This analysis is by Bloomberg Intelligence ESG Analyst Rahul Mahtani and Bloomberg Intelligence Director of ESG Research EMEA & APAC Adeline Diab. It appeared first on the Bloomberg Terminal.
Decarbonization can align with financial gains in net-zero portfolio strategies as Stoxx 600 companies progress toward net-zero goals, become more profitable and outperform peers, particularly in key climate-transition sectors such as industrials and utilities. They also saw lower drawdowns in 2022, suggesting greater resilience against higher fuel prices.
Decarbonization, financial momentum align across sectors
Stoxx 600 net-zero decarbonizers — which could reach their goals by 2050 should they maintain their faster emission-reduction pace of the past three years — are outperforming peers across most sectors, including industrials and utilities which are key in the green transition. Their 15% returns since 2021 in industrials is over 2x the sector average, and they also recorded gains in consumer and materials sectors, while their peers incurred losses.
Net-zero decarbonizers are companies with SBTi committed or validated net-zero targets, and three-year average emission reductions exceeding the required rate to reach zero in 2050. In contrast, laggards’ average cuts fall short of the required rate. Additional information on companies’ carbon trajectories, targets and climate scenario alignment can be found at ESG GHG <GO>.
Higher quality, reduced risk complement carbon reductions
Stoxx 600 companies making progress toward their net-zero targets have been able to mitigate downside risks, particularly amid 2022’s soaring energy costs, suggesting that their carbon-reduction efforts may have helped shield them from the effect of rising fuel prices. These stocks’ 38% maximum drawdown was lower than the 41% for companies with slower emission reductions.
At the same time, these stocks demonstrate high profitability vs. index and sector peers, reflecting improved financial quality that may facilitate continued decarbonization. Their profit margin has consistently been in the top half of their sectors, and averaged 24% in 1H, exceeding the index average of 20%.
Industrials, staples utilities lead emission reductions
Nearly half of the Stoxx 600 net-zero decarbonizers are in industrials, staples and utilities, supporting these sectors’ green transition. Their weights — 22% in industrials, 13% in staples, 10% in utilities — also exceed the equally-weighted benchmark, reflecting high proportions of companies making decarbonization progress. None of the index’s energy companies meet the criteria of having a declared SBTi net-zero target, but a handful, including BP, Equinor and Neste still have a higher current decarbonization rate than the rate required for zero emissions by 2050.
A list of 32 industrial and utility companies in the Stoxx 600 index with stated net-zero targets, as well as the fastest pace of emissions reductions relative to the required rate for net-zero in 2050, can be downloaded from the exhibit.
Bloomberg
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