G7 indexes falling short as countries support TCFD

June 18, 2021

A new report written by the United Nations Global Compact (UNGC) and CDP ahead of the Group of 7 (G7) and the UNGC leaders summit has found that the G7 stock indexes are on temperature pathways of 2.95 degrees Celcius or higher.

Titled, 'Taking the Temperature: Assessing and scaling up climate ambition in the G7 business sector', the report cast a long shadow over the proceedings of both the G7 meetings last week and the UNGC Leaders Summit this week.

The report, published by the Science Based Targets initiative (SBTi) compares the collective temperature ratings of the G7 countries with internationally agreed climate goals under the Paris Agreement.

The authors explain that to keep below a global temperature rise of 1.5 degrees Celsius set out in the Paris Agreement on climate change, GHG emissions must be reduced by half by 2030 and reach net zero by 2050. G7 countries are far from achieving these targets.

Canada, France, Germany, Italy, Japan, the UK, and the US together account for approximately 40% of the global economy and 25% of global greenhouse gas (GHG) emissions.

The temperature rating of each country is based on emissions-reduction target data submitted by companies to CDP and SBTi. The ratings show there is a long way to go for sustainable and ESG investing, a rapidly growing space within the finance sector.

There may be a light at the end of the tunnel, however, as the G7 last week also announced support for mandatory TCFD compliance.

The Finance Ministers and Central Bank Governors of the G7 announced their support for "moving towards the mandatory climate-related financial disclosures that provide consistent and decision-useful information for market participants…” in a final communique before last weeks meeting.

Despite the poor forecast of G7 indexes, the recent commitment to the TCFD and rumours of further discussions between the larger G20 could set the stage for an international agreement at COP26 in November.