FTSE 100 must lead the way on net zero action
Turning net zero ambitions into action will be imperative to build back responsibly from COVID-19. Yet a key finding in our Sustainability Reporting Performance of the FTSE 100, published today, shows that although an increasing number of companies are setting a net zero target, only a small proportion have a robust strategy on how to get there.
Now is possibly the most crucial time in our journey to avert the risks of climate change. We 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, according to the 2019 Intergovernmental Panel on Climate Change (IPCC) report on 1.5 degrees1 . Within this context, EcoAct’s tenth annual research examines how some of the largest publicly listed companies in the world are tackling our urgent climate goals and disclosing their progress.
Headlines from the report
- 45% of FTSE companies are now committed to net zero by at least 2050, but only 16% of the index have a robust strategy to meet the global goal.
- Top-scoring companies this year include Unilever, BT, Landsec, SSE and NatWest Group.
- Investor pressure is having a significant impact on corporate sustainability reporting.
- Overall performance of index is pulled up by high performers, exposing urgent action still needed by many UK companies.
- Climate must be central to the recovery from the COVID-19 pandemic to avert the climate crisis and safeguard future business.
The urgent need for a green COVID-19 recovery
Clearly, the coming decade will be shaped by additional challenges, not least COVID-19 and the resulting recession. However, in order to safeguard our businesses and livelihoods, developing robust strategies for the net zero transition must be central to our recovery.
If the crisis brought by the global pandemic has shown us anything, it has been the incredible capacity of businesses and other organisations to adapt quickly to overcome adversity and acclimatise to a new normal. The leaders in our report demonstrate that proactivity on the climate can bring great large commercial value.
With the report highlighting wide disparities in performance, and time running out to tackle climate change, it is clear that more companies urgently need to take inspiration from those leading on environmental action, set out robust strategies and play their part in a societal transition.
Measuring progress to net zero
Though this year’s research was undertaken during COVID-19, the impact on emissions disclosures for this period will not be seen until next year’s report. Although the report concedes that companies face the challenge of having no clear internationally agreed definition of net zero, there are important actions that must be an integral part of strategies if we are to meet our global ambition.
The research looked at, among others, the following 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 1.5C or <2C as advised by climate scientists. As such, companies should set science-based targets (SBTs). The research shows that 35% of companies have set SBTs. Businesses are also much likelier to be on track to meet targets if they use SBTs as opposed to targets not grounded in science. This demonstrates the effectiveness of ambitious emissions reduction targets to drive process within organisations.
Scope 3: Three-quarters of FTSE 100 companies calculate and disclose at least some of their value chain emissions (Scope 3). However only 33% have a target to reduce them. Scope 3 emissions often comprise the largest part of a company’s footprint. To ensure net zero success, more companies will need to demonstrate transparency and proactivity on the climate impacts of their full value chains while exerting their influence to affect wider positive change.
Climate risk assessment: While the report reveals that 81% of FTSE 100 companies assess risks to their operations from climate change, only 64% assess risk across their value chains and only 56% have plans in place to mitigate those risks. The COVID-19 pandemic has shown us the far-reaching consequences of being underprepared, making it vitally important that businesses understand future risks and put in place strong mitigation plans.
Investor pressure is driving change
A key driver for best practice reporting is increased pressure from investors demanding greater transparency on climate risk in line with guidance from the Task Force on Climate-related Financial Disclosures (TCFD). The task force has developed climate-related financial risk disclosures for use by companies.
The release of TCFD recommendations in 2017 have enacted a seismic shift in the perception of climate change, which is now more broadly seen as a material financial risk to be addressed and adequately reported on. Alignment to the TCFD has increased rapidly from only 15 FTSE 100 businesses in 2018 to 56 in 2020, showing that more are now responding to investor demands. Leadership in this area has pulled companies from diverse sectors up the rankings.
Find out more about how your business can build back responsibly.
Stuart is a member of Business in the Community’s Net Zero Carbon Taskforce, helping businesses convert ambition into action.
- Global Warming of 1.5ºC; IPCC; available at ipcc.ch.
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