G7 indexes on ‘dangerous’ temperature pathways

UK and Canada indexes have joint-highest company emissions at 3.1 degrees Celsius

New research has found that major stock indexes in G7 countries are on average temperature pathway of near 3 degrees Celsius, with the UK and Canada topping the list.

The Science Based Targets initiative (SBTi) commissioned CDP and UN Global Compact to analyse the G7 countries’ leading indexes, including FTSE 100, S&P 500, France’s CAC 40 and the Nikkei 225 in Japan, and found that none are currently aligned with the Paris Agreement climate goals of 1.5 or 2 degrees Celsius pathway.

Alarmingly, four of the seven indexes are on a dangerous temperature pathway of 3°C or above.

The temperature alignment of G7 stock indexes and percentage of Index company emissions covered by science-based targets

IndexCAC 40DAX 30NIKKEI 225FTSE 100S&P 500FTSE MIBSPTSX 60
CountryFranceGermanyJapanUKUSAItalyCanada
Temperature alignment2.7°C2.2°C3.0°C3.1°C3.0°C2.7°C3.1°C
% Index emissions covered by SBTs41%71%12%7%16%41%<1%
Source: SBTi

The UK’s FTSE 100 and Canada’s SPTSX 60 were joint highest with 3.1 degrees Celsius. In Canada, this was due to 70% of its index being made up by fossil fuel companies.

Italy’s FTSE MIB and France’s CAC 40 were also significantly high at 2.7 degrees Celsius, and Germany had the lowest temperature alignment at 2.2%.

Lila Karbassi, chief of programmes, UN Global Compact and SBTi board chair, said: “G7 companies have the potential to cause a ‘domino effect’ of positive change across the wider global economy. This report highlights the urgent need for markets and investors to deliver on the goals of the Paris Agreement.”

At the recent G7 summit in Cornwall, country leaders of the G7 nations reaffirmed their commitment to the Paris Agreement to keep the 1.5°C global warming threshold within reach by accelerating efforts to cut greenhouse gas emissions through “strengthening adaptation and resilience to protect people from the impacts of climate change, halting and reversing biodiversity loss, mobilising finance and leveraging innovation”.

They agreed to phase out government funding for fossil fuel projects internationally – following a commitment made by the UK in December. They pledged to end all new finance for coal power by the end of 2021, matched by increased support for clean energy alternatives like solar and wind.

Action

The SBTI is now calling on companies to commit to cutting emissions at scale with science-based targets, and said it had identified four key levels that governments, investors and businesses can use to unlock breakthrough climate action through science-based targets.

  1. Businesses and governments must collaborate to harness the “ambition loop”, a positive feedback cycle in which private sector action and government policies reinforce one another. SBTi pointed to the recent Executive Order on Climate-Related Financial Risk by the US Government, which introduced a requirement for major federal suppliers to set science-based targets, as an example.
  2. Corporations must work to decarbonise supply chains by engaging with suppliers.
  3. Investors should embed science-based targets into sustainability-linked bonds and climate financial standards.
  4. Financial institutions should aim to create a domino effect in all sectors of the economy through setting portfolio-level science-based targets and engagement with underlying assets. It added one such example is the CDP Science-Based Targets campaign, which coordinates global financial institutions to engage the world’s highest impact companies to set 1.5°C-aligned science-based targets.

Firms were also encouraged to sign up to the SBTi’s Business Ambition for 1.5°C campaign to make their contribution to limiting the worst impacts of climate change ahead of the COP26 conference in Glasgow – 570 companies have already joined.

Alberto Carrillo Pineda, director of science-based targets at CDP and a steering committee member at the SBTi, said: “Ignoring climate science is like continuing smoking despite knowing the risks. Climate and environmental breakdown is the biggest health, economic and societal challenge of our time – it requires immediate action from the world’s largest companies. Today’s findings highlight vital progress, but show there’s more to be done to incentivize firms to set science-based climate targets and accelerate the pathway to net-zero.”

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...