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In a bid to combat climate change, forward-thinking investors are turning their attention away from retreating from emission-intensive sectors and instead focusing on companies with ambitious decarbonization goals. This strategy is crucial in ensuring that capital flows in the right direction and attracts environmentally conscious investors.
According to the MSCI All Country World Index, the sectors Energy, Materials, Automobiles, Utilities, and Industrials consistently rank high in emission rankings. These sectors, which account for over three-quarters of emissions, are often the target for investors looking to reduce their portfolio emissions. However, Thomas Leys, an investment manager at Aberdeen Standard Investments, warns that focusing on reducing portfolio emissions often misses the real-world target. Instead, he suggests investing in companies with ambitious and credible emission reduction goals, even if they currently have high emissions, as long as the trend is moving in the right direction.
One such company is global building materials giant Lafarge Holcim. In 2019, Lafarge Holcim emitted over 148 million tons of CO2, but it has one of the most aggressive decarbonization plans in the sector. The company aims to reduce Scope 1 emissions per ton of cement by 17.5% and Scope 2 emissions by 65% by 2030 compared to 2018. Lafarge Holcim's first net-zero production plant is about to open, and more than half of its research and development spending is on greener alternatives.
However, around 40% of companies that have committed to net-zero targets have yet to disclose any details about their plans. This lack of transparency is a concern for investors, as the credibility of a company's decarbonization plans is crucial for attracting environmentally conscious investors.
The transition from fossil fuels to renewable energy and from internal combustion engines (ICEs) to electric vehicles (EVs) can be achieved through several strategic and technological approaches. These include renewable energy procurement and infrastructure development, shifting energy mix and technology integration, electrification of vehicle fleets, and multi-energy integrated strategies.
Investors considering companies with ambitious decarbonization goals should focus on several key factors. These include the clarity and commitment of the corporate strategy, the execution capability and infrastructure investment, the regulatory and market environment, alignment with global trends and technology readiness, and the scope and transparency of emissions reporting.
By analyzing companies based on their decarbonization roadmap, execution capacity, regulatory alignment, technology use, and transparency, investors can evaluate meaningful commitment and risk-return prospects in a low-carbon future. This approach is essential for ensuring that capital is directed towards companies that are genuinely committed to reducing their carbon footprint and contributing to a more sustainable future.
[1] International Renewable Energy Agency (IRENA). (2020). Perspectives for the Energy Transition: Renewable Power Generation Cost Trends to 2030.
[2] International Energy Agency (IEA). (2019). The Future of Hydrogen.
[3] United Nations Environment Programme (UNEP). (2019). The Energy Transition Outlook 2019: A Faster, Smarter Path to Paris.
[4] International Council on Clean Transportation (ICCT). (2019). Electric Vehicles: Policy and Market Trends.
[5] International Energy Agency (IEA). (2018). The Role of Natural Gas in a Net-Zero Emissions Energy System.
The science of environmental-science plays a significant role in the area of finance, as forward-thinking investors are increasingly investing in companies with ambitious decarbonization goals, such as global building materials giant Lafarge Holcim, to combat climate-change. A company's credibility in its decarbonization plans is crucial for attracting environmental-conscious investors. Therefore, investors should carefully analyze companies based on their decarbonization roadmap, execution capacity, regulatory alignment, technology use, and transparency when considering investments.
