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US corporate talk on climate change not matched by lobbying: Ceres

13 July 2021 Kevin Adler

The largest US corporations are talking the talk on climate change, but they are not bringing that message to lawmakers with sufficient urgency, according to a new report by nonprofit Ceres.

In a review of the statements and lobbying actions of 96 major US companies in the S&P 100, Ceres reported on 13 July that 76% of them have "publicly affirmed the science of climate change." However, only 40% of the companies have engaged directly with lawmakers on the importance of using science-based policies to strive to reduce climate change, Ceres said in its report, "Practicing Responsible Policy Engagement."

Breakouts for four of the top 100 S&P companies were eliminated in the report due to consolidations and mergers.

Ceres found that 21% of the companies have lobbied against science-based climate policies, even as many of them have announced their own emissions reduction programs, meaning "… these companies demonstrate a troubling inconsistency, at a minimum, in their approach to climate change," Ceres said.

"Claiming credit for making operational climate change commitments while undermining the necessary policy measures to achieve those very commitments poses significant reputational and financial risks to companies," it warned.

Ceres defines science-based policy as actions that will help limit the global temperature rise to 1.5 degrees Celsius, compared with pre-industrial levels, per the Paris Agreement. These actions include decarbonization of electricity and transportation, rapid limits on methane emissions, and use of nature-based climate solutions.

Building on the 'Blueprint'

In 2020, Ceres published the "Blueprint for Responsible Policy Engagement on Climate Risk," and this latest report analyzes the 96 publicly traded companies according to those principles. In brief, the blueprint directs companies to:

  • Assess the impact of climate change on the company, including how its lobbying and political donations can mitigate or exacerbate those risks;
  • Include climate policy across all corporate decisions about lobbying and policy engagement; and
  • Align direct and indirect lobbying with science-based climate policies, including actively lobbying in their favor, both with political leaders and within trade groups.

Overall, Ceres termed corporate support of science-based climate policy to be "weak," but it did credit companies such as Capital One, PepsiCo, and Visa for calling on Congress in 2020 to act in a "climate-smart" way when spending COVID-19 recovery funds.

At the state and regional lobbying level, Ceres said biotech firm Biogen, nutrition and health sciences company DSM North America, and real estate developer JLL have strongly supported decarbonization of key sectors of the economy, such as transportation. And it said that a few companies with major operations in Arizona (Google, Microsoft, Salesforce, and packaging and aerospace company Ball Corp.) came out in the legislative session this year for stronger clean energy standards.

Promises, promises, promises

However, Ceres pointed out that for some companies, climate commitments begin and end with promises—and even those promises are undermined by the limited information being shared by the corporate giants. As an example, it said that 46% of the companies it studied acknowledged in financial filings they were affected by both the physical and transition risks of climate change. Another 28% disclosed one or the other form of risk, but not both. But 26% do not acknowledge either form of risk as "material" in financial reports such as 10-K filings with the US Securities and Exchange Commission (SEC).

Since taking office in January, US President Joe Biden has issued executive orders and appointed government agency leaders who started rulemakings that could significantly increase disclosure requirements. For example, the SEC this spring opened a rulemaking on a possible expansion of rules for how companies must disclose climate change risk in financial statements. In March, the SEC denied requests by two oil companies to omit shareholder resolution votes requiring the companies to set specific GHG reduction targets, and in April the SEC warned companies about making potentially misleading green investment claims, updating 2010 guidance.

The Ceres report also contrasted the actions and statements of large industry trade groups with the messages coming out of the White House under Biden. Ceres said trade groups have undermined some of Biden's programs to reduce emissions this decade and to ramp up US investments in clean energy.

As one example, Ceres called out the American Petroleum Institute for posting social media ads claiming that Biden's halt on new oil and natural gas leases will lead to "hundreds of thousands of job losses and billions of losses in government revenues."

Also, Ceres criticized the US Chamber of Commerce for stating that it supports Biden's announcement of a new goal of a 52-55% GHG emissions reduction by 2030 from a 1990 baseline, while at the same time saying coal-fired power plants should be part of the US and global energy mix. Basically, it argued, the Chamber is placing its bet on carbon capture, use, and storage technologies to keep coal, oil, and natural gas viable in a net-zero world, and Ceres said it is bringing that message to Congress.

