The EU's biggest investors are partially aligned with the Paris Agreement's climate target of keeping global warming well under 2°C but still invest too much in coal, according to an analysis carried out by World Wide Fund For Nature (WWF). Lack of disclosure on climate risk remains an element of concern that will have to be addressed by the upcoming G-20 Summit in Hamburg, Germany and the EU.
Released July 4, the report “European Asset Owners: 2°C Alignment and Misalignment of Public Equity Portfolios” is, according to World Wide Fund for Nature (WWF), the first ever such analysis. Of Europe’s 100 largest asset owners such as pension funds, insurance companies and sovereign wealth funds, WWF approached 80 representing a combined total of EUR 11.7 trillion in assets, over half of all assets of European institutional investors.
Ensuring capital is invested in companies that contribute to a climate-safe future is key to reaching the Paris Agreement targets, reducing climate-related financial risks and maximising returns. Some asset owners are showing leadership, but more needs to be done to reallocate investments from coal to renewable power, commented Sebastien Godinot, Economist at WWF European Policy Office.
However, only 30 representing EUR 0.89 trillion agreed to disclose their data thus the current analysis is based on the first 30 that have provided data. More efforts will be needed to improve the lack of disclosure of holdings data says WWF, which is in part due to a current lack of regulation requiring so in some countries. WWF says that it is collaborating with all the others to ensure more data will be made available in the next months.
Implementing change
Using the Sustainable Energy Investment Metrics (SEIM) tool, the report compares each asset owner’s holdings with the International Energy Agency (IEA) 2°C scenario for the year 2020, going beyond carbon footprinting by assessing technology exposure. The analysis is based on the actual capacity and production plans of each company in the portfolio such as tonnes of coal mined per annum or coal/renewable power capacity, using physical asset level data for key sectors.
The report shows that 30 among Europe’s major asset owners, mainly pension funds, from the Netherlands, Denmark, Sweden, Norway and Finland have already implemented changes to bring their public equity portfolio more in line with the well under 2°C climate goal. Almost all of them have cut funding to coal mining; however many of them are investing too much in coal power and still lagging behind on renewable power.
Too many asset owners are still not disclosing how their capital investments are aligned with the Paris Agreement. We call on the G20 leaders meeting soon in Hamburg to improve this, by adopting the recommendations on climate-related disclosures of the designated Financial Stability Board’s Task Force. These will have to be made mandatory by the EU and member states across the Union and nationally – a crucial move towards making climate alignment assessments by investors the norm, added Godinot.
