Less than 1 per cent of investment funds are currently aligned with the temperature targets set out in the Paris agreement.
This research, from non-profit organisation CDP studied 16,500 investment funds, worth $27 trillion. It found only 0.5 per cent were aligned with the Paris agreement to ensure temperature increases stay well below 2°C.
The data from CDP, which runs the environmental reporting system, shows most global funds assessed are currently invested in assets with an expected temperature path of more than 2.75°C of global warming. Only 158 individual funds were rated as ‘well-below 2°C,’ while over 8,000 (62 per cent of assets) were rated as ‘above 2.75°C.’
The study is based on CDP temperature ratings, which provide a science-based temperature pathway for thousands of global businesses. Ratings are based on emission reduction targets and the past performance of companies in reducing emissions.
A total of 102 funds were temperature rated at 1.5°C and climate scientists and the IPCC agree that this must be the upper limit of global warming if the most disastrous effects of climate change are to be avoided.
When Scope 3 emissions are considered – most commonly the use of a company’s products or emissions in the supply chain – the percentage of funds aligned with the Paris agreement drops from 0.5 per cent to 0.2 per cent, or only 65 individual funds.
The disparity in Scope 3 temperatures reflects the current rate at which corporations report their entire value chain emissions. Only 15 per cent of companies disclosing to CDP currently reveal any target for these emissions, and targets frequently exclude the most relevant source – product use.
The study comes on the heels of continued strong growth for ESG funds, particularly climate-themed funds, with over half of all European fund flows in Q1 labelled as sustainable and a significant increase in the number of Paris-aligned funds launched.
The analysis comes as the world’s attention is focused on global leaders at the G20 in Italy and the COP26 in Glasgow to increase the ambition and speed of climate action. The IPCC issued a “code red” warning to humanity earlier this year if emissions are not reduced immediately.
CDP joint global director capital markets Laurent Babikian says: “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. 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.”
