Report:
Maximising Investor Impact

Executive Summary
 

Investors are increasingly engaging with their portfolio companies to demand action on climate change. Yet we currently have little way of determining what the impact of investor engagements is, or which kinds of engagement tend to be most impactful. This report takes a first step towards filling this gap. We introduce a novel methodology to track, measure, and score the impact of engagements. We then describe the results of a pilot study examining 115 engagements with 15 utility companies from 2015 to 2020, focusing on the question of which ‘asks’ have tended to have the most impact.
 

We discover a stark variation in the impact of different engagement asks. Investors tend to have the most impact when they push companies to make material changes to their business models and reform their political lobbying. Yet these are not the typical asks of most of the world’s leading institutional investors, which concentrate on climate risk and disclosure — an approach that has produced few observable impacts. Despite many encouraging steps, the majority of investors are therefore far from maximising their impact. We call this the ‘engagement gap’.
 

Asks for net-zero targets have met with broad success. However, this average conceals a wide variation in both the quality of the targets adopted and the steps companies take to fulfil them. Utilities often adopt net-zero targets covering only Scope 1 emissions and can defer emissions reductions because they do not adopt accompanying mid-term targets. When mid-term targets are adopted, they are often under-ambitious, setting a rate of decarbonisation short of what is necessary to reach the net-zero goal. Most of the utilities that have adopted net-zero targets have not yet taken tangible steps to realign their business models to meet them.
 

We also found a stark inconsistency in the quality of scenario analyses. For example, Southern’s 2018 climate report failed to address any of the key areas of risk identified by the TCFD. Origin’s 2017 and 2019 analyses excluded its integrated natural gas business. Duke’s 2017 and 2020 studies relied heavily on unproven technologies. AES’s 2018 analysis failed to outline the trajectory required to meet a 2°C scenario by 2050. Dominion’s 2018 report neglected to address how the company intended to act on the results of its analysis.
 

Asks for companies to audit and reform their political lobbying have had the highest impact, on average, of any ask we studied. In contrast, demands for companies to disclose their political lobbying spend had the lowest average impact. The key difference is that ‘audit’ asks require companies to adopt the Paris Agreement as a standard of action, publicly evaluate their lobbying against it, and correct any outstanding problems. This often leads to material changes in lobbying, not just the disclosure of lobbying activities.