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In the ongoing battle against climate change, high-emission companies with credible and measurable decarbonization plans are attracting capital from climate-conscious investors. These investors are not shying away from high-emission sectors such as cement, steel, utilities, and automobiles, but rather focusing on those that demonstrate a commitment to reducing emissions in a value-creative manner.
One such example is Nordea's Global Climate Transition Engagement Strategy, which achieved a 16% reduction in carbon intensity and strong investment returns over three years. This engagement-based approach, which delivers real-world emissions reductions, is becoming increasingly popular among investors.
Transparency is another key factor for these investors. Institutional investors are prioritizing Environmental, Social, and Governance (ESG) integration and demanding rigorous sustainability reporting and progress tracking. According to industry surveys, 85% of limited partners plan to strengthen their ESG focus, and 98% would terminate relationships with fund managers lacking ESG commitment. Companies can build investor confidence by publishing transparent, verifiable decarbonization targets and progress updates.
Operational and product lifecycle decarbonization is another approach being adopted by leading firms. Decarbonization levers such as renewable energy adoption in operations, phasing out high-global warming potential materials, fleet electrification, and prioritizing low-carbon product innovation are being implemented to address emissions across the entire value chain.
Methane abatement in the oil and gas sector is an example where aligning capital deployment with critical decarbonization vectors is urgent. However, transparent disclosure on spending and progress is still needed to build investor trust and catalyze financing.
A notable example of a high-emission company with an ambitious decarbonization plan is Lafarge Holcim, a global building materials giant with high CO2 emissions. Despite emitting over 148 million tons of CO2 in 2019, Lafarge Holcim has one of the most aggressive decarbonization plans in the cement industry, aiming to reduce Scope 1 emissions per ton of cement by 17.5% and Scope 2 emissions by 65% by 2030 compared to 2018.
However, it's important to note that simply selecting companies based on their most ambitious goals is not enough. The credibility of decarbonization plans is essential for climate-conscious investors. Decarbonization plans need to be analyzed and their credibility checked for capital to flow in the right direction.
Thomas Leys, an investment manager at Aberdeen Standard Investments, warns that focusing on reducing portfolio emissions often misses the real-world target. Utilities, automakers, and industries are seeking ways to transition from fossil fuels to renewable energy and electric processes. The approach of withdrawing from emissions-intensive sectors and companies may cut off capital from areas with high investment needs.
In the MSCI All Country World Index, the sectors of Energy, Materials, Automobiles, Utilities, and Industrials account for over three-quarters of emissions but only one-fifth of market capitalization. Investors can significantly reduce their portfolio emissions by avoiding a few companies within these sectors. However, it's crucial to ensure that these companies have credible decarbonization plans before making investment decisions.
The International Energy Agency (IEA) states that around 40% of companies committing to net-zero targets have yet to disclose details about their plans. Forward-thinking investors should focus on companies with ambitious decarbonization goals, but it's essential to verify the credibility of these plans before investing. The sectors mentioned in Figure 1 consistently top the emissions rankings of the MSCI All Country World Index, making them areas of focus for climate-conscious investors.
Figure 1 shows the emissions ranking in the MSCI All Country World Index.
[Figure 1 would be a link to an image or graph showing the emissions ranking in the MSCI All Country World Index]
In conclusion, climate-conscious investors are increasingly backing high-emission companies with ambitious decarbonization plans that demonstrate credible, measurable progress toward reducing emissions, engage transparently on ESG factors, and align their strategies with broader sustainability goals while generating competitive financial returns. By combining these factors, high-emission companies can position themselves as attractive investment opportunities for climate-conscious capital seeking impactful transformation rather than simple avoidance.
- Some high-emission companies with credible and measurable decarbonization plans are receiving investments from environmental-science focused investors, such as Nordea with their Global Climate Transition Engagement Strategy.
- Transparency in reporting ESG integration, sustainability progress, and carbon intensity reduction is vital for climate-conscious investors, as many institutional investors are prioritizing these factors and may end relationships with fund managers lacking ESG commitment.
- Operational and product lifecycle decarbonization is an approach adopted by leading firms seeking to reduce their emissions across the entire value chain. For instance, Lafarge Holcim, a high-emission company in the cement industry, aims to decrease Scope 1 and 2 emissions by specific percentages by 2030.
