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Major G-7 stock indexes failing to meet global warming targets – report – Pensions & Investments

The largest publicly traded companies in leading industrialized nations must urgently increase actions related to climate change if the goals of the Paris Agreement are to be met.

Research by the Science Based Targets initiative, which helps businesses to set ambitious emissions reduction targets, showed that none of the Group of 7 countries’ main stock indexes are aligned with goals to limit global temperature rises to 1.5 or 2 degrees Celsius.

Analysis showed that the average temperature pathway among major indexes is 2.95 degrees Celsius. The worst pathways were found in the U.K.’s FTSE 100 index and Canada’s SPTSX 60 index, each with temperature increases based on company emissions of 3.1 degrees Celsius. Japan’s Nikkei 225 and the U.S.’s S&P 500 index are set on a 3 degrees Celsius pathway, Italy’s FTSE MIB and France’s CAC 40 are on a 2.7 degrees Celsius pathway, and Germany’s DAX 30 index is on a 2.2 degrees Celsius pathway.

A report of the analysis, prepared by CDP and the United Nations Global Compact, said fossil fuels are a key contributor to the emissions in all seven indexes, accounting for 70% of Canada’s rating and almost 50% of Italy’s.

The report highlighted that while passive investing accounts for about 40% of U.S. and 20% of European strategies, just 19% of listed companies in the leading indexes of the G-7 has climate targets that are aligned with the goals of the Paris Agreement.

“G-7 companies have the potential to cause a ‘domino effect’ of positive change across the wider global economy,” Lila Karbassi, chief of programs at the UN Global Compact and chairwoman of the SBTi board, said in a news release accompanying the report. “This report highlights the urgent need for markets and investors to deliver on the goals of the Paris Agreement. As the G-7 meets this week, governments must go further to incentivize ambitious science-based target setting.”

The report outlined four urgent climate actions for financial institutions, corporations, investors and governments in addressing the problem. It said businesses and governments need to collaborate to harness what it said was an “ambition loop” — a positive feedback cycle through which private sector action and government policies reinforce each other.

The second action relates to corporations, calling on businesses to work to decarbonize their supply chains by engaging with suppliers.

Investors must embed science-based targets into sustainability-linked bonds and climate financial standards; while financial institutions should aim for a “domino effect” in all sectors of the economy, by setting science-based targets at portfolio level and engaging with the underlying assets.

The analysis was completed by assigning each company a temperature rating based on disclosure target information. Companies that do not disclose a target or have an approved science-based target were assigned a default temperature rating of 3.2 degrees Celsius.

The report is available for download on the SBTi website.