Analysis of over 16,500 investment funds worth USD $27 trillion has revealed that under 0.5% of the assets are currently aligned with the Paris agreement’s temperature target of ‘well-below 2°C’.
The sobering data from non-profit CDP, which runs the environmental reporting system, shows that the vast majority of global funds assessed – worth over $27 trillion – are currently invested in assets with an expected temperature path of over 2.75°C of global warming.
Overall, just 158 individual funds were assessed at ‘well-below 2°C’, while over 8,000 (62% of assets) were temperature scored at above 2.75°C.
102 funds were temperature rated at 1.5°C, the more ambitious goal of the Paris agreement. Climate scientists and the IPCC 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.
The 16,500 funds in the analysis have total assets of $27 trillion – over a third of the total global fund industry.
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 targets often exclude the most relevant source – such as use of sold products.
The research follows continued strong growth for ESG funds, particularly climate-themed, with over half of all European fund flows in Q1 marked as sustainable, and a strong rise in the number of Paris-aligned funds being launched.
The analysis comes as the world’s attention looks to global leaders at both the G20 in Italy and COP26 in Glasgow to increase the ambition and pace of climate action. The IPCC earlier this year issued a ‘code red’ for humanity, should emissions not urgently reduce.
Laurent Babikian, Joint Global Director Capital Markets at CDP, commented: “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 mobilized are two key objectives. 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’s 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.
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 can’t 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.”
Last month, over 220 financial institutions with $29 trillion in assets publicly called on 1600+ high-impact companies worldwide to set 1.5°C emissions targets. The group of financial institutions taking part in CDP’s Science-Based Targets campaign included some of the world’s biggest, like Allianz, Amundi, Credit Agricole, Legal & General Investment Management, Insight Investment Management and Manulife.
Following last year's campaign, 8.1% of the high-impact companies targeted joined the Science Based Targets initiative, highlighting the power of investor engagement to drive corporate ambition and increase the universe of Paris-aligned companies.
Press release by CDP
Publié le 27 octobre 2021