also warn from neglecting the climate commitment, which is already limited, due to the Coronavirus Pandemic and that influence of investors should be used to “ensure that climate commitments are not discarded in the face of financial pressures”

The Management Quality assessment is on a scale of levels 0 to 4 based on 19 indicators. Companies scoring 0 to 2 are considered “unprepared for the transition”. The report found 38% of companies lack adequate corporate governance for the transition to a low-carbon economy and are thus considered unprepared for the transition. On the other hand, 62% of companies are now on Levels 3 – 4, 7 of which satisfy all the indicators, including E.On, Unilever, BHP Billiton and Equinor.

 

Management of Quality level of all TPI companies

Source: TPI State of Transition Report 2020

The report recommends investors to put a higher pressure on companies to ensure the lobbying policy of trade associations in which they are members meet the companies’ position on GHG emissions reductions. It also advises investors to require more transparency on the companies’ reliance on offsetting as those who will not be able to meet the net-zero carbon emissions will heavily rely on those schemes.

 

Carbon Performance alignment with the Paris Agreement benchmarks and Management Quality by geography


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