More than 70% of all assets are invested in funds with above 2.3 ºC alignment, whilst only 0.1% are aligned when scope 3 is considered, according to new research.
The research leverages CDP’s environmental disclosure platform and Clarity AI’s tech capabilities to conduct a global warming alignment analysis of more than 23,000 funds with assets totalling over $25 trillion. The analysis assessed the funds’ temperature alignment and corporate emission reduction targets, with a focus on the ambition rather than their actual alignment.
According to the results, less than 1,000 funds (1.3%) are aligned with the Paris Agreement’s goal of limiting global warming to well below the 1.75 ºC bucket, based on the scope 1 & 2 targets of investee companies. This means that the vast majority of funds are not aligned with the goal of limiting global warming to well below 2 °C, with 70% of all assets exposed being invested in funds with above 2.3 °C alignment.
When emissions from Scope 3, those that occur outside of a company’s direct operations, are taken into account, a mere 0.1% of assets are considered Paris-aligned, and more than 85% of assets exceed the 2.3 ºC limit.
“Addressing the misalignment of investment funds with the goals of the Paris Agreement requires continued efforts from both the financial industry and companies across sectors,” said Pablo Diaz-Varela Pena, researcher at Clarity AI.
“Increasing the number of companies setting ambitious targets and actively working towards reducing emissions is vital for achieving a sustainable and resilient global economy.”
Similar analysis was published by CDP in October 2021 which found that more than 90% of assets were above 2.3 ºC when Scope 1 and 2 are accounted for, and over 95% when Scope 3 is also accounted for.
For the underlying companies within the 13,044 funds analysed when comparing 2021 and 2023 data, 30% had set more ambitious climate targets in 2023 than in 2021, resulting in a lower Implied Temperature Rating (ITR). However, 51% of companies still did not have an ambition to be below 3 °C.
Clarity AI attributes this change in individual companies to a number of factors, including the increasing number of companies joining the Science Based Targets initiative (SBTi) and the growing number of companies disclosing their climate targets to CDP.
The SBTi’s latest Monitoring Report revealed that businesses are increasingly validating their targets with the firm, with 2022 seeing more validations than the seven previous years combined.
However, the initiative also recently removed 120 companies from its listings, including tech and retail giant Amazon, for failing to submit credible reduction plans.
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