GIB Asset Management (GIB AM), a USD12 billion sustainable asset manager, and CDP, a non-profit charity which runs the global disclosure system for investors, companies, cities, states and regions, are calling for a rapid acceleration in the transition to a net-zero economy, with a clear start and finish line of now and 2030, in order to prevent irreversible global warming.
In a new paper published today, GIB AM and CDP state that emissions cuts by 2030 are urgently required in order to avoid reaching a tipping point where the world’s CO2 budget is exhausted and temperature rises reach over 1.5 degrees Celsius. The two organisations urge corporates, supported by the financial system, to change their behaviour in the understanding that having a net-zero target alone is not sufficient.
Approximately 40 per cent of companies with net-zero targets have yet to disclose how they plan to achieve them, leading to greenwashing fears and stakeholder confusion. First, those businesses who have not got to this stage need to imminently commit to science-based targets. Second, those that have set targets must ensure they are disclosing, ideally through CDP, to track their progress. Organisations should also publish credible transition plans detailing how they will pivot towards a trajectory that aligns with the latest and most ambitious climate science recommendations.
From an investor perspective, this transparent sharing of data will help judge who is the ‘best’ to allocate capital to, and to determine whether engagement strategies have been successful. This information is a vital ingredient needed in the goal to translate real world decarbonisation into reality.
Decarbonisation needs to be comprehensive across all sectors of the economy, but the paper further underlines the particularly radical transformation needed in the power and energy sectors in order to meet the substantial emissions reductions required. Investors must seize the opportunities these sustainability challenges present to help build low-carbon intensive portfolios and more significantly, to help deliver ambitious climate action.
GIB and CDP also call on the financial sector to address the environmental performance disconnect between what is reported and actual impacts. Despite significant momentum in action by firms disclosing their environmental data in 2020, financed emissions remains a challenge, with the climate impact of financial institutions’ investment and lending over 700 times their direct impact on average, according to CDP research. Yet, for many institutions that is not where the focus is, with only 25% reporting the emissions associated with their portfolios, and 49% not analysing their portfolios’ impact on climate at all.
Katherine Garrett-Cox, CEO of GIB Asset Management, says: “We are facing an unprecedented climate emergency and without urgent action, there is a clear risk of a tipping point being reached. While governments are setting the stage at COP26, they cannot achieve the needed transformation alone. The Race to Zero is really a race to 2030 and it is vital that we massively speed up action to cut real emissions in the next nine years. Companies that have yet to align their behaviour with net-zero need to do so now, and, as decarbonisation will not be linear, it must apply to all sectors. The route to this, and sustainable growth, starts with innovation.”
Paul Simpson, Chief Executive Officer at CDP, says: “Whilst the eyes of the world are on governments at COP26, non-state actors, who are at the heart of the Paris Agreement, must also commit to ambitious climate action. It is vital all companies commit to net-zero targets that are based on science and that they set transition plans to achieve them. What happens within the next five years is likely to determine whether net-zero by 2050 is achievable. Transition plans must include accredited science-based targets and set out actions companies will take to transition to a 1.5°C-aligned business model. This should include capital allocation plans and what governance the company has in place to ensure delivery.”
