Management

Module 5, management, assesses governance mechanisms companies are using to manage the transition to a low-carbon economy in five key areas: low-carbon transition plans; climate-related scenario analysis or stress testing; level of oversight (e.g., at board level); climate expertise; and incentives for climate change management.

As low-carbon transition planning, and scenario analysis and stress testing, are essential for managing climate risks and opportunities, these two indicators each account for 0.8 of a company’s overall performance assessment score out of 20, whilst the module as a whole accounts for 2.2 out of 20.

The average score for the 30 keystone companies across the module was 33.5 percent. For the 25 companies assessed previously, a small increase in the average score from 32.1 percent to 36.2 percent in this assessment indicates a small improvement in companies’ management of climate change.

The average score on the low-carbon transition plan indicator increased somewhat from 31 percent to 38 percent for the 25 companies that were also assessed in the 2019 Benchmark. Several companies’ transition plans improved, with Volkswagen, Hyundai, General Motors and Subaru showing the biggest improvements.

Of the five new companies included in this year’s assessment:

• Mahindra & Mahindra had the strongest low-carbon transition plan with comprehensive emissions, energy productivity and low-carbon vehicle share targets.
• Kia performed relatively well with its ‘Plan S’ which lays out how it will invest US$25 billion to enable it sell 500,000 electric vehicles by 2025.
• The three new Chinese headquartered companies, Anhui, BYD and Great Wall Motors, performed poorly in this area as they lack a clear and public low-carbon transition plan.

The assessment looked for several best practice features in companies’ transition plans. One is a projection of what the company’s future vehicle sales would look like, with higher performing companies setting out clear targets to increase their low-carbon vehicle sales and a short-term deployment schedule of new low-carbon models. For example:

• BMW, Daimler, Groupe PSA, Volkswagen and Subaru have all set targets for the proportion of their vehicle sales that will be low-carbon in 2030 or 2035.
• General Motors, Nissan, Hyundai and Kia have absolute targets for low-carbon sales.
• Seven companies – Chongqing Changan, Ford, General Motors, Hyundai, Kia, Tesla and Volkswagen – have set out plans for investment in low-carbon vehicle production over the next two to five years.

Best practice transition plans are also expected to be comprehensive, i.e., not exclude major business regions or segments. Some were found not to be comprehensive, such as:

• General Motor’s transition plan, which focuses on North America and China, but provides limited information on its major sales region of Brazil.
• Tata, which has a stronger transition plan for its Tata division than its Jaguar Land Rover subsidiary.

A comprehensive transition plan should also set out measures to reduce emissions across the company’s value chain, from suppliers, manufacturing and in-use vehicle emissions. Ford performs well in this respect, encouraging suppliers to establish emissions targets, purchasing renewable energy and improving process efficiency to reduce manufacturing emissions, and setting out a US$11.5 billion plan to invest in electric vehicles and charging infrastructure.

Scenario analysis enables companies to understand and quantify their risks and opportunities under different temperature scenarios and enable the development of more comprehensive and resilient transition plans. 17 companies provided evidence that they have conducted scenario analysis. Volkswagen scores highest in this area, having conducted comprehensive scenario analysis against 2-degree and well below 2-degree scenarios, which informed its science-based targets and strategic investment in electric mobility. No company received full marks. All could improve in this area, with greater company reporting in line with the Taskforce on Climate-related Financial Disclosure’s recommendations. For example, they should disclose more on the financial impact of different climate scenarios as well as business model or strategy changes that are informed by scenario analysis. Additionally, six companies conduct stress testing, with five of these doing this in addition to scenario analysis. The use of an internal carbon price was the main method of stress testing, with Groupe PSA, Hyundai, Kia, Nissan, General Motors, Tata and Mahindra & Mahindra, using this to inform production, R&D or strategic decisions.

23 out of the 30 keystone companies reported having board-level or executive oversight of climate change issues. However, there was little evidence that auto manufacturers are hiring executives who have significant expertise on climate change and the low-carbon transition. Volkswagen was the clear exception to this, with the company’s sustainability board including the Co-Director of the Potsdam Institute for Climate Impact Research and the former EU Commissioner for Climate Action (amongst others). Similarly, Mahindra & Mahindra’s Executive Chairman is a board member of the UN Global Compact and has advocated frequently on climate change issues. 20 companies provide some incentives for climate change management, though only nine of these provided these to board-level executives. Five companies provide incentives for emissions reductions, another four provide incentives for energy efficiency, but it is unclear what the incentivised performance indicators are for the other 11 companies.  Whilst companies often report through the CDP questionnaire that they provide incentives, there is often limited detail in remuneration reports and other financial statements on the climate-related performance indicator and the proportion of executive renumeration it represents.