Row over ‘climate impact’ vs ‘climate exposure’ sees 2° Investing Initiative quit Science-Based Targets group

2 Degrees Investing Initiative (2DII) has quit the Science-Based Targets Initiative (SBTi) in a row over what financial institutions should be able to call climate ‘impact’.

Science-Based Targets is a collaboration between highly-regarded NGOs including the World Resources Institute, CDP and WWF. Its goal, it says, “is to enable leading companies setting ambitious and meaningful corporate GHG reduction targets”. Its methodology focuses on the level of company and portfolio alignment with 2°C. 

But, while developing the methodologies for financial institutions, 2DII and the other NGOs appear to have locked horns, with 2DII insisting that “setting alignment goals is relevant to define the intended average trajectory for investee/client companies [but] it is not to be confused with a ‘science-based target’ that, by design, only applies to real GHG reductions”.

2DII claims that its definition of impact – which centres on decarbonisation of the real economy – is the one understood by the general public and retail investors.

Sustainability-branded funds are increasingly marketed as being responsible for reductions in carbon emissions. In a presentation published by 2DII yesterday, it cites examples from anonymous funds claiming: 

“A €5m investment in the fund for one year would reduce polluting emissions by 4,200 tons of CO2, which is equivalent to taking 1,900 cars off the road for a year.”

And: 

“Invest €25,000 in this fund and you save the CO2 emissions equivalent to flying 7,3000km, eating 830 burgers, using 7,000 times your washing machine.”

Claims such as this, it suggests, could be misleading to consumers. 

“There is currently no scientific evidence that aligning the exposure of investment/lending portfolios with a 1.5°C pathway, whatever the metric used (technology, carbon emissions etc) can serve as a proxy for measuring the related changes caused by the financial institution in the real economy,” the think-tank argues. 

“Our analysis of current environmental marketing claims in Europe suggests that many fund manager make ‘investor impact’ claims, and that most of them do not comply with applicable regulatory guidelines,” it says, highlighting that a significant proportion of consumers want their investments to have a concrete environmental impact. 

“We fear the SBTi process may reinforce this dynamic.”

In response, Alexander Farsan, who leads SBTi for WWF, told RI: “Science-based target setting resources for financial institutions are being developed through an inclusive, multi-stakeholder process including consultation with financial institutions, consultants, NGOs, and academic institutions. 

“In London this week, the SBTi and its partners convened a group of 50 financial institutions to gather feedback on its draft target validation criteria. Financial institutions have a vital role to play in the transition to a net-zero emissions economy and this work is a critical component in the SBTi’s mission to drive company emissions reductions at scale.

“The SBTi will continue to work with its partners and corporate stakeholders to develop the criteria, which are due to launch later this year. We welcome input from all stakeholders, including 2DII, and will continue to facilitate this important conversation.”

2DII has launched an ‘Evidence on Impact’ programme to address some of the issues it has raised. A consultation on its thinking is available here.