The past few years have seen significant growth in climate change goals from the corporate and investor community. A growing number of companies have pledged to decarbonize their operations and impacts, at least partially. Similarly, investors are committing to decarbonize their portfolios and in doing so, have engaged companies on their climate goals and strategies. However, despite investor attention, climate change is still not widely reflected in strategy and performance communications to investors.
A detailed analysis of the world’s 100 largest companies’ climate and business communications revealed the following[1]:
- Eighty-four have set climate change commitments; the majority of which were made or updated as of January 2020.
- However, only 27 mention climate change in investor presentations on long-term strategic planning. Of these, only eight featured climate change as a central component in strategy communications to investors.
- Only 26 companies reference climate change in their most recent financial results disclosures. Of these, only seven provided meaningful details on climate change implications on capital allocations and investments.
- Seventy-nine companies reference climate change in their annual reports. However, only 25 disclosed plans to take advantage of climate business opportunities. Only 13 provided details on planned capital allocation in support of this.
This research suggests that companies could do more to bridge the gap between their climate change approach and their long-term value creation strategies. To build investor trust, companies must also communicate how they plan to generate value and stay resilient in a low-carbon future.
To facilitate this integration, we have created a Climate Transition Conversation Guide, which will help companies develop a consolidated view of their plan to transition to a low-carbon future. Developed in consultation with FCLTGlobal’s corporate and institutional investor members, the guide outlines a series of questions that companies can ask themselves to assess how climate change affects every aspect of their long-term strategy. Elements include:
- Corporate Purpose: How does climate change affect how the company intends to create value now and in the future?
- External Environment: How does climate change influence core growth drivers, the competitive environment, and management’s view of the market?
- Strategy, Goals, and KPIs: How does climate change affect the strategic plan, and related goals and KPIs?
- Capital Allocation and Investments: How does climate change affect the company’s capital allocation plan?
- Risks: How has climate change been reflected in the company’s risk management framework?
- Accountability and Incentive Alignment: How is the company structured to allow for the integration of climate change into the business strategy at all levels?
Companies can use this guide to drive internal conversations and develop a climate transition plan that is integrally linked with their long-term strategy. The guide also serves as a reference for investors who wish to engage with portfolio companies on integration efforts.
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[1] See section 3 of this report for the results of FCLTGlobal’s analysis of the top 100 companies in the MSCI ACWI.
