Despite a rise in environmental, social and governance (ESG) investing and a general awareness of the need for action on climate change, less than 0.5% of the assets owned across 16,500 investment funds aligned with the Paris agreement's temperature target of ‘well-below 2°C', according to a study conducted by non-profit CDP.
Only 158 individual funds were aligned with the 2°C target, and even less (102 funds) were aligned with the 1.5°C target – the more ambitious goal of the Paris agreement, which climate scientists have said is the upper limit of global warming required to mitigate the most catastrophic impacts of climate change.
The study found that more than 8,000 funds (accounting for 62% of assets) were invested in assets with an expected temperature path of over 2.75°C of global warming. The 16,500 funds included in the study make up more than a third of the total global fund industry and were worth $27trn in total.
Despite growing net-zero commitments from the financial sector and an apparent ESG ‘boom’, Laurent Babikian, Global Director Capital Markets at CDP, described the data as “catastrophic”.
“This is like an x-ray on the industry, exposing almost all assets on the planet to be out of step with climate objectives,” he said.
“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 them onto a 1.5°C path.”
Looking at Scope 3 emissions – which includes all indirect emissions that occur in a company’s supply chain – the portion of funds aligned to the Paris agreement drops from 0.5% to 0.2% - just 65 individual funds.
Source: CDP
Babikian continued: “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.”
He urged investors and lenders to collaborate and engage with all companies in their portfolios to “set science-based targets now”.
The 2021 United Nations Climate Change Conference (COP26) is set to take place in a few days as world leaders gather to discuss how to progress towards the goals of the Paris Agreement.