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The Actuary The magazine of the Institute & Faculty of Actuaries

Investors on ‘emergency footing’ as polluting firms fail to transition

Just one in eight of the world’s most carbon-emitting listed firms are cutting their emissions at the rate needed to keep global warming below 2˚C above pre-industrial levels.

Firms are moving at a slow pace ©iStock

The finding was made after a study of 274 companies by the Transition Pathway Initiative (TPI), which is backed by investors with around $14trn (£12.6trn) in assets under management.

Almost half of the firms studied do not adequately consider climate risk in their operational decision-making, while a quarter fail to report their CO2 emissions at all.

This is undermining a key recommendation of the Taskforce on Climate-related Financial Disclosures (TCFD), and the ability of pension funds to manage risks in portfolios.

“The fact only one in eight of the highest-emitting firms are responding at anywhere near the pace required is an urgent challenge to investors,” TPI co-chair, Adam Matthews, said.

"Failure to recognise the slow pace of corporate progress will directly undermine our ability as pension funds to manage the financial risks within our portfolio for our beneficiaries.”

The study used FTSE Russell data to analyse leading companies in 14 carbon-intensive sectors, which together account for 41% of global emissions from publicly listed firms.

Of the 130 companies assessed for the second consecutive year, 27% had improved how they integrate climate change into their business decisions.

But 84% of the firms studied do not disclose an internal carbon price, while 86% are yet to undertake and disclose climate scenario planning, which is a critical part of TCFD reporting.

Only E.ON, lberdrola, Stora Enso and Edison International have their current and planned carbon emissions aligned with the ambition to limit global warming to 2C.

“Today’s research shows clear leaders and laggards emerging within sectors from airlines to aluminium – and that gives investors an investment-relevant decision to make today," TPI co-chair, Faith Ward, said. 

“As the effects of climate change accelerate we can expect to see more capital flow away from those companies that bury their head in the sand, and towards those companies aligning with a 2°C pathway.”

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