Over the past year, the FCLTGlobal community has explored how companies and investors could better communicate how they are positioning themselves in a low carbon future. How have investors been identifying companies that can create sustained value? Have companies been providing the necessary context for investors to make informed decisions?
By Veena Ramani and Sam Sterling
Companies face a ceaseless demand for climate change information, often without a clear sense of how it is being used. Meanwhile, investors deal with a lack of consistency between climate disclosures and business disclosures, particularly relating to how climate change is being prioritized by the enterprise.
To dig into this problem, Sustainability or Strategy: Bridging the Gap Between Climate Change and Long-term Value Creation analyzed corporate business and financial communications – including strategic plan presentations, earnings presentations, and annual reports – to identify if climate change was in fact being prioritized. The research found that only 27 of the world’s 100 largest public companies even mentioned climate change in their strategic plan presentations to investors (only 8 of the 27 provided meaningful detail). Similarly, only 26 of the 100 companies even reference climate change in their latest earnings presentations. Yet, 84 of these companies had set ambitious climate change goals.
The report also included a tool to facilitate the solution. The Climate Transition Conversation Guide helps companies assess the extent to which climate change could affect every aspect of their long-term strategy, including capital allocation decisions, risk management, and the strategy, goals, and key performance indicators.
On 17 May, FCLTGlobal convened members to discuss this new work. The group acknowledged the gap between climate change rhetoric and business communications and the critical need for a more integrated approach. However, both the corporate and investor participants noted that the work needed to drive integration is difficult – and that both need to invest resources and patience to drive integration in a meaningful manner.
Here are three important takeaways from our discussion:
Capacity building: Participants highlighted that meaningful climate change integration – whether into business strategy or the investment process – is complex, and that capacity building is needed at all levels, with specific emphasis on:
Providing a runway for companies to conduct necessary analysis: Building on the above, participants acknowledged the need for investors to give companies time to performance relevant analysis and to have informed, internal conversations on climate integration. At the same time, companies could consider deepening relationships with major investors to build trust in the process while the details are being developed. (FCLTGlobal has long advocated for a thorough and honest investor-corporate dialogue. For more, see Straight Talk for the Long Term.)
Balancing long-term goals and near-term actions: The working group recognized the importance of defining organizational climate ambitions both through long-term goals and near-term implementation, including changes to capital allocation, to give investors confidence that tangible steps are being taken.
Developing integrated climate and corporate strategy is not an easy task. While work between companies and their investors will take time, effort, and resources, peer-to-peer discussions and practical tools can guide the process towards better strategic integration.
Investing in the climate transitions will continue to be a focus of FCLTGlobal. To be involved or learn more, please reach out to [email protected].
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