European pension funds back call for science-based climate targets

Around 220 global financial institutions, including European pension schemes and asset managers, have called on 1,600 of the world’s highest impact companies to “urgently” set science-based emissions reduction targets ahead of COP26.

As reported by our sister title, Pensions Age, a total of 1,600 companies have been urged to set emissions reduction targets through the Science Based Targets initiative (SBTi), with BASF, Lufthansa, Samsung, The Southern Company and Tata Steel among high-impact companies specifically requested.

The move towards science-based targets is hoped to help ensure that corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets, with companies that positively respond to the campaign expected to sign the SBTi Business Ambition for 1.5°C Commitment letter.

The business' targeted have market capitalisation of over $41trn, representing 36 per cent of the entire MSCI World Index, and account for 11.9 gigatons of emissions, equivalent to more than the annual total of the United States and European Union combined.

The signatories include a number of UK pension schemes, such as Strathclyde Pension Fund and TfL Pension Fund, as well as some of the world's biggest asset owners, such as Amundi and Legal & General Investment Management.

In total, they cover 26 countries, with collective assets of around $29.3trn.

This represents growth of 60 per cent in the number of signatories in support of the campaign, which also ran in 2020, as well as an increase of 51 per cent in assets behind the call to action.

SBT Campaign organisers, the non-profit charity CDP, has also revealed the success of last year's campaign, with 154 companies, representing market capitalisation of $5.2trn, having joined since this time last year.

Over half (56 per cent) of these companies said that the campaign had had a direct influence over their decision, while 96 per cent reported that general investor pressure led to them setting a target.

The results of last year's campaign have also highlighted the major role of European financial institutions in climate issues, with 75 per cent of all investors and lenders signing the letter based in Europe (including the UK), and 79 per cent of the total assets.

Asset managers and pension funds were in particular were identified as being the most supportive of the campaign, making up nearly nine out of 10 organisations

Commenting on the campaign, CDP joint global director of capital markets, Laurent Babikian, said: “2021 has been a year when global financial institutions have committed en masse to achieve net zero by 2050.

“But these goals are impossible to achieve without the companies they lend to and invest in having robust science-based targets that drive rapid decarbonization in the entire value chain in line with a maximum of 1.5°C of global warming.

“It is that simple, and when so many investors and lenders are collectively saying the same thing, companies must act or risk seeing their cost of capital rise. Not having an SBT raises a red flag that they are failing to manage climate risk.

“Ahead of COP26, we must see greater ambition from the companies accountable for the bulk of global emissions if we are to achieve a net-zero emissions economy, and mitigate the most serious impacts of climate change, which have been all too visible in 2021 so far.”

CDP managing director and co-founder of the SBTi, Alberto Carrillo Pineda, added: “Money talks and this call from global financiers is loud and clear. A decarbonised business model is the only sensible business choice for a climate safe and prosperous economy.

“The call for rapid decarbonisation is clear, not only from the scientific community, but also, from the financial community.

“We are calling now on all companies to set science-based decarbonisation targets and for financial institutions to build on the leadership shown in these campaign and to also set science-based climate targets for their investment and lending portfolios.

“This is essential if we are to halve emissions by 2030 and achieve net zero before 2050 – and vital for the future of humankind.”

AkademikerPension CEO, Jens Munch Holst, also highlighted the importance of working with other organisations to place pressure and convince companies to be "part of the solution".

"If we are to achieve the goals of the Paris Agreement, the companies will have to deliver the goods and reduce their emissions. Otherwise we will not make it, and that is why we are co-signatories to this letter," he concluded.

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