Reality check for asset managers’ ESG ambitions

Study finds less than 1% of $27 trillion global fund assets comply with Paris Agreement temperature reduction targets.

Despite an apparent ESG boom in asset management, just 0.5% of total global fund assets are aligned with the Paris climate agreement’s temperature target of ‘well-below 2°C.’

Analysis by non-profit CDP of 16,500 funds with total assets of $27 trillion found that just 158 individual funds were assessed at “well-below 2°C,” while more than 8,000 (62% of assets) were temperature scored at above 2.7°C.

Approximately 100 funds were temperature rated at 1.5°C, which is the more ambitious target set by the Paris agreement. This is the upper limit of global warming agreed by scientists and the International Panel on Climate Change (IPCC) to avert the most catastrophic impacts of climate change.

When considering Scope 3 emissions, which includes the use of a company’s products or emissions in the supply chain, CDP says the percentage of funds aligned to the Paris agreement drops from 0.5% to just 0.2%, or just 65 individual funds.

“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,” said Laurent Babikian, joint global director capital markets at CDP. “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.”

Babikian said its findings are 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. “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.”

Last month, more than 200 financial institutions with $29 trillion in assets publicly called on 1600+ high-impact companies worldwide to set 1.5°C emissions targets. The group of financial institutions taking part in CDP’s Science-Based Targets campaign included names such as Allianz, Amundi, Credit Agricole, Legal & General Investment Management, Insight Investment Management and Manulife.