'Catastrophic': Mere 0.5% of assets aligned to Paris Agreement

'Catastrophic': Mere 0.5% of assets aligned to Paris Agreement

Just 0.5 per cent of assets held by the global funds industry are aligned with the Paris Agreement’s goal to limit global warming to below 2 degrees celsius, according to research.

Analysis by impact disclosure charity CDP showed of 16,500 investment funds, worth $27trn (£19.6trn), just 158 were assessed as having a future emissions projection of “well-below” 2 degrees celsius and 102 funds were temperature rated at 1.5 degrees celsius, the more ambitious goal of the Paris Agreement. 

More than 8,000 funds, or 62 per cent of total assets, were “temperature scored” at over 2.75 degrees of global warming.

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The funds included in the research represented 38 per cent of the total net assets of regulated open-ended funds domiciled in Europe, US and Asia and investing in public equities and corporate bonds.

The research highlighted funds for sale in the UK aligned with the Paris Agreement :

NameAsset managerTemperature alignment forecast (Scope 1 + 2 GHG)
AXA WF Framlington Europe Small CapAXA Investment Managers1.5
BL Equities EuropeBanque de Luxembourg1.5
BL Sustainable HorizonBanque de Luxembourg1.5
iShares OMX Stockholm Capped UCITS ETFBlackRock1.5
iShares Smart City Infrastructure UCITS ETFBlackRock1.5
DNCA Europe Smaller Companies FundDNCA Finance1.5
DWS Invest ESG Climate TechDWS1.5
JPM Europe Dynamic Small CapJPMorgan Funds1.5
JPM Europe Small CapJPMorgan Funds1.5
JPM Europe Smaller CompaniesJPMorgan Funds1.5
JPMorgan European Smaller Companies Trust PLCJPMorgan Funds1.5
Lyxor Global Gender Equality UCITS ETFLyxor1.5
Premier Miton European OpportntsPremier Miton1.5
Schroder European Smaller CompaniesSchroders1.5
UBS (Lux) Eq S - Small Caps EuropeUBS1.5

Source: CDP (2021)

Laurent Babikian, global director of capital markets at CDP, said the data is “catastrophic”.

“Despite mounting net-zero commitments from the financial sector, and an apparent ESG ‘boom’, the truth is that not even 1 per cent of fund assets are currently Paris-aligned,” he said. 

“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 degrees celsius path.”

He added the fund market reflected the real economy, and currently the corporate sector’s emissions ambition was “too low”.

“Collaboration and engagement are key: investors and lenders must engage all companies in their portfolios to set science-based targets now.”

The funds available to UK investors that align with the Paris Agreement included AXA’s WF Framlington Europe Small Cap Fund, as well as BlackRock’s iShares Smart City Infrastructure UCITS ETF and JP Morgan’s Small Cap and Smaller Companies funds.

The analysis was based on CDP’s temperature ratings, which create a “temperature pathway” for firms that shows the long-term global warming potential if global emissions were to reduce at the same pace as the company. 

When looking at scope 3 emissions, which are from the firm’s products or emissions in its supply chain, just 65 funds were aligned to the Paris Agreement (0.2 per cent).

In June this year, more than 450 investment firms signed a letter urging governments around the globe to improve climate-related regulation.

The group, including Aberdeen Standard Investments, LGIM and UBS Asset Management, warned governments that their ability to properly allocate the trillions of dollars needed to support the transition to net-zero was being hampered by a gap between commitments and actual reduction in emissions.

Yesterday, Dynamic Planner said financial advisers have a "critical role to play" in helping investors understand sustainability trends and matching the products that suit their preferences.

The firm has launched a white paper style sustainability guide for financial advisers to use with their clients, ahead of Cop 26 next week.