ESG Essentials: SBTi removals and UK hits lowest emissions

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SBT-bye

Several major companies, including Microsoft and Unilever, have been removed from the Science Based Targets Initiative’s (SBTi) climate validation process due to their failure to submit ambitious emission reduction targets in time for an SBTi deadline.

Of the 1,045 companies that joined the SBTi’s Business Ambition for 1.5C campaign between 2019 and 2021, more than 230 have not submitted targets as initially promised or have set targets deemed not strong enough. This has led to them being marked as “removed” on SBTi’s website this week. 

Challenges in submitting targets include difficulties in addressing Scope 3 emissions, which constitute a major portion of most companies’ carbon footprint, and concerns about regulatory conflicts and abstract net-zero standards.

The Securities and Exchange Commission’s recent decision not to require large US companies to disclose Scope 3 emissions further complicates efforts towards transparency and accountability. Despite criticism, many companies have affirmed their intentions to set net-zero targets, highlighting the ongoing struggle between corporate ambition and regulatory constraints in tackling climate change.

Lowest emissions since Queen Victoria

The UK’s greenhouse gas emissions fell by 5.7% in 2023, marking the lowest level since 1879, according to new analysis by Carbon Brief. 

The drop below the 400 MtCO2e mark, the first since Victorian times, reflects the country’s evolving energy landscape and ongoing efforts to address climate change. UK emissions have fallen every year for the past two decades, aside from brief rebounds after the global financial crisis and COVID-19 lockdowns. 

Key findings from Carbon Brief’s analysis highlight the substantial decrease in gas demand, primarily attributed to factors such as increased electricity imports, above-average temperatures, and underlying weak demand. Additionally, coal use plummeted by 23% in 2023, reaching its lowest level since the 1730s, as the closure of coal-fired power stations accelerated the transition towards cleaner energy sources. 

However, despite these reductions, deliberate climate action played a minor role, emphasising the continuing need for comprehensive strategies targeting emissions from various sectors to meet the 2050 net-zero target.

Women in Finance see progress on gender representation despite data gaps 

UK asset owners have praised initiatives like the 30% Club and the Asset Owner Diversity Charter (AODC) for promoting better gender representation in companies and fund managers to improve corporate opportunities for women.

Though these initiatives have made progress, the AODC has highlighted that progress within the sector remains slow. Moreover, investors lack quality data to make informed decisions on how best to tackle gender representation.

However, there are signs of positive change to facilitate successful long-term career trajectories for women, especially as more companies now offer hybrid working. The most significant impact that the sector could make is equity in parental leave or improving childcare provision, which could boost the number of women in the workplace and improve corporate progression.

European market driving ESG bond fund growth, says Bank of America 

New research from the Bank of America revealed that ESG bond funds had $5.2bn of net inflows in January, nearly double the rate of net inflows last year.

Europe is driving the growth of ESG bond funds, with bonds in Western Europe witnessing $2bn of net inflows, bringing their managed assets to a record $350bn. In the region, there has also been substantial investment in cross-region ESG bond funds.

In the US, on the other hand, two years of stagnant growth for ESG bond funds has resulted in net inflows of $1.2bn in January 2024, accounting for only 2% of net inflows. Moreover, the assets managed by ESG bonds in the US are below the $101bn record set in February 2022.

Given the need for investment towards sustainable development in emerging markets, efforts must be made to increase net inflows and managed assets in these nations. ESG bonds in these emerging markets have suffered a $168mn outflow in January, reflecting investors’ choice to steer towards rising yields in wealthier countries. 

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