$14 trillion investors call for scrutiny and director accountability on corporate net zero plans

9 August 2021

53 leading investors, managing more than USD $14 trillion of assets, are calling for the implementation of new governance measures that hold companies to account in achieving their net zero commitments.

The intervention comes via the Institutional Investors Group on Climate Change (IIGCC), a European body with over 300 investor members. At least a fifth of the world’s 2,000 largest public companies have committed to net zero targets, including 52 percent of the high-emitting companies engaged through the Climate Action 100+ initiative. But the IIGCC argues that the lack of standardisation in commitments made to date poses a challenge for investors, who are increasingly looking to align their overall portfolios with net zero objectives.

The Group wants to ensure that targets set by companies are robust and properly implemented, and that action can be taken where this is not the case. Otherwise, it says, investors are more exposed to climate risk and efforts to transition to a net zero emissions future could be undermined.

In a newly published position statement the IIGCC is calling on companies to: i) disclose a net zero transition plan, ii) identify the director responsible for the plan and iii) provide a means for investors to vote annually on progress against the plan.

“In order for investors to do their job as stewards of capital, companies must establish effective mechanisms to demonstrate their net zero transition plans to shareholders and outline how they will be achieved,” said Stephanie Pfeifer, Chief Executive, IIGCC. “It is clear that shareholder voting and director oversight is needed to hold companies to account on their commitments to achieving a net zero future.”

Net Zero Transition Plan

The IIGCC’s position statement lays out how it expects companies’ Net Zero Transition Plans to be realised. It says these should be provided within overarching Taskforce on Climate Related Financial Disclosures (TCFD) climate reporting and use the recent Climate Action 100+ Net-Zero Company Benchmark indicators as core metrics to demonstrate progress towards net zero alignment.

Director responsibility

The group also wants companies to identify the directors responsible for Net Zero Transition Planning: this will enable investors to determine which Board directors, in addition to the Chair, should be engaged with and potentially (as a last resort) voted against when a plan has not been provided or implementation is insufficient.

Annual vote on net zero progress

The statement also calls on companies to provide a routine advisory vote on the implementation of the Net Zero Transition Plan, in jurisdictions with strong governance conventions and where permissible in local law. Where advisory votes are not permissible, the statement suggests that investors reflect their opinion through other voting behaviour such as the election of board members.