We separately rated companies on their environmental reporting in the adjacent column, looking at whether they had targets to reduce their environmental impacts, but we have never judged the targets themselves.
In an era of climate emergency, we felt that that wasn’t good enough. We have therefore developed a new, more sophisticated, climate change rating which we are going to be applying to all companies in all industries from this magazine onwards.
A major problem in the area is companies that can talk the talk, but not really walk the walk. We have therefore built in several parts to the rating that we hope will weed out those who are just burbling.
Firstly, the company has to publicly discuss plausible ways in which it has made real cuts to its emissions in its most significant areas of impact, and will continue to do so. A company that owns a coal plant talking about changing the light bulbs in its head office really doesn’t cut it. For the finance companies in this issue, for example, we are looking for full carbon divestment.
Secondly, the company has to be taking the calculation and public reporting of its emissions seriously, which means including major portions of its ‘scope 3’ emissions. These are emissions from the factories in company supply chains, or in company investments, or in the use of a companies’ products.
Scope 3 emissions can easily amount to 90% of a company’s impact, but regulatory requirements tend not to require them to be reported, not least because they are very difficult to measure. This is not good enough given the emergency we are in.
In order to judge a company’s emission reduction targets, we are using the methodology used by the Science Based Targets initiative (SBTi), which is an international collaboration between the Carbon Disclosure Project, World Resources Institute, WWF, and the UN Global Compact.
As the name suggests, the aim of the project is to get companies to sign up to science-based emission reduction targets – ones that are “in line with what is necessary to meet the goals of the Paris Agreement – to limit global warming to well-below 2°C above pre-industrial levels”.
In the first few years, we think it will be very difficult to get a best rating, however, we think it important to indicate where we think the direction of travel should be.