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No Major G7 Stock Index Aligned With Paris Climate Goals


New research by CDP and the United Nations Global
Compact on behalf of the Science Based Targets initiative
calls on the largest G7 companies to take ambitious climate
action
 
 

  • No major G7 stock
    indexes are currently on a 2°C pathway, much less the
    1.5°C that is so urgently needed. Four of the seven indexes
    are on dangerous temperature pathways of 3°C or
    above.
  • G7 indexes with a higher share of emissions
    covered by science-based targets (SBTs) result in lower
    overall temperature ratings. 71% of Germany’s DAX 30
    companies’ emissions are covered by SBTs, resulting in the
    lowest index temperature rating of 2.2°C, while less than
    1% of Canada’s SPTSX 60 companies are covered by SBTs,
    resulting in the joint-highest temperature rating of
    3.1°C.
  • Companies with science-based targets are
    already cutting
    emissions at scale
    – and today’s research calls on all
    businesses to take immediate action to align with a 1.5°C
    pathway. SBTi identifies four key levers that governments,
    investors and businesses can use to unlock breakthrough
    climate action through science-based
    targets.

London and New York, June 2021.
New research from the
Science Based Targets initiative
(SBTi), a body enabling
businesses to set ambitious emissions reduction targets,
reveals that none of the G7’s leading stock
indexes are currently aligned with a 1.5°C or 2°C
pathway
1 and calls on the largest listed G7
companies to urgently increase climate
action.

In the lead up to the G7 Summit, the
analysis shows that the G7 countries’ leading indexes2 are
on an average temperature pathway of 2.95°C
,3
according to their constituents’ current corporate climate
ambitions. Stock indexes, composed of stocks of the most
significant companies listed on a country’s largest
exchange, are vital benchmarks to understand market
trends.

The report, prepared by CDP and the UN Global
Compact on behalf of the SBTi, finds that four of
the seven indexes are on dangerous temperature pathways of
3°C or above.
Notably, fossil fuels are a key
contributor to the emissions of all seven indexes, making up
70% of Canada’s SPTSX 60 3.1°C temperature rating and
almost 50% of Italy’s FTSE MIB 2.7°C
rating.

Lila Karbassi, Chief of Programmes, UN
Global Compact and SBTi Board Chair, said:
“G7
companies have the potential to cause a ‘domino effect’
of positive change across the wider global economy. This
report highlights the urgent need for markets and investors
to deliver on the goals of the Paris Agreement. As the G7
meets this week, Governments must go further to incentivize
ambitious science-based target
setting.”

Aligning investment with
1.5°C

G7 ministers responsible for climate and
environment recently urged businesses and investors to align
their portfolios with the Paris Agreement goals and set
science-based net zero targets by 2050 at the latest.
Passive investing currently makes up around 40% of US and
20% of European funds, but passive investors are warned that
just 19% of listed companies in these seven leading indexes
have climate targets aligned with the Paris
Agreement.

The UK government plans to reduce emissions
by 78% by 2035, in line with a 1.5°C pathway.
Encouragingly, the SBTi finds that 35 of the FTSE 100
companies have already committed to align with 1.5°C.
However, despite significant progress in the adoption of
science-based climate targets among FTSE companies, some of
the largest emitters still do not have ambitious climate
targets, resulting in an overall index temperature rating of
3.1°C (see Fig.1).

Despite the findings, momentum for
climate action in G7 countries is growing. Of all corporate
greenhouse gas emissions reduction targets disclosed to CDP
in 2020, 64% of targets were set by companies headquartered
in G7 countries. Overall, 2020 was a milestone year for
climate commitments, with the annual rate of adoption of
science-based targets doubling in 2020 versus
2015-2019.

Alberto Carrillo Pineda, Director
of science-based targets at CDP and a Steering Committee
Member at the SBTi, said:
“Ignoring climate
science is like continuing smoking despite knowing the
risks. Climate and environmental breakdown is the biggest
health, economic and societal challenge of our time – it
requires immediate action from the world’s largest
companies. Today’s findings highlight vital progress, but
show there’s more to be done to incentivize firms to set
science-based climate targets and accelerate the pathway to
net-zero.”

Urgent climate
action 

Today’s report also identifies
four urgent climate actions for financial institutions,
corporate actors, investors and governments. Firstly,
businesses and governments must collaborate to harness the
“ambition loop”, a positive feedback cycle in which
private sector action and government policies reinforce one
another, such as the recent Executive
Order on Climate-Related Financial Risk
by the US
Government that introduced a requirement for major federal
suppliers to set science-based targets.

Secondly,
corporations must work to decarbonise supply chains by
engaging with suppliers. Thirdly, investors should embed
science-based targets into sustainability-linked bonds and
climate financial standards.

Finally, financial
institutions should aim to create a domino effect in all
sectors of the economy through setting portfolio-level
science-based targets and engagement with underlying assets.
One such example is the CDP Science-Based Targets campaign,
which coordinates global financial institutions to engage
the world’s highest impact companies to set 1.5°C-aligned
science-based targets.

In the midst of a growing
number of net zero commitments that aren’t always backed
up by short-term action, science-based targets are answering
the need for nearer term, 2030 plans, through interim
targets towards a net-zero future.

Firms are
encouraged to join the 570 companies already signed up to
the SBTi’s Business
Ambition for 1.5°C
campaign to make their critical
contribution to limiting the worst impacts of climate change
ahead of the COP26 conference in Glasgow.

The full
report, ‘Taking the Temperature: Assessing and scaling-up
climate ambition in the G7 business sector’ can be
accessed on the
SBTi website
.

Fig. 1 – The temperature
alignment of G7 stock indexes and percentage of Index
company emissions covered by science-based
targets.

1
Based on disclosed target information, each company is
assigned a temperature rating. Public targets were
translated into temperature ratings via the CDP-WWF
temperature rating methodology. This method endorsed by the
SBTi to assess portfolio alignment of temperature ratings
provides a science based approach to assess targets not
validated by the Science Based Targets initiative. Those
validated by the SBTi are translated into a temperature
rating (2C, well-below 2C, 1.5C) as part of the approval
process.

If the company does not have an approved SBT
or has not disclosed a target via CDP, the company is given
a default temperature rating of 3.2C. This rating is based
on 2100
warming projections
based on current pledges. The
analysis focuses only on mid term targets – GHG reduction
targets with target years between 2025 and 2035 – given the
urgency to halve emissions by 2030. The temperature rating
takes into account emissions from the listed companies’
own operations and across their value chains (scopes
1+2+3).

2 Germany’s DAX 30, France’s CAC
40, Italy’s FTSE MIB, UK’s FTSE 100, Japan’s NIKKEI
225, Canada’s SPTSX 60 and US’s S&P
500.

3 Weighted average of the G7 index
temperature ratings is 2.95°C

About the
Science Based Targets initiative

The Science
Based Targets initiative mobilizes companies to set
science-based targets and boost their competitive advantage
in the transition to a zero-carbon economy. It is a
collaboration between CDP, the United Nations Global
Compact, World Resources Institute (WRI) and the World Wide
Fund for Nature (WWF) and one of the We Mean Business
Coalition commitments. The initiative defines and promotes
best practice in science-based target setting, offers
resources and guidance to reduce barriers to adoption, and
independently assesses and approves companies’
targets.
www.sciencebasedtargets.org
@sciencetargets

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