Aviva Investors suggests the focus is increasingly on whether companies can deliver their climate ambitions as economic conditions, technology and policy continue to evolve.
Corporate climate strategies are increasingly being judged on their ability to deliver rather than the ambitions set out in long-term targets, according to Aviva Investors.
Drawing on lessons from its Climate Stewardship 2030 programme, Aviva Investors says that investors are paying closer attention to how transition plans stand up to changing commercial and operational realities.
Louise Wihlborn, senior strategist at Aviva Investors, writes that for much of the past decade, corporate climate strategies were primarily assessed through their targets, emissions coverage and alignment with temperature pathways.
Today, she says that investors are increasingly examining whether those ambitions can be delivered in practice.
Aviva Investors identifies four factors that are influencing corporate transition plans. These are capital discipline, technology and infrastructure constraints, rising energy demand and the impact of policy costs and incentives.
According to Aviva Investors, higher financing costs, uncertainty around future revenues and increased competition for capital are raising the hurdle for transition-related investment. Aviva Investors notes that some companies have redesigned, delayed or discontinued projects as they reassess commercial viability.
The pace of technology deployment is also affecting delivery. Aviva Investors highlights examples where plans involving hydrogen and carbon capture have been influenced by the availability of supporting infrastructure, while some companies have adjusted investment timetables as technologies continue to develop.
Energy demand is another focus. Referencing forecasts from the International Energy Agency, the article notes that global data-centre electricity consumption is expected to increase significantly by 2030.
While this may create opportunities for parts of the energy sector, it may also create challenges for emissions reduction pathways and electricity networks.
Aviva Investors also discusses the role of government policy.
The firm says companies are increasingly having to navigate a mix of decarbonisation objectives, energy security considerations and economic competitiveness pressures, with factors such as subsidies, permitting regimes and electricity market design influencing investment decisions.
As a result, companies are responding in different ways. Aviva Investors groups these responses into three broad categories.
Some are increasing investment where they see growing commercial opportunities, some are adapting how they intend to meet existing objectives, and others are reducing investment or lowering ambitions.
The implications extend to stewardship. Aviva Investors says its Climate Stewardship 2030 programme is placing greater emphasis on the evidence supporting corporate transition plans and the assumptions underpinning delivery.
Aviva Investors says that investors should examine how climate objectives connect with capital allocation and operating plans.
Physical climate resilience also remains an important consideration. Aviva Investors notes that transition plans need to account for the climate conditions in which companies operate and the potential impact on assets, operations and supply chains.
Read more on this from Aviva Investors: Corporate climate strategies are being tested – Aviva Investors
Main image: ESG, climate change, icenoaa-NBwP2jjnATE-unsplash
