ESG Insider: Green funds have a Paris alignment problem
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Hundreds of equity funds around the world use environmental or climate-focused language to describe their investments, but only a tiny percentage of funds are on track to help keep global warming below the target set in the Paris Agreement, according to new research from S&P Global Sustainable1.
Roughly one in 10 funds in the analysis , which covered about 12,000 funds globally as well as subsets of green funds and climate-focused funds, are aligned with a 1.5°C global warming scenario. Some climate-focused funds are not even on track to limit warming to 3°C.
The findings provide a snapshot of the current state of equity investing — showing there is a long way to go toward aligning investor capital with the pathway that averts the worst consequences of climate change.
In this week’s newsletter, we explore how regulations and peer pressure from larger companies that have set net zero targets are drawing smaller companies into discussions about greenhouse gas emissions. We also look at how the U.S. is launching a pilot program allowing inventors of climate change-fighting technologies to jump the patent application queue.
In our weekly podcast, we bring you an interview with Jan-Willem Vosmeer, Global Manager of Sustainable Development and Stakeholder Engagement at The Heineken Company. Jan-Willem talks about how the brewing company is focusing on tackling social issues just as much as environmental ones.
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Chart of the Week
One-third of market value in equity funds is not aligned with a 3°C scenario ($M)
Data as of April 19, 2022.
Analysis uses S&P Global Trucost Paris Alignment data to assess the difference between a company's projected pathway for Scope 1 and Scope 2 greenhouse gas emissions and the required pathway to reach alignment with three different goals from 2012 to 2025. The most ambitious is a goal of limiting warming to "well below" 2°C, or 1.5°C. The second is a goal of limiting warming to 2°C. The third and least ambitious is a goal of limiting warming to 3°C. The broad fund universe represents 11,780 equity funds. The subset of green funds represents 334 funds. The climate funds subset of green funds represents 51 funds.
Design credit: Zain Ullah; Cat weeks
Sources: S&P Global Trucost; S&P Global Sustainable1
Green funds have a Paris alignment problem
Equity mutual funds and exchange-traded funds around the world use green language to signal that their portfolios support the energy transition, address environmental concerns or combat climate change. But wide misalignment with the Paris Agreement goal of limiting global warming is the current reality for most of these funds, according to a new analysis by S&P Global Sustainable1 — and this could undermine the eco-friendly or climate-conscious signals they send to investors.
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ESG Insider Podcast
In this episode of the ESG Insider podcast, we sit down with Jan-Willem Vosmeer, Global Manager of Sustainable Development and Stakeholder Engagement at The Heineken Company. He talks about how the brewer is working with suppliers to reduce emissions, the challenges of working in a water-intensive industry, and how to make agriculture sustainable.
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A really insightful piece!