Under 1% of global fund assets are currently in line with the Paris agreement’s goal to limit global warming to ‘well-below 2°C’, according to research from non-profit charity CDP, which runs the environmental disclosure system and gives temperature scores for companies, funds and stock indices.
The research covered 16,500 funds with total assets of $27 trn – over a third of the total global fund industry.
It found that the vast majority of global funds assessed are currently invested in assets with an expected temperature path of global warming.
Breaking this down, only 102 funds were temperature rated at 1.5°C, the more ambitious goal of the Paris agreement while 158 were assessed at well-below 2°C.
Climate scientists and the Intergovernmental Panel On Climate are clear that this must be the upper limit of global warming if the most catastrophic impacts of climate change are to be mitigated.
The research is based on CDP temperature ratings, which give a science-based temperature pathway for thousands of global companies.
Ratings are based on emissions reduction targets and companies’ past performance at reducing emissions.
When considering Scope 3 emissions – most commonly the use of a company’s products or emissions in the supply chain – the percentage of funds aligned to the Paris agreement drops from 0.5% to just 0.2%, or just 65 individual funds.
The difference in the Scope 3 temperatures reflects the current pace of corporate reporting of their full value chain emissions. Only 15% of companies disclosing to CDP currently disclose any target for these emissions, and they often exclude the most relevant source – such as use of sold products.
“Global leaders land this week in Rome for the G20 and in Glasgow for COP26, where ensuring 1.5°C is achievable and global climate finance mobilised are two key objectives,” said Laurent Babikian, global director capital markets at CDP.
He added, “But this data is catastrophic. Despite mounting net-zero commitments from the financial sector, and an apparent ESG ‘boom’, the truth is that not even 1% of fund assets are currently Paris-aligned.
This is like an x-ray on the industry, exposing almost all assets on the planet to be out of step with climate objectives. It is an urgent reality check for real, credible actions now from the financial community to step up engagement with their portfolios and take decisive action to transition their portfolios onto a 1.5°C path.”
Babikian noted, “The fund market reflects the real economy. Though growing fast, science-based emissions targets still cover only a tiny fraction of the investable market. Vast volumes of global capital now need to move to be 1.5° C -aligned but cannot because the corporate sector ambition is too low.
We must see that COP26 drives much faster adoption of 2030 targets in line with 1.5°C, and many more financial products which are actually Paris-aligned. Collaboration and engagement are key: investors and lenders must engage all companies in their portfolios to set science-based targets now.”
©Markets Media Europe 2021
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