Less than 0.1 percent of assets are currently aligned with the Paris Agreement climate goal when Scope 3 emissions are taken into account. This is the result of an analysis of more than 23,000 funds with over USD25 trillion in assets under management (AUM) conducted by sustainability tech platform Clarity AI in partnership with not-for-profit environmental impact organisation CDP. The study concludes that “global assets still have a long way to go to achieve Paris alignment”.
The Paris Agreement, set up in 2015, is an international treaty that aims to limit temperature rise to under two degrees Celsius, but strives for 1.5 degrees Celsius – the study used 1.75 degrees Celsius as a benchmark. Scope 3 emissions are indirect emissions produced in a firm’s upstream and downstream activities. Scope 1 encompasses direct emissions owned and controlled by the firm, while Scope 2 are indirect emissions from the generation of purchased energy.
Uphill battle
With Scope 3 emissions taken out of the picture and only Scope 1 and 2 considered, 1.3 percent of total AUM are temperature aligned. Nevertheless, more than 70 percent of total AUM are invested in funds with targets that would keep temperature rise to 2.25 degrees Celsius or above. 51 percent of the participating organisations have no ambition to keep temperature rise below three degrees Celsius.
The report notes that “these targets are based on mid-term ambitions for emissions reduction and do not guarantee successful fulfillment by organisations”. Continued efforts from both the financial industry and companies across all sectors are thus required to address “the misalignment of investment funds with the goals of the Paris Agreement”.