Climate Change Winners And Losers

Climate Change Winners And Losers

over 3 years ago2 mins

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Climate change can present opportunities and risks for individual companies and their investors. But how should investors go about assessing companies based on climate change in the first place? Morgan Stanley has a method using five key metrics.

What does this mean?

The first metric is the amount of carbon emissions from a company’s direct and indirect activities. The second normalizes carbon emissions by the company’s revenue, making it easier to compare companies of different sizes. The third is the company’s emissions reduction target. The fourth is an estimate of a company’s future costs based on its emissions and the price of carbon (in many countries, companies have to purchase permits or pay taxes based on the amount of carbon they emit).

40% of companies have an emissions reduction target (Sources: ISS-ESG, MSCI, Morgan Stanley)
40% of companies have an emissions reduction target (Sources: ISS-ESG, MSCI, Morgan Stanley)

The last metric is the percentage of a company’s revenue tied to positive or negative climate impacts. For example, renewable energy and battery storage companies will most likely see revenue upside in the future, whereas fossil fuel companies will most likely see revenue downside.

Why should I care?

You can use these five metrics to compare stocks and identify relative winners and losers from climate change. Just look at Goldman Sachs’ list of 20 stocks to buy as Europe transitions to a greener future: virtually all of the companies on the list will see their revenues benefit as a result of the European Green Deal. The newly introduced deal aims to make Europe climate neutral by 2050 and will require a lot of investment – the EU has already earmarked over a trillion dollars’ worth of spending just in the next decade.

That extra spending will be a boon for European utilities as they accelerate their investments in clean infrastructure, and Goldman Sachs particularly likes Enel, RWE, Iberdrola, EDP, EDPR, Orsted, and SSE. The European Green Deal should also increase demand for electric vehicles, benefiting automakers Renault and Volkswagen and some of their electric-parts suppliers such as Hella and Umicore. Rail network operator Alstom also stands to benefit according to Goldman Sachs.

Lastly, the investment bank’s list includes various building and construction companies that’ll gain from the green splurge such as Legrand, Rexel, Saint-Gobain, Vinci, Covestro, and, of course, wind energy developer Vestas. In fact, as more countries build offshore wind farms, cable companies (that connect those wind farms to the electric grid) such as Prysmianand Nexansshould also benefit according to Goldman Sachs.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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