Many financial Institutions’ (FIs) net zero target-setting initiatives are failing to measure real world greenhouse gas (GHG) emissions reductions, according to a report from think tank 2° Investing Initiative (2DII). The report says that disclosures and alignment approaches are not providing financial institutions with “adequate tools” to measure real world GHG emissions reductions versus emissions changes simply driven by portfolio reallocation. This could undermine climate investment strategies and increase the risk of greenwashing in the corporate and financial sectors. While the last 18 months has seen many financial institutions adopt net zero target setting under the Glasgow Financial Alliance for Net-Zero (GFANZ) and other initiatives, this missing element could limit real world emissions reductions. The key recommendations made by the report are distinguishing between real vs. virtual changes across net –zero and climate target-setting frameworks, using macro tracking of high-carbon assets by regulators, introducing Paris-aligned benchmarks, transparency in ESG ratings and moving beyond implied temperature rise methodologies. The report’s focus on the limits of divestment in achieving lower real world GHG emissions echoes comments made at this week’s ESG Risk & Investment Asia 2022 event by UK FCA Director of ESG Sacha Sadan and Eric Nietsch, Manulife Investment Management’s Head of Sustainable Investing for Asia.
