Fear of a bad reputation could be what really makes firms change

LONDON — Big businesses are beholden to shareholders financially, but there is currently no requirement to disclose climate-related achievements — or lack of them.

Accountability has been a big topic at climate summit COP26, ongoing in Glasgow, Scotland. Per Heggenes, chief executive of the IKEA Foundation, told CNBC’s Steve Sedgwick last week that firms that don’t adopt climate targets “should be discriminated against.”

COP stands for Conference of the Parties, and this year’s meeting comes six years after the landmark Paris accord was signed by nearly 200 countries to limit rising global temperatures to 2 degrees Celsius above pre-industrial levels and to “pursue efforts” to cap heating at 1.5 degrees Celsius. Several agreements have so far been made, such as a commitment to end deforestation by 2030 and reduce methane emissions by 30% by the same year.

As well as government pledges, corporate reputation is also set to stimulate progress, with U.K. Finance Minister Rishi Sunak announcing that by 2023, it will be mandatory for most large British firms to publish a “clear, deliverable” plan outlining how they plan to decarbonize.

However, the commitments made will not be mandatory — instead, the market will “determine if these plans are adequate or credible,” according to an online statement. “Investors, through their stewardship, may use their influence and their votes to encourage more ambition or accelerated progress,” it added.

The U.K.’s move is part of efforts under U.N. Special Envoy for Climate Action and Finance Mark Carney’s taskforce named the Glasgow Financial Alliance for Net Zero, whose members currently manage $130 trillion of assets.

As well as aiming for net-zero emissions in their own operations by 2050, the idea is that firms in the alliance won’t fund clients that don’t commit to doing the same. “We will have the feedback about who is doing well, who needs to do better, and also in terms of policy, what’s there and what’s not,” Carney said at COP26 last week.

“This is a reputational thing,” Heggenes said of firms that choose not to accept such targets. “It’s not about financial litigation or anything like that, or punishment. This is about reputation in the companies,” he told CNBC.

If firms can’t demonstrate their progress, they may lose out on investment, according to Andrew Steer, CEO of the Bezos Earth Fund, an organization set up by Amazon founder Jeff Bezos to fund climate projects.

Steer told CNBC: “These members, [which manage assets worth] 100 trillion [dollars], are going to increasingly be saying, look, we have to demonstrate that we, the financial institutions, can get to net zero. That means that the companies we put our money into have to be on that journey.”