‘We are seeing an uplift in corporate net zero ambitions but a lack of clear strategy’

A new report highlights despite 45% of FTSE companies now being committed to Net Zero by at least 2050, only 16% of the index has a robust strategy to meet the global goal

EcoAct, the international climate and sustainability consultancy, has this week released its 10th Anniversary edition of the Sustainability Reporting Performance of the FTSE 100. The report, which includes a leader board ranking the top 20 FTSE 100 companies for environmental sustainability disclosure, reveals that although an increasing number of companies are setting a Net Zero target, only a small proportion have a robust strategy for achievement.

Now is quite possibly the most crucial time in our journey to avert the risks of climate change. Based on the 2019 Intergovernmental Panel on Climate Change (IPCC) report on 1.5oC[1], we now have only this decade left – a rapidly closing window –  to take sufficient action to reach Net Zero and avoid the most catastrophic impacts of climate change.

“Net Zero transition strategies need to be in place and implemented by 2030 with Net Zero targets no later than 2050. During the ten years that we have undertaken this research, we’ve continued to see year-on-year improvements to climate-related reported best practice”, said Stuart Lemmon, CEO, Northern Europe, EcoAct. “This year we are encouraged to see a large uplift in company commitments to Net Zero in response to our urgent global goal. However, if we are to succeed in this goal, it is imperative that commitments are backed by sound and achievable strategy.”

Measuring progress to Net Zero

Although the report concedes that companies are facing the challenge of having no clear internationally agreed definition of Net Zero, there are important actions that we know must be an integral part of our strategies if we are to successfully meet our global ambition. The research looked at, among others, the following key areas of sustainability best practice:

Science-based targets: Net Zero requires rapid decarbonisation and this should be in line with a pathway to limit global warming to 1.5oC or well below 2oC as advised by climate scientists. As such, companies should be setting science-based targets (SBTs). 35% of companies have set an SBT according to the research. The report also shows that companies are much more likely to be on track to meet targets if they have an SBT as opposed to a non-science-aligned target, demonstrating the effectiveness of ambitious emissions reductions targets at driving process within organisations.

Scope 3: Three quarters of FTSE 100 companies assessed in the research are calculating and disclosing at least some of their Scope 3 / value chain emissions. However only 33% have a target to reduce them. Often Scope 3 emissions comprise the largest part of a company’s footprint. If we are to be successful in our Net Zero ambitions, more companies will need to be demonstrating both transparency and proactivity on the climate impacts of their full value chains and exerting their influence to affect wider positive change.

Climate risk assessment: While the report reveals that 81% of UK companies are assessing risks to their operations from climate change, only 64% are assessing them across their value chain and only 56% have plans in place to mitigate those risks. The COVID-19 pandemic has shown us the far-reaching consequences of being ill prepared for global crises, so it is vitally important that companies are understanding the future risks posed to them and putting in place strong mitigation plans.

Renewable Energy: The report also looks at how companies are progressing in the transition to renewable energy. 65% of the FTSE 100 companies are now using or generating some renewable electricity. 33% are committed to 100% renewable electricity, with several joining the EV100 initiative. The continued rise in renewables has been attributing to the increased cost competitiveness of renewable energy, as well as many companies in the energy sector recognising the commercial opportunities of renewable investment.

The climate leaders

This year Unilever has defended its first-place title for the second year running, having been a regular feature in the top 20 since 2013. BT has taken second place in the rankings, remaining in the top three for the 8th consecutive year. Landsec appears in the top 3 for the first time this year.

These three leading companies all have ambitious Net Zero commitments; robust strategies; strong internal governance; leadership in implementing climate initiatives, such as supplier engagement and renewable energy use; and are raising the bar of best practice in their industries.

The Financial Services; Information, Technology and Telecommunications; Energy, Water & Multiutilities; and FMCG sectors have also been noted for strong reporting performance this year.

Investor pressure is driving change

The research finds that a key driver for best practice reporting is increased pressure from investors who are demanding better transparency on climate risk and disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD).

Since the release of the recommendations in 2017, they have played a role in what has been a seismic shift in the perception of climate change to a material financial risk that needs to be addressed and adequately reported. Alignment to the TCFD has increased rapidly from only 15% of FTSE 100 companies in 2018 to 56% in 2020 as companies are now responding to investor demands for better climate-related disclosures which is pulling more companies from more diverse sectors up the rankings.

The urgent need for a green COVID-19 recovery

This year’s research has been undertaken during 2020’s global pandemic which has meant enormous and unparalleled challenges for many businesses. Although the impact on emissions disclosures covering this period will not be seen until next year’s report, the context in which these findings are published is particularly salient.

The decade we have remaining to avert the climate crisis is not going to be without additional challenge, not least this crisis and the resulting recession. However, in order to safeguard our businesses and livelihoods, climate change and developing robust strategies for the Net Zero transition must be central to our recovery. But if our current crisis has provided us anything, it has been to show us the incredible capacity we have to adapt quickly to overcome adversity, even if that means transforming business-as-usual. The leaders in our report are demonstrating that with climate action, comes large commercial value.

With the report highlighting a large gap in performance with scores ranging from 0-92% and time running out to tackle climate change, it is clear that more companies urgently need to step up to meet the leaders, set out robust strategies and play their part in our urgent transition.

You can assess the full report at: https://info.eco-act.com/en/sustainability-reporting-performance-ftse-100-2020

[1] https://www.ipcc.ch/sr15/

If you enjoyed this story, you can sign up to our newsletter for future Net Zero.

Latest Podcast