Neither API nor the US Chamber could provide a comment until they had more time to review the report.

However, as news developments show, US trade groups are far from the only representatives seeking to keep fossil fuel assets alive. The Institute for Environmental and Energy Economics on 12 July reported that the Japan Bank for International Cooperation will finance coal-fired power in emerging economies if the projects are accompanied by carbon capture and storage or if a proportion of ammonia or biomass is co-fired with the coal, a stance in contrast to other major lenders that have said they will not finance new coal-fired power.

Ground is shifting

Ceres said that trade groups and corporations are at risk of being on the wrong side of changing social attitudes and government policy if they do not revamp their lobbying, as well as their actions. Through groups like Climate Action 100+, investors are raising the pressure on corporate lobbying on climate issues.

After reviewing corporate climate commitments and investors' attitudes, Peter Gardett, IHS Markit research and analysis executive director, said he sees that trend emerging. "The financial, commercial, operational, and political environments for large corporations in the US have all changed dramatically around climate change in the past year, so it is not surprising that companies are trying to balance the momentous shift toward action on climate risk with their mandate to provide continuity for their shareholders, partners, employees, and regulators," he said in an email.

Indicative of how the ground is shifting even day-to-day, 41 US companies, including many in the Ceres study, on 13 July called on Congress to prioritize investments that can accelerate the transition to a resilient net-zero economy in any infrastructure legislation. Biden had proposed a $2.2-trillion infrastructure bill back in March, and after discussions with Democrats and Republicans, it's been whittled down to about $1.2 trillion, still an immense sum.

In a statement coordinated by the Center for Climate and Energy Solutions, the corporations said: "Sizeable investments in resilient, low-carbon infrastructure are needed to move the country toward a net-zero future. Access to clean, reliable, and affordable energy is as crucial to American families as it is to our nation's largest companies."

Signers include agribusiness giant ADM, Amazon, Bank of America, DuPont, IBM, and energy companies Dominion, Duke Energy, National Grid, NRG Energy, and Southern Company.

At the same time, investors are voting with their dollars, redirecting them away from fossil fuels and towards renewables. BlackRock, the world's largest fund manager with about $9 trillion in assets, started a third investment fund in April to invest in renewable power projects around the world and launched a new exchange-traded fund for institutional and individual investors who want to invest in the low-carbon economy.

BlackRock CEO Larry Fink has been outspoken about the need for a coordinated effort by government, corporations, and investors to move forward on the energy transition. And he has warned that an individual company's actions, while perhaps putting it on the right side of the climate issue, is ineffective if it's not part of a broader approach across industries and nations.

As an example, Fink spoke at an investment conference in Europe this month about the impact of a Dutch court in May ordering Royal Dutch Shell to reduce its Scope 3 carbon emissions by 45% by 2030 from a 2019 baseline. Fink pointed out that Shell can do this merely by selling high-carbon assets, which the company has said it's considering. But this is meaningless in terms of reducing global carbon emissions. "Divesting, whether done independently or mandated by a court, might move an individual company closer to net zero, but it does nothing to move the world closer to net zero," Fink said.

That complexity—the idea that one company's actions must be seen in the context of national and international goals, as well as in relation to its own prior actions and those of its competitors—is becoming more apparent, said Gardett. But it's also evolving quickly, and with different elements gaining greater attention from the public and lawmakers, making it challenging for companies to keep up.

"Only a year ago, the outlook for climate policy in the US was very different, and the reality is that it could be very different again a year or two from today. In the meantime, companies need to plan for a future that is increasingly favoring electrification, infrastructure resilience, digitalization, and cleantech deployment trends that all have climate implications but are not primarily driven by action to minimize or manage climate change," Gardett said.

"Over time, their lobbying work will presumably come to reflect the reality of a reshaped economy, and until that economy arrives they are navigating an energy policy transition as complex as the physical and economic transitions also currently underway," he said.

Posted 13 July 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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