Investors with $29 trillion demand science-based climate targets

Financial institutions holding $29.3 trillion in assets are today calling on the world’s most impactful businesses to set science-based emissions reduction targets in line with 1.5°C warming scenarios, ahead of COP26 in November.[3] The request is signed by 220 financial institutions across 26 countries, and whose collective assets are worth more than the GDP of the United States, China, or the entire EU.[4]  It represents significant growth in support by 60% on last year, with an increase of 51% in assets behind the call to action. The group includes some of the world’s biggest investors and lenders like Aegon Asset Management, NN Group, Robeco, Legal & General Investment Management, Insight Investment Management, AXA Group, DWS Group and Allianz. They are pressing 1600 companies to set emissions reduction targets through the Science Based Targets initiative to ensure that corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets. From July 2022, these must be aligned with a 1.5°C pathway to be approved.

The 2021 CDP Science-Based Targets campaign is coordinated by the non-profit charity CDP, which runs the environmental reporting system.

Joining the financial institutions in asking for SBTs this year are 26 CDP supply chain members – large corporate buyers using CDP to green their supply chain – including L’Oréal, Renault Group, Bayer, AstraZeneca and HP Inc, with $500 billion in annual procurement.

CDP sent the letter to over 1600 companies worldwide, including Airbus, NXP Semiconductors, Anhui Conch Cement, China’s biggest cement manufacturer, Hyundai Motor Company, Duke Energy, Associated British Foods, Nippon Steel, Tata Steel, Lufthansa and Samsung.

The businesses targeted have a market capitalization of over $41 trillion, make up 36% of the entire MSCI World Index, and account for 11.9 million tonnes of emissions (scope 1 and scope 2), equivalent to more than the annual total of the United States and European Union combined.[5]

Over 20% of companies by global market capitalization are already part of the SBTi.[6]

David Czupryna, Head of ESG Development at Candriam, commented: “Candriam strongly supports the adoption by companies of climate related targets that are sector-specific, fact-based and aligned with well below 1.5°C objectives. The SBT Initiative provides a comprehensive framework to assess such alignment and forms an integral part of the systematic climate risk/opportunity analysis performed by Candriam investment analysts on all our investments.”

Jean-Jacques Barbéris, Director of the Institutional and Corporate Clients division & ESG at Amundi, said: “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. The adoption of emissions reduction targets by both corporates and investors is critical to transition collectively to a decarbonized economy. Encouraging companies to adopt science-based targets is part of Amundi’s broader engagement to support climate action”.

Last year’s CDP Science Based Targets campaign contributed to strong momentum of the number of companies joining the SBTi. 154 companies, with emissions approximately equivalent to Germany’s annual total and a market capitalization of $5.2 trillion, joined since this time last year. It represents 8.1% of the companies targeted in this campaign last year.

56% of companies asked by CDP reported that the campaign had a direct influence over their decision, while 96% reported that general investor pressure led to them setting a target.[7]

The campaign also shows the major role played by European financial institutions in corporate engagement on climate issues. 75% of all investors and lenders signing the letter are based in Europe (including the UK), with 79% of the total assets. Asset managers and pension funds are the most supportive of the campaign, making up nearly 9 out of 10 organizations.

Laurent Babikian, Joint Global Director Capital Markets at CDP, said: “2021 has been a year when global financial institutions have committed en masse to achieve net zero by 2050. But these goals are impossible to achieve without the companies they lend to and invest in having robust science-based targets that drive rapid decarbonization in the entire value chain in line with a maximum of 1.5°C of global warming. It is that simple, and when so many investors and lenders are collectively saying the same thing, companies must act or risk seeing their cost of capital rise. Not having an SBT raises a red flag that they are failing to manage climate risk. Ahead of COP26, we must see greater ambition from the companies accountable for the bulk of global emissions if we are to achieve a net-zero emissions economy, and mitigate the most serious impacts of climate change, which have been all too visible in 2021 so far.”

Globally, over 1775 companies are already part of the SBTi, among which over 550 have approved targets in line with 1.5°C. Analysis has shown that the typical company with a target has cut emissions by 6.4% per year – well above the 4.2% linear reduction rate required to meet the Paris agreement’s 1.5°C goal.

Alberto Carrillo Pineda, Managing Director and Co-Founder of the Science Based Targets initiative, said:

“Money talks and this call from global financiers is loud and clear. A decarbonised business model is the only sensible business choice for a climate safe and prosperous economy. The call for rapid decarbonisation is clear, not only from the scientific community, but also, from the financial community. We are calling now on all companies to set science-based decarbonisation targets and for financial institutions to build on the leadership shown in these campaign and to also set science-based climate targets for their investment and lending portfolios. This is essential if we are to halve emissions by 2030 and achieve net-zero before 2050 – and vital for the future of humankind.”

Over the last two decades, CDP has created a system that has resulted in unparalleled engagement on environmental issues worldwide with investors and businesses alike. This campaign combines CDP’s track record, and expertise as a founding partner of the SBTi, to use investor authority to take disclosure and carbon mitigation further.

While companies can set science-based targets at any point throughout the year, CDP will be engaging these companies to join the SBTi before September 2022, when the impact of this campaign will be evaluated.

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