Which companies are using the climate transition to improve their competitiveness?
Our climate transition leaders’ research from Morningstar Sustainalytics aims to identify front-runners in this space, adding clarity and rigor while empowering investors to make better investing decisions. Our inaugural list of 21 climate transition leaders looks at a wide spectrum of sectors, including companies such as Johnson & Johnson JNJ, Air Liquide, Enel SpA ENEL, and Pernod Richard RI. You can see the full list here. Below, we’ve also identified which ones look undervalued.
Understanding climate risks and how different sectors and companies are making changes to adapt is critical for investors. Too often, though, companies don’t set actionable targets, leaving climate risks and opportunities to a future generation of CEOs to resolve. The most forward-looking executives and CEOs are seeking to improve their competitive position in order to mitigate risks and protect the durability of their firm’s cash flow. For many companies, the cost of inaction is steep and could even threaten their survival. The opportunities are similarly large with governments and corporations who are committing massive sums to decarbonization efforts.
How We Found Our Climate Transition Leaders
Sustainalytics has created a unique set of standards to identify the most impressive companies. We want to differentiate clearly between companies that lead versus ones that make a perfunctory or symbolic effort only. Our screening criteria consider efforts toward emissions reductions, the existence of rigorous targets, and good climate governance.
Explicit parameters include the following data points from Morningstar Sustainalytics’ research products: Low Carbon Transition Rating scores of 55 or greater; a Carbon Intensity Trend indicator score of 50 or higher; and a Controversy event level rating of Category 3 or below. We also screened for companies in the Low Carbon Transition Leaders Index. These measures ensure that our climate leaders are setting ambitious targets and continuously making progress against them, that they have already achieved a substantial reduction in greenhouse gas emissions intensity in recent years, and they are not involved in significant controversies related to transition risks. Sustainalytics’ inaugural list comprises 21 climate transition leaders, and we intend to revisit this list annually. What distinguishes a company as a leader in the low-carbon transition? While each company is unique, and every global sector carries its own nuances, there are common dimensions that help identify leaders across sectors. It is essential to take a holistic view.
Investors should consider the following key questions to identify leaders:
- Does the company recognize transition risks in its value chain while maintaining integrity in its reporting?
- What concrete actions is the company taking to mitigate these risks?
- What are the measurable effects in both the short and long…
Read More: 5 Undervalued Stocks That Are Climate Transition Leaders
