The climate change transition offers opportunities for investors through companies that are providing solutions to other companies in this space, helping the economy to reduce climate-related risks. These include energy, agricultural, industrial and building solutions among many others.
However, investing in higher carbon emitters, such as more traditional fossil fuel-based energy producing companies should not be ruled out, as excluding such stocks is counterproductive for achieving future zero carbon emission gains, argues Alliance Trust.
The company is committed to a target of net zero greenhouse gas emissions by 2050 and to halving them by 2030 but believes that it is wrong to punish industries or countries facing the biggest hurdles in moving to a low-carbon world.
Mark Atkinson, head of marketing and investor relations at Alliance Trust says: “Starving such companies of funding at a time when they most need it, may be more harmful to a successful shift to a low-carbon economy.
“Avoiding investing in certain industries and companies entirely or selling out of existing investments in companies whose activities harm the climate, are options. But this may not bring us closer to a more resilient economy, or benefit wider society, so we use those options sparingly.
“Although their carbon footprint might be significant now, we believe many of these companies are also part of the solution, not only because they have plans to align their carbon reduction trajectory with the Paris Agreement, but also through researching and investing in alternative energy sources and carbon capture technology.”
A case for exclusion for the Company is firms making a significant amount of money from activities likely to be phased out in the net zero world, eg thermal coal and tar sands are major sources of greenhouse gas emissions and highly pollutive and environmentally damaging.
“Our sense of what business activities we must exclude, will evolve,” says Atkinson.
“However, we generally prefer engagement over exclusions. Having candid but productive discussions with companies on their climate impact is likely to be more effective in decarbonising the global economy than exclusions.”
Positive solution stocks include Bureau Veritas, Schneider Electric, Kubota Corporation and ANDRITZ.
Bureau Veritas is a global leader in the provision of carbon and energy consultancy, verification, and certification services. Its team of experts support the development of bespoke energy and carbon management strategies to set objectives, targets, and management plans, helping companies in their decarbonisation journey.
Schneider Electric SE is a French multinational company providing energy and automation digital solutions for efficiency and sustainability. It addresses homes, buildings, data centres, infrastructure, and industries, by combining energy technologies, real-time automation, software, and services.
It was ranked the world’s most sustainable corporation by Corporate Knights in 2021.1 It helps customers reduce their carbon footprints via products and software tools that optimise energy management and industrial processes.
Kubota Corporation is a Japanese multinational corporation focused on the manufacturing of a wide range of products and technologies to provide solutions in the areas of food, water, and the environment.
This includes agricultural machinery, construction equipment, engines, pumps and equipment for water purification, sewage treatment and air conditioning. The company offers smart agriculture products, to enhance crop yield, as well as water solutions including water treatment systems, from water purification, sewage purification and wastewater treatment.
Finally, ANDRITZ is an international technology group providing plants, systems, equipment, and services for various industries. ANDRITZ Hydro is a global supplier of electromechanical systems and services (‘from water-to-wire’) for hydropower plants and one of the leaders in the world market for hydraulic power generation.
ANDRITZ offers technologies for producing steam and electricity from renewable fuels as well as the efficient use of traditional fossil fuels.
Fossil-fuel based investments include BP in the UK, Exxon Mobil in the US and Petroleo Brasileiros in Brazil.
