G7 nations failing to align major stock indexes with climate commitments, report reveals

The best performer

Published by the Science-Based Targets Initiative (SBTi) as part of a collaboration with CDP and the UN Global Compact, the research covers the largest stock index in each of the G7 nations respectively. Indexes covered are the FTSE100 (UK), S&P 500 (US), FTSE MIB (Italy), CAC 40 (France), DAX 30 (Germany), NIKKEI 225 (Japan) and SPTSX 60 (Canada).

These indexes are on an average pathway of a 2.95C temperature increase by the end of the century. The worst performers were the SPTSX 60 and FTSE100 , which both have a temperature trajectory of 3.1C in this timeframe. The best performer, the DAX 30, still failed to meet Paris Agreement requirements, with a 2.2C temperature trajectory.

The Paris Agreement, of which all G7 nations are signatories, states that nations should align their economies with a “well-below” 2C pathway and strive for a 1.5C pathway. Since the Paris Agreement was ratified, updated climate science has laid bare the difference between the two scenarios in terms of financial risk, public health and nature loss. This has prompted many nations to set targets they claim are 1.5C-aligned.

According to the research, fossil fuels are a key contributor to the emissions of all seven indexes. This is most pronounced in Canada, with 70% of emissions from the SPTSX 60 accounted for by the sector. As such, the SBTi is calling on investors to improve engagement with energy majors and push them to improve both long-term targets and processes in the shorter term.

So-called ‘passive’ investing was also found to be an issue with other high emitters across all seven indexes. Passive investing currently makes up around 40% of US and 20% of European funds, the report states, arguing that this trend will need to change if the world is to deliver the Paris Agreement.

The report also argues that now is the time for businesses to back up long-term climate targets, which they claim are 1.5C-aligned, to give them credibility. While the FTSE 100 had the joint highest temperature pathway, more than one-third of member firms (35 firms) have already set such targets. Companies without such targets, meanwhile, should set them sooner rather than later. Targets should cover the supply chain. In nations including the UK, companies will legally be required to hit net-zero by 2050.   

“Climate and environmental breakdown is the biggest health, economic and societal challenge of our time – it requires immediate action from the world’s largest companies,” SBTi steering committee member Alberto Carrillo Pineda said.

“Today’s findings highlight vital progress, but show there’s more to be done to incentivise firms to set science-based climate targets and accelerate the pathway to net-zero.”

You can find out more about the climate-related happenings at the G7 Summit in our new explainer feature, penned by edie content editor Matt Mace. Read it here.

Net-zero credibility

A trio of academics specialising in climate change recently penned an article on The Conversation slating net-zero as a “fantasy” and a “dangerous trap”. They argued that the 2050 date is the bare minimum, rather than a ‘world-leading’ ambition, and outlined how many governments and businesses will likely rely on ‘netting’ through offsetting and emerging carbon removal technologies as an excuse not to reduce emissions and improve climate adaptation in-house.

This piece has been widely shared across the green economy and supported by youth activist Greta Thunberg.

The concerns raised in that article had been proven to be shared through previous polls. In a 2020 poll of 104 energy managers, Inspired Energy found that almost nine in ten believe ‘net zero’ is in danger of becoming a meaningless statement unless there’s consistency in approach and measurement among businesses. BNEF, meanwhile, assessed the net-zero strategies of 30 large businesses and found huge inconsistencies.

More recently, South Pole research revealed that just one in ten firms with a net-zero target has backed up their long-term climate goal with approved science-based targets.

Taking note of these criticisms, the UN’s Race to Zero campaign recently moved to tighten the criteria for corporate net-zero targets to be included in the scheme. The SBTi has also been improving guidance and tightening rules on the development of targets verified in line with 1.5C.

Many businesses are also moving independently of such joint initiatives, perhaps mindful of their legal requirements or their perception among investors and consumers. A recent Transition Pathway Initiative (TPI) analysis found that the uptake of “genuine” net-zero targets – those regarded as ambitious and not greenwashing – has more than doubled in the past year across high-emitting sectors. Nonetheless, the proportion of firms with such targets still stands at less than 10% of the cohort assessed.

Sarah George