Diana Rose, Head of ESG Research
Insig AI’s ESG disclosure data supports EY findings on lack of credible FTSE100 climate transition plans and reveals other sectoral and reporting trends.
Introduction
The Financial Times reported that, according to a study by EY, only 5% of FTSE100 companies have ‘credible’ climate transition plans in line with the UK’s Transition Plan Taskforce’s draft disclosure framework for large companies (3rd April 2023).
The gap between Net Zero ambitions and transparent transition plans to achieve them is of concern to investors who need to make decisions based on detailed information on adaptations to business operations, products and services, and the financial plans behind this.
Insig AI analysis
In response to the FT article, our Insig AI ESG analysts ran some keyword analytics over our machine-readable library of corporate financial reports and ESG documents that were published by the FTSE100 in 2021/22.
We searched for the terms ‘climate transition’, ‘carbon transition’ and ‘energy transition’ (grouped as ‘transition mentions’ in our analysis) as well as the term ‘net zero’ across all documents published in 2021 and 2022*.
The table below summarises the trends we found. The data is averaged for the number of FTSE100 companies belonging to a sector. It shows ‘transition mentions’ in pink alongside ‘net zero’ mentions in green.
Our top three trends that leap out of the data:
1. Laggards
The Health Care sector made no ‘transition mentions’ in any of their public disclosures over the past 2 years. This indicates they are lagging in preparedness for both reporting compliance and decarbonisation itself.
Consumer Discretionary, Consumer Staples, Communications Services and Real Estate all published an average of less than 10 ‘transition mentions’ across their reports. The average number of ‘transition mentions’ per FTSE100 company over the two years is 47, pulled up by the Energy and Utilities sectors.
2. Net Zero vs Transition
The data shows a gap between ‘net zero’ and ‘transition mentions’ that could indicate greenwashing; getting credit from consumers and investors today for promises but without a plan to fulfil them.
This gap is particularly noticeable in the Real Estate sector, in which the average company mentions ‘net zero’ 169 times across its reports, alongside only 3 ‘transition mentions’. The exception to the trend is the Energy sector.
3. Scattered Evidence
We found that the highest proportion of ‘transition mentions’ were found in Annual Reports, which is where investors should expect to find auditable and robust disclosure on the subject.
However, the key information investors are calling for is still scattered. The next group of documents that were the richest in transition information were ESG documents, which can be reported in very different formats and locations and take the form of Climate Change Strategies, Policies, Statements, Reports etc. This body of documents contain more than double the number of ‘transition mentions’ than the Sustainability and ESG Reports themselves which are published annually.
Conclusions
The data highlights the variance between sectors in the FTSE100 in their preparedness to meet the UK’s Transition Plan Taskforce’s disclosure expectations, as well as how this information is reported to assure stakeholders of their strategic and financial plans to meet Net Zero ambitions.
*Report type and number of sentences analysed: Financial Report (Annual) 649,662 | Earnings Transcript 396,682 | ESG Document 158,861 | Financial Document 119,397 | ESG Report (Annual) 99,213
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