If world temperature rises are to be kept below the two-degree goal set by the 2015 Paris Agreement, global CO2 emissions will have to be reduced 25% by 2030. For the time being, however, the upward trend continues, with CO2 emissions from fossil fuels and industrial activities expected to increase by more than 2% in 2018.
Coal is the most carbon-intensive fossil fuel, but remains the world’s leading energy source, with India and China leading production. Despite the efforts made since the peak witnessed in 2013, CO2 emissions from coal started to rise again in 2018. This rise was the main reason for the significant increase in CO2 emissions in 2018.
The banking sector has a vital role to play in the energy transition
Through its importance to the financing of the economy, the banking sector has a vital role to play in the energy transition and is duty-bound to gauge its exposure to climate risks and help businesses in their efforts to reduce their dependence on fossil fuels. This responsibility was formalised in 2014 through the Montreal Carbon Pledge, which obliges institutional investors to measure, publish and reduce the carbon footprint of their portfolios.
Edmond de Rothschild Asset Management signed the agreement in 2015, and in 2018 measured the carbon exposure of 26 of its open-ended investment trusts. This measurement is based on the carbon intensity of each company in the portfolio, i.e. its CO2 emissions – be they direct (from the burning of fuels, vehicles owned) or indirect (electricity, steam purchases) – divided by its revenue.
2017 marked a new stage in the decarbonisation of our portfolios, with the adoption of an official 2°C roadmap for the 2017-2040 period. The roadmap uses a proprietary internal rating model based on the categories and guidelines set out in the TCFD and quantifies and ranks the main climate risks and opportunities in the various sectors and sub-sectors of the economy. Regarding risks, our main conclusions are as follows:
- We are focusing on a limited number of sectors and emitters, as 10% of emitters operating in fewer than ten economic sectors account for 90% of climate risks (scopes 1, 2 and 3).
- By reviewing four aspects – regulation, technology, markets and reputation – we have identified 10 high climate risks, five of which need to be addressed now and throughout the 2017-2020 period, starting with coal.
Tomorrow's economic framework will be different from today's
Adopting this roadmap and applying it to our management reflects our conviction that tomorrow's economic framework will be different from today's. The activities on which our economy is based must now prove their social and environmental impact, be it positive or negative. Investors should therefore seize the opportunities arising from the energy and environmental transition and reduce their exposure to climate change risks.
 Source: Global Carbon Project 2018
 TCFD: The Task Force on Climate-related Financial Disclosures, which aims to promote disclosure of climate-related financial risks.