The long and the short of it is that carbon emissions can be attributable to 11 key carbon-intensive industries. The implications for investors are that global decarbonization goals cannot be met without reducing emissions in these sectors (or replacing these companies with cleaner competitors).
It's all down to 11 key sectors
This article is a review of a great piece of analysis by Bridgewater - which takes a top down review of some of the biggest emitters within the public equities space and how investors can think about aligning their portfolio's with net zero.
The full article can be read here: https://www.bridgewater.com/research-and-insights/where-do-greenhouse-gas-emissions-come-from-and-what-does-that-mean-for-investors
Exposure to these sectors can also put investors at risk from a transition to a low-carbon economy via aggressive policy moves (such as carbon taxes, product sales restrictions, or energy rations), competitive pressures from disruptive, cleaner new companies, or technological breakthroughs that undermine existing emissions-intensive business models.
Why are these 11 sectors important?
Global greenhouse gas emissions make up more than 50 billion tonnes (Gt) annually in CO2 equivalents.
Bridgewater estimate that public companies make up about 60% of all global emissions; and that in turn 90% of corporate emissions can be attributed to just 11 key emissions-sensitive sectors.
There are limited targets currently in place
While many publicly traded companies have put out plans to reduce emissions, very few companies in these sectors have comprehensive, credible plans. Bridgewater estimate that only 20-25% of the emissions of public companies in these sectors are covered by reduction targets.
What can / should investors do?
Bridgewater suggest that while investors could reduce or eliminate their exposures to these emissions-intensive sectors, in doing so they would remove important parts of the economy from their asset allocations and concentrate their portfolios in companies that are not important players in the decarbonization of the economy.
Instead, Bridgewater believe there is an important role for investors to play in these emissions-intensive sectors, as movement by these sectors to reduce carbon intensity can have the largest impact on decarbonization.
Interesting thought leadership
There are number of organizations doing some great work around decarbonization - including: Mission Possible Partnership, the Institutional Investors Group on Climate Change, the Glasgow Financial Alliance for Net Zero, Speed and Scale, Project Drawdown, and the Transition Pathway Initiative.
Comments