Investors and lenders worth $29trn push corporates to align climate targets with science

The companies targeted by the investors collectively produce annual emissions greater than the US and EU combined

The coalition comprises 220 financial institutions whose collective assets are worth more than the GDP of the EU – $29.4trn. It has been coordinated by non-profit CDP. Most participants (75%) are based in Europe

The coalition has today (29 September) sent a letter to more than 1,600 companies warning that only science-based targets to reduce emissions will be deemed appropriate in the global drive to tackle the climate crisis.

The letter states that, collectively, the recipient companies are directly responsible for more than 11.9 billion tonnes (11.9 gigatonnes) of greenhouse gas emissions annually – more than the entire US and EU combined. As such, their failure to align emissions goals with climate science is described as a threat to a “safe and prosperous economy”.

“2021 has been a year when global financial institutions have committed en masse to achieve net-zero by 2050 – but these goals are impossible to achieve without the companies they lend to and invest in having robust science-based targets that drive rapid decarbonisation in the entire value chain in line with a maximum of 1.5C of global warming,” said CDP’s joint global director of capital markets, Laurent Babikian.

It is that simple, and when so many investors and lenders are collectively saying the same thing, companies must act or risk seeing their cost of capital rise. Not having a science-based target raises a red flag that [companies] are failing to manage climate risk. Ahead of COP26, we must see greater ambition from the companies accountable for the bulk of global emissions if we are to achieve a net-zero emissions economy, and mitigate the most serious impacts of climate change, which have been all too visible in 2021 so far.”

“Today, we fully integrate the emissions trajectory of the companies we invest in,” Amundi’s director of ESG and the Institutional and Corporate Clients division, Jean-Jacques Barberis, added,

“Adapting their business models to the climate challenge as well as aligning with the Paris Agreement is not just desirable anymore, but a necessity to ensure long-term growth and profitability. The adoption of emissions reduction targets by both corporates and investors is critical to transition collectively to a decarbonised economy.”

SBTi: The state of play

Since last year, 154 companies with emissions equivalent to Germany’s annual total have joined SBTi. However, to date, companies representing some 20% of global market capitalisation have either set verified science-based targets or committed to doing so. The Science-Based Targets initiative (SBTi), of which CDP is a member, gives companies 24 months from signalling their intent to gain verification.

In other words, companies representing 80% of global market capitalisation have either no plans to reduce emissions, or plans which are not of the scale and pace needed to avoid the worst impacts of climate change.

Recent data from the SBTi revealed that the proportion of companies with verified targets is no higher among the G20 nations than the rest of the world, sparking calls for greater action ahead of the G20 summit and COP26.

The SBTi is notably moving to make 1.5C-aligned targets its minimum standard of verification, marking an increase in ambition from the current ‘well-below 2C’ minimum.

Investor pressure

As CDP’s Babikian mentioned, financiers are increasingly setting stricter and longer-term climate targets for themselves, and, in turn, boosting engagement and divestment on climate grounds.

Following historic votes at companies including HSBC, ExxonMobil and General Electric during the spring/summer proxy voting season, Australian mining giant BHP is facing a potential vote against its climate strategy by investors at its forthcoming annual meetings.

Influential proxy advisor CGI Glass Lewis has recommended that voters do not support the companies existing climate commitments, stating that there is “room for improvement”. Specifically, the organisation has argued that the firm should commit to cutting its absolute emissions in a science-based manner, going beyond current pledges to cut emissions intensity, which leave room for BHP’s absolute footprint to grow.

CGI Glass Lewis has also recommended that investors press for more clarity on how it will offset to reach net-zero operational emissions and how it will reach net-zero Scope 3 (indirect) emissions. The Scope 3 target, published earlier this month, has also drawn criticism for its exclusion of emissions generated by end-users that burn BHP’s coal and iron ore.

“We understand the significant uncertainty in even just calculating Scope 3 emissions, and, by extension, setting precise targets with regard to these emissions,” CGI said. “However, we believe that more specificity – particularly with regard to its goal regarding steel-making [which comprises approximately three-quarters of its Scope 3 emissions] could allow shareholders a better understanding of how the company intends to address this issue.”

BHP has stated that it will engage with CGI directly and has maintained that its climate plan maximises benefits for shareholders and other stakeholders.

Sarah George

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