Navigating the net zero landscape: progress updates and challenges in 2024

As we navigate through 2024, the journey towards net zero remains fraught with challenges.

The political landscape surrounding net zero commitments has seen significant shifts, with varying degrees of ambition and implementation across different regions.

• In the United States, the 2024 presidential election could significantly impact energy and climate policies. Key initiatives like the Inflation Reduction Act are under scrutiny as the Republican party announces its intentions1, 2.
• Meanwhile, in the United Kingdom, reversals and delays in key climate policies, such as the ban on new gas and diesel cars 3, mean the country is off track for reaching net zero 4. These political dynamics underscore the complexity of achieving net zero targets in a rapidly changing environment.

Despite these challenges, our commitment to leading corporate change through proactive engagement remains steadfast and recognises the science of climate change. Our net zero stewardship programme continues to focus on evaluating the progress of companies, across our assets under management, in delivering decarbonisation plans to 2030 and beyond. This involves a comprehensive framework that includes research, engagement and advocacy efforts.

Companies engaged on climate January to September 2024  

Royal London Asset Management's firm-wide Net Zero Stewardship programme targets the companies responsible for the highest emissions across its assets under management including those in the oil and gas, energy utilities, diversified mining, and banking sectors.

The approach does not apply to any specific Royal London Asset Management fund or strategy, as each will have different investment objectives. Please check your prospectus for details on specific product objectives. 

Source: RLAM Net Zero 2024 Report 

Key observations and trends

As part of our Net Zero Engagement Programme, we engaged with 33 companies between January and September – these companies representing around 50% of our financed emissions. Royal London Asset Management focuses on the top contributors to our financed emissions, including companies in oil and gas, energy utilities, diversified miners, and banks. Through our Climate Transition Assessment, we can determine a category of alignment to the Paris Agreement based on Net Zero Investment Framework (NZIF) methodology, as discussed in our 2023 report. Of the companies in our Net Zero Engagement Programme in 2022 and 2023, 73% were categorised as ‘aligning towards a net zero pathway’.

The political challenges highlighted above are permeating into corporate behaviour to varying degrees. Of the company assessments we completed so far in 2024, 15% have improved while 23% have regressed. While we observe improved disclosures and climate transition plans published across the companies we engage with, this does not translate into overarching progress. This is why in 2024 we have seen more improvements to some of the individual indicators that we use in our assessment, yet overall company alignment is staying the same or worsening. For example, we continue to see companies increase the percentage of their material emissions covered by their climate targets. We are also seeing better disclosure of companies’ carbon offsetting approaches, including best practice such as a commitment to compensate only for residual emissions with high quality offsets. However, few companies are reducing emissions at the required rate and some companies are even increasing their emissions. Therefore, in the short term, we have seen emission reduction ambitions fall for some companies assessed.

Engagement and voting

We have engaged with a variety of different companies so far in 2024. One such example is our engagement with E.ON’s Public Affairs and Sustainability teams to discuss the company’s latest disclosures and the progress on its path to net zero. We are the CA100+ co-leads for E.ON, who has taken positive steps forward, particularly in policy advocacy and just transition initiatives. We facilitated a conversation between E.ON, the BDI (the Federation of German Industries), and InfluenceMap, an NGO reporting on corporate lobbying, bringing parties together to have a practical conversation about expectations for lobbying practices. A newly published climate advocacy and associations report from E.ON has shown willingness to improve transparency commit to lobby in line with the Paris Agreement.

We are also pleased to see the company provide increased training pathways to employees to foster the future skillsets they require, which is a component in a just transition. By continuing to engage with the company, we can help it develop a fuller climate transition plan, with the intention of better equipping it for its route to net zero.

The 2024 proxy season continued to highlight the importance of environmental and social resolutions, while investor support for climate resolutions appeared weaker. A notable event was ExxonMobil Corp filling a lawsuit in January 2024 to exclude a shareholder proposal from their 2024 annual general meeting (AGM).

There is growing tension between shareholders’ right to file proposals on ESG topics and the company management’s view of what is relevant to the business. The proposal asked Exxon to set more ambitious emission reduction targets, which is something we are generally supportive of. Despite a standard regulatory process being available, the company’s choice to file a lawsuit led to us believing its actions might impinge on shareholders’ voices being heard. In our 2024 Proxy Voting Season Themes and Voting Patterns report, our Governance team outline what actions we decided to take at the company’s AGM, and detail other trends identified in the 2024 proxy season.

While the path to net zero is challenging, we are committed to proactively engaging with the highest emitters in our investments

Looking ahead

Alongside our Net Zero Engagement Programme, we will focus on just transition and exploring innovative research projects (such as on “just adaptation”). We will also continue to use our voice to advocate for supportive policy actions and to provide transparent and regular updates on our progress.

While the path to net zero is challenging, we are committed to proactively engaging with the highest emitters in our investments, encouraging them to set more robust targets and create ambitious yet realistic climate transition plans.

This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.

[1] https://www.reuters.com/world/us/trump-taps-ex-congressman-zeldin-run-environmental-protection-agency-2024-11-11/

2 https://www.politico.eu/article/donald-trump-paris-agreement-climate-sustainability-us-cop29-global-pact-warm/

3 https://on.ft.com/4095kaf

4 Progress in reducing emissions 2024 Report to Parliament - Climate Change Committee (theccc.org.uk)