Investors should delve into the details of net zero emission plans to assess their value and risks. Fortunately, there is a handy shortcut.
Businesses face rising costs of carbon dioxide emissions. European Union credit costs hit a record high of nearly € 40 per metric tonne, or about $ 48, this month. Levies of more than $ 100 are expected in many countries by 2030. Given the very limited information available on companies’ carbon footprints and clean-up plans, analyze how they use emission reduction techniques CO2 can be a useful shortcut for identifying businesses at risk.
All industries will be affected, and the most polluting ones face significant financial risks. Oil and coal producers face existential questions. The challenge is also particularly acute in so-called hard-to-mitigate industries: airlines, cement, long-haul trucking, plastics, shipping and steel. Many investors would like to distinguish executives from laggards.
A commitment to reduce emissions is a good start. Nearly 1,400 companies have pledged to reduce their net CO2 emissions to zero by 2050, according to the UN’s Race to Zero campaign. However, uneven disclosure of carbon footprints and uncertainty about how markets will evolve over the decades means that investors can struggle to understand a company’s plans and the associated risks. Reporting standards will help, once agreed.
At the same time, a useful indicator is to what extent a plan relies on carbon reduction techniques or offsets such as tree planting or carbon capture projects. Offsets are widely used, but even some companies in sectors that are hard to scale down, like global shipping giant Maersk and steel producer Thyssenkrupp, plan to decarbonize without them.