Interactive Investor

Less than 1% of fund assets aligned with climate agreement

2nd November 2021 14:07

Tom Bailey from interactive investor

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The research looked at the holdings of each fund and applied company temperature ratings.

Less than 0.5% of the assets of the global fund industry are aligned with the Paris Agreement's temperature target of “well below 2°C”, according to a study from CDP, at charity that runs an environmental impact disclosure system for investors.

The analysis looked at more than 16,500 investment funds, worth $27 trillion (£19.8 trillion). CDP examined the holdings of each fund and applied its company temperature ratings, which give an estimated “temperature pathway” for companies based on how much they are expected to contribute to global warming. The ratings use emission reduction targets and companies’ past performance at cutting emissions.

Just 158 funds, the research found, currently had portfolios containing companies with temperature pathway scores of “well below 2°C”, the Paris Agreement’s target for temperature rises. In total, just 0.5% of the assets collectively held by all the funds studied were in line with the target.

CDP found that most global funds it assessed are currently invested in companies that would contribute to the world’s expected temperature rising by more than 2.75°C. Meanwhile, just 102 funds were given a temperature pathway rating of 1.5°C or less, the more ambitious goal set out in the Paris Agreement.

Laurent Babikian, joint global director Capital Markets at CDP, said: “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 mobilised 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 on to a 1.5°C path.”

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