CDP: Less than 1% of funds worth $27trn are aligned to the Paris Agreement

The funds analysed account for more than a third of the total asset fund industry

CDP analysed more than 16,500 investment funds based on temperature ratings, which give a science-based temperature pathway for thousands of global companies.

Collectively the funds are worth $27trn – more than a third of the total global fund industry – and just 0.5% are aligned with the Paris Agreement. When considering Scope 3 emissions, the percentage falls to 0.2%, or just 65 funds. This, however, also reflects corporate approaches to disclosure, with just 15% of companies disclosing to CDP currently including Scope 3 targets.

CDP warns that just 158 funds are assessed at “well-below” 2C, compared to more than 8000 (62%) that are aligned with a temperature score of 2.75C.

The UN’s latest annual Emissions Gap report, released earlier this week, warns that climate commitments and plans from national governments are currently aligned with a 2.7C temperature increase, despite many nations badging their updated targets as net-zero or compliant with the Paris Agreement’s 1.5C pathway.

CDP’s joint global director of capital markers Laurent Babikian said: “Global leaders land this week in Rome for the G20 and in Glasgow for COP26, where ensuring 1.5C 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.”

Loose change

Previous analysis from ShareAction found that fewer than half of Europe’s largest 25 banks have committed to ending financing for coal activities.

While 20 of the 25 banks have set a long-term net-zero target that covers financed emissions, the report raises cause for concern about whether adequate plans have been drawn up for meeting them.

Only three of the banks with net-zero targets – namely Lloyds Banking Group, NatWest Group and Nordea – have committed to halving financed emissions by 2030. The Intergovernmental Panel on Climate Change (IPCC) warned in 2018 that, for the world to have the best chance of reaching net-zero by 2050, global net emissions should be at least halved by 2030.

The sobering findings come in the same week that the Science Based Targets initiative (SBTi) unveiled the world’s first standard for corporate net-zero emissions aligned to climate science.

The SBTi’s new Net-Zero Standard is the world’s first science-based certification of companies’ net-zero targets. The certification is given to businesses if their decarbonisation strategies are in alignment with the Paris Agreement’s goal of keeping planetary warming to 1.5C.

The SBTi has also confirmed that it is working to develop metrics around net-zero for financial institutions and is launching its Net-Zero Foundations for Financial Institutions: Draft for Public Consultation on 10 November 2021.

Matt Mace