The top five climate risk and disclosure stories this week.
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Major firms back California climate disclosure laws
Microsoft, IKEA USA, Patagonia, and other big companies are urging California lawmakers to pass the first mandatory climate disclosure law in the US.
The California State Assembly is scheduled to vote on two bills that would force companies to report on how climate change could affect their businesses before the legislative session ends in September. SB 253 would compel large public and private companies in the Golden State to report their greenhouse gas emissions across their operations and value chains. SB 261 would require large companies to disclose their climate-related financial risks. If passed into law, the bills would establish standards that allow for comprehensive, comparable climate disclosures.
Fifteen companies have signed a letter to California lawmakers in support of SB 253, arguing that “consistent, comparable, and reliable emissions data at scale is necessary to fully assess the global economy’s risk exposure and to navigate the path to a net-zero future.” The signatories include software companies Adobe and Atlassian and clothing retailer Everlane, alongside Microsoft, IKEA, and Patagonia.
Separately, 12 companies issued a letter backing SB 261, insisting that better disclosures will help them “understand, price, and manage climate risks as well as take advantage of climate opportunities.”
Both bills have already been approved by the state senate. If passed by the assembly, SB 253 would apply to around 5,300 companies and SB 261 to 10,000.
More companies embrace science-based targets
Over 1,000 companies had science-based climate targets validated in 2022, an 87% increase on the cumulative total from the previous seven years, according to the Science Based Targets initiative (SBTi).
The group’s CEO, Luiz Amaral, said the surge reflects “the enormous demand from the business world for credible, ambitious targets for reducing greenhouse gas emissions.”
The SBTi Monitoring Report, published Thursday, reveals that Japan is a frontrunner on target-setting as more companies have established science-based targets there than anywhere else in the world. China also embraced science-based targets at scale, with the number of companies setting targets increasing by 194% year-on-year.
Companies in the materials industry led the way in adopting science-based targets, seeing 160% growth in the number of companies setting these types of goals. On the flipside, companies in the power generation, biotech, healthcare and pharma, and hospitality industries saw the slowest growth in target adoption.
The SBTi says that as of the end of 2022, companies representing over one-third of the global economy by market capitalization have now set or committed to setting science-based targets.
Streamline EU ESG rules, regulator says
The chair of the European Securities and Markets Authority (ESMA) has said the European Union’s environmental, social, and governance (ESG) framework needs to be “more streamlined over the next few years.”
In an interview published by the European Central Bank, Verena Ross said the European Commission, lawmakers, and regulators “all need to contribute to improving the practicality of the current EU framework, addressing inconsistencies across regulatory requirements and reducing complexity for investors.”
The EU has introduced a slate of ESG reporting rules for corporates and financial institutions in recent years, including the Corporate Sustainability Reporting Directive and Sustainable Finance Disclosures Regulation. Ross said these initiatives should “improve the [ESG] data situation, which is currently still limited and very fragmented.”
Climate policies of Australian banks fall short
Australian banks’ climate policies have “gaping holes” that allow them to continue financing coal, oil, and gas extraction, a new report claims.
The Australian Conservation Foundation (ACF) benchmarked the financing restrictions and climate targets of Australia’s five largest banks, using assessment criteria and best practices from major climate frameworks and initiatives, including the Net Zero Banking Alliance and the Task Force on Climate-related Financial Disclosures (TCFD). Each bank was scored against 26 indicators covering four themes — targets, strategy and action, governance, and reporting. Scores assigned to each indicator are weighed to reflect their importance to a robust net-zero commitment.
Commonwealth Bank had the highest scoring climate policies using this rubric, while ANZ had the lowest. The other banks assessed were National Australia Bank (NAB), Westpac, and Macquarie.
Although all five banks have policies banning the direct financing of new thermal coal mines, these policies do not extend to all financing activities. Macquarie is the only company that does not do business with any counterparty that mainly purchases, develops, or expands coal mines. Additionally, Commonwealth Bank is the only lender whose policy prohibits project finance for oil and gas expansion, although Westpac and NAB have policies that partly exclude this type of financing.
Four of the banks also have policies requiring fossil fuel clients to develop transition plans by 2025. However, the report points out that it is unclear how these transition plans will be assessed and how the banks will react if they aren’t up to scratch.
The ACF set out 19 recommendations for banks on improving their climate policies. One is ensuring they have “well-resourced internal capacity and capability to manage climate-related risks.” Another urges banks to tie their leaders’ long-term remuneration to the achievement of climate metrics.
New York funds fight anti-ESG lawsuit
Three New York City pension funds have filed a motion to dismiss a lawsuit challenging their divestment from fossil fuel companies.
The lawsuit, Wong et al v. NYCERS, was submitted by four public employees and Oklahoma anti-union advocacy group Americans for Fair Treatment, in May. It alleges that the Teachers’ Retirement System, New York City Employees’ Retirement System, and Board of Education Retirement System breached their fiduciary duties by selling off their holdings in fossil fuel businesses.
“The arguments in this lawsuit are a weak attempt by anti-ESG, anti-union forces to undermine the decisions by our pension system trustees to assess the very real risks of climate change to their portfolios,” said New York City Comptroller Brad Lander. “Rather than advancing the actual interests of our City’s public employees and retirees, the lawsuit seeks to protect companies that continue to focus on fossil fuels despite the ongoing and necessary transition to a low carbon economy. The courts should call this lawsuit what it is and dismiss it with prejudice.”
The motion for dismissal states that those suing don’t have a valid reason to do so, and can’t clearly show a violation of fiduciary duty because their retirement money hasn’t been impacted. The request also highlights that past legal cases have shown that courts shouldn’t interfere with the investment choices made by responsible trustees.
The three pension funds divested from publicly traded fossil fuel reserve owners in 2021 after concluding that climate risks inherent to these investments threatened their portfolios.
