Major Investors Push Corporates for Science-based Climate Targets

Businesses are increasingly setting emissions reduction targets, but investors demand for more evidence of alignment with Paris Agreement.

Global financial institutions holding US$29.3 trillion in assets have urged thousands of the world’s most carbon-intensive companies, such as Samsung and Tata Steel. to set science-based greenhouse gas (GHG) emissions reduction targets in line with the Paris Agreement.

In a letter co-ordinated by the non-profit charity CDP, a total of 220 financial firms, up 60% on last year, including Allianz, Credit Agricole and Legal & General Investment Management, have called on 1,600 companies to set targets through the Science Based Targets initiative (SBTi) to ensure that “corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets”.

From July next year, these must be aligned with a 1.5 degrees Celsius pathway to be approved by SBTi.

Joining the financial institutions in asking for science-based targets were 26 CDP supply chain members – large corporate buyers using CDP to monitor emissions and other sustainability metrics across their supply chain – including L’Oréal, Renault Group, Bayer, AstraZeneca and HP Inc, with US$500 billion in annual procurement.

The 1,600 companies included Anhui Conch Cement, China’s biggest cement manufacturer, Hyundai Motor Company, Duke Energy, Associated British Foods, Nippon Steel, Tata Steel, Lufthansa and Samsung.

The targeted firms have a market capitalisation of over US$41 trillion, make up 36% of the entire MSCI World Index, and account for 11.9 gigatons of emissions (Scope 1 and 2), equivalent to more than the annual total of the United States and European Union combined.

Over 20% of companies by global market capitalisation are already engaging with the SBTi to establish and verify science based targets.

‘Not just desirable, but a necessity’

“Today, we fully integrate the emissions trajectory of the companies we invest in. Adapting their business models to the climate challenge as well as aligning with the Paris Agreement is not just desirable anymore, but a necessity to ensure long-term growth and profitability,” said Jean-Jacques Barbéris, Director of the Institutional and Corporate Clients division & ESG at Amundi.

“The adoption of emissions reduction targets by both corporates and investors is critical to transition collectively to a decarbonised economy. Encouraging companies to adopt science-based targets is part of Amundi’s broader engagement to support climate action”.Barnaby Wiener, Head of sustainability and Stewardship at MFS Investment Management, added: “Climate change is creating risks and opportunities for all businesses. In order to effectively respond to the climate challenge companies must have a plan and act. As long-term investors seeking to allocate capital responsibly, we expect our portfolio companies to develop, commit to and execute on science-based emissions reduction plans aligned with the Paris Agreement.”

Although corporates may not yet be setting science-based targets, there is evidence European firms are making commitments to emissions reductions.

A new Fitch Ratings report has found that more than three-quarters of large corporates in developed Europe have publicly announced targets to reduce emissions. The review of 178 Fitch-rated issuers in higher-emissions sectors found utilities were the most likely to have set a clear public target.
Over 95% of issuers with annual revenue of €10 billion or more have announced GHG targets, compared to 49% of companies with revenue of less than €1 billion.

Fitch said shareholder pressure had played its part with listed companies more likely to have set targets than privately owned companies of a similar size.
However, Fitch also revealed that long-term net-zero or carbon-neutral commitments were rarer and showed more variation between sectors. Overall, 32% of issuers had a net-zero commitment across their value chain. A further 20% had a more limited commitment that only encompassed part of the value chain (generally excluding Scope 3 emissions) or part of their business.

Investor pressure

Both reports update recent research from the SBTi showing that four-fifths of companies in G20 countries have not aligned their climate change strategies with the goals of the Paris Agreement using science-based targets

It revealed that while a quarter of firms from G7 countries have set science-based targets to reduce their greenhouse gas emissions consistent with limiting climate change to 1.5°C, only 6% of firms from non-G7 members of the G20 have done so.

Earlier this month the Investor Agenda campaign, encompassing almost 600 institutional investors, urged governments preparing for COP26 to prioritise five key policy areas to accelerate climate investment including mandatory climate risk disclosure, strengthened national commitments which limit climate change to 1.5 degrees Celsius, detailed net-zero pathways with interim targets and sector-specific decarbonisation roadmaps.

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