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    CDP Warns Against Insufficient Paris-Alignment

    Stockholm (NordSIP) – On the eve of the COP26 meeting and following the IPCC’s warning that continued global warming could lead to catastrophic climate change, investors appear to still be failing the goals of the Paris Agreement.

    According to new data released by the Climate Disclosure Project (CDP), less than 0.5% of the assets currently managed by 16,500 investment funds worth US$27 trillion in Assets under Management (AuM) are currently aligned with the Paris agreement’s temperature target of ‘well-below 2°C. According to the CDP assessment, the vast majority of global funds are aligned with a 2.75°C path.

    The data is part of CDP Temperature Ratings and shows that a mere 158 individual funds were on a path to ‘well-below 2°C’. Of these, 102 funds were temperature rated at 1.5°C, the more ambitious goal of the Paris agreement. Meanwhile, over 8,000 funds, representing 62% of the assets surveyed were on a path to 2.75°C. CDP temperature ratings give a science-based temperature pathway for thousands of global companies and are based on emissions reduction targets and companies’ past emissions reducing performance.

    “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 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,” Laurent Babikian, Joint Global Director Capital Markets at CDP says.

    “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,” Babikian adds.

    Only 65 individual funds, representing a mere 0.2% of the total AuM surveyed were aligned with the Paris agreement Scope 3 emissions are taken into account.  Scope 3 emissions capture the emissions from the use of a company’s products or emissions in its supply chain. The difference in the Scope 3 temperatures reflects the current pace of corporate reporting of their full value chain emissions.  Only 15% of companies disclosing to CDP currently disclose any target for these emissions, and targets often exclude the most relevant source – such as the use of sold products.

    The announcement follows a call for action by 587 investors with US$46 trillion in AUM, urging national governments to rapidly implement five priority policy actions that will allow them to invest the trillions needed to respond to the climate crisis.

     

    Image courtesy of Jorge Guillen from Pixabay
    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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