The business benefits for setting science-based targets (SBTs) are becoming ever clearer to global firms.
One major advantage, according to more than half of executives (52%), is that committing to science-based targets has boosted confidence among their investors, who increasingly recognize that future-proofing their returns demands that their stocks have transition plans in line with the Paris Agreement.
But how are investors using SBTs, and what might be around the corner to signal to more companies that capital markets consider their targets?
An increase in investor action
Investors are becoming more vocal with their direct calls for companies to engage.
Take France, for example, where nine major firms, including SUEZ and L’Oreal, already have had their SBTs approved by the Science Based Targets initiative (SBTi). Here asset manager PhiTrust recently wrote to the companies listed on the CAC40 index, representing the country’s 40 largest stocks, calling on them to set an SBT before their AGMs.
Their deputy CEO Denis Branche argued that their aim was to directly engage firms’ boards with SBTs and normalize top-level action across the market.
PhiTrust are not alone. Back in April, more than 60 major investors managing more than US$1 trillion, including Aegon, Candriam and Hermes, joined a new direct engagement campaign called the Investor Decarbonisation Initiative.
Through the campaign the group have asked the CEOs of companies from Deutsche Telekom to Skanska to take their calls for action seriously and set SBTs to align their businesses with a low-carbon future.
Building corporate momentum with Climetrics
And as the momentum behind corporate target-setting grows, investors are gaining better access to the data and products that allow them to vote with their money for the businesses prepared for a 2-degree scenario.
This – a first among fund ratings – enables any investor, from the first-timer to the world’s biggest money managers, to find the funds best-placed in our economy’s transition.
Showing the market impact SBTs can make for firms, analysis of 50 of Europe’s best-rated funds on Climetrics found that more than two thirds have above-average investment in stocks with SBTs.
Building regulatory resilience
Investors’ responsibilities to deliver long-term returns, resistant to climate risks, will become more deeply regulated over the next few years.
This is particularly the case in Europe, where the EU’s Action Plan on Sustainable Finance has set out the goals for a fit-for-the-future financial system.
As investors’ climate-related duties are toughened, the firms and funds with clearly signalled, Paris-aligned plans will be their first port of call.
As managers create products that help investors support these long-term goals, the future holds much more.
Science-based target setting – a business norm
Science-based target setting is becoming a strategic norm, and investment strategies and products will look to SBTs as a leading indicator to define a 2-degree aligned universe that is best-positioned to seize the transition’s economic opportunities.
Momentum is underway.
A new Euronext CDP Environment France index chooses stocks from the French SBF120 based on CDP scores, which reward companies with SBTs.
And this year CDP and CPR, a subsidiary of the largest European asset manager Amundi,plan to work on a new innovative investment approach which supports the energy transition.
These novel approaches will not be the last.
Companies setting SBTs do so because the positive effect of their action on our planet, and on their business, is well understood.
As investors increasingly use SBTs as a leading indicator of a firm’s long-term outlook, and the market provides new strategies for investing in science-based stocks, we can expect that more corporate executives see their SBT as a core requirement for investor confidence.