With a focus on climate finance, the recently concluded COP29 brought together thousands of people in Baku, Azerbaijan, and reached an agreement that will triple finance to developing countries, from the previous goal of $100 billion annually to $300 billion annually by 2035.
However, disclosure of science-based targets related to carbon reduction appears low in the asset management industry, according to the Funds Europe Carbon Impact Research Report 2024 – which gives insights into how European asset managers are addressing sustainability and carbon reduction goals.
Nearly half of the respondents in the survey of European asset managers have not disclosed their commitments to the Science-Based Target Initiative (SBTi), a system for aligning with the goals of the famous Paris Agreement on climate.
The SBTi, a collaboration between the Carbon Disclosure Project (CDP), UN Global Compact, WRI, and WWF, helps businesses set and verify emissions-reduction targets aligned with climate science. With nearly 4,000 companies participating, the framework provides methodologies and expert validation. Companies commit to setting targets, have them approved by the SBTi, and report progress annually.
The results feature in Funds Europe’s Carbon Impact Research Report, which finds that Fundsmith and Seb Asset Management lead in this area, with 86% and 58% of their portfolios, respectively, invested in companies committed to the SBTi. However, the progress is uneven, as nearly half (47%) of surveyed firms have not disclosed their commitments to SBTi.
This lack of disclosure aligns with another key finding from the report, which highlights that 26% of European asset managers have failed to disclose their Weighted Average Carbon Intensity (Waci), a key metric for assessing portfolio emissions. Firms such as UBS Asset Management and Eurizon have embraced comprehensive carbon reporting frameworks, yet the reluctance of a significant number of firms to share their carbon data signals that more needs to be done to ensure the financial sector aligns with global sustainability objectives. The average Waci of 220.02 tCO₂/€mn suggests that European portfolios are spread across both high- and low-carbon sectors, presenting a moderate carbon intensity for the industry overall.
The debut edition of Funds Europe’s Carbon Impact Research Report 2024 sheds light on the key trends shaping decarbonisation projects, carbon footprints, sustainable fund allocations, and the responsible investment strategies adopted by European asset management firms. Download the full report here: https://funds-europe.com/carbon-impact-research-report/
Asset managers’ approaches to monitoring reduced emission pathways also vary, making comparison difficult. These include measuring emissions based on falls in Scope 1, Scope 2 and Waci values, ITR (Implied Temperature Rise) scenario analysis, the proportion of their holdings having credible net zero goals, CDP score and more.
Commenting on the findings of the Funds Europe Carbon Impact Research Report, Torun Reinhammar, head of capital markets Europe at CDP, noted that diverse methods like carbon footprint analysis, Waci, and ITR metrics reflect efforts toward net-zero goals by 2050. However, she emphasised the limitations of these approaches, such as unclear company-level emission reductions, insufficient connection to real-world emissions for target-setting, and a lack of assessment of the feasibility of reduction targets. “A combination of backward and forward-looking methods, underpinned by robust data, is a necessity for accurate evaluation of credible net-zero goals,” Reinhammar said, pointing out the intensive resources required to analyse sector-specific data points.
Despite these challenges, there is progress. Over 23,000 companies disclosed their environmental impacts through CDP last year, creating a robust primary dataset. This data enables asset managers to establish baselines, set targets, and track progress.
Reinhammar highlighted CDP’s Net Zero Alignment dataset as a valuable tool, incorporating GHG emissions, transition plans, and indicators on target credibility. “This provides asset managers with a starting point for deeper analysis and a more accurate method for monitoring emission pathways,” she added.
The disparity in approaching decarbonisation goals is compounded by the use of varied metrics and standards across the industry. Besides, with nearly half of firms yet to commit to science-based targets, the industry faces pressure to close the transparency gap and align portfolios with global climate goals.
The report also highlights the adoption of Article 8 and Article 9 funds by asset management firms, showcasing two exceptional firms with 100% allocations to Article 9 and Article 8 funds combined. Read the full report.
