In larger and larger numbers, institutional investors are calling on oil-and-gas companies and other fossil fuel firms to adjust their strategies to reduce their climate risk exposure.
And more companies are responding to shareholder requests, many of them organized by Climate Action 100+, an investor network representing $33 trillion in assets.
Last month, BP’s board and management supported a shareholder resolution asking the company to align its business strategy with the overall goals of the Paris Climate Agreement. An overwhelming 99 percent of shareholders supported the proposal.
In March, in response to a similar proposal, Royal Dutch Shell announced short-term carbon reduction targets for both its direct operations and for consumers using its products.
Delivery on its climate targets is also being linked to executive pay packages.
Investors are increasingly looking to corporate disclosures as a way to assess whether companies are handling issues like climate change as a strategic risk, or whether their efforts are more superficial.
This assessment has been kicked into high gear by financial sector-led efforts such as the Task Force on Climate-related Financial Disclosures (TCFD), which produced formal guidance for improving corporate climate disclosure.
Companies may have solid environmental and social strategies in place, but their value will be limited if they are not being communicated effectively.
Investor attention on issues like climate change is based on impacts they are already seeing on corporate values, whether from operational impacts, regulatory shifts, supply chains ripples, or reputational risks.
Corporate disclosures should dig into providing clear answers to these questions. Companies should leverage C-suite executives and board members who can act as key messengers on these issues.
“If the CEO says it’s important, it carries more weight. Wall Street cares about what the person in charge has to say, otherwise how important can this be if the CEO is not willing to take the time to speak about it?”
Reference- Ceres Report, Inputs From Climate Action Network & Task Force on Climate-related Financial Disclosures