Global leaders are racing to meet long-term climate goals for net-zero carbon emissions by 2050. Getting there will require companies and investors to play their part in flighting climate change.
Which companies are providing solutions and are committed to sustainability? A new report from
Citi
Research identifies stocks that screen well on the firm’s climate credentials, including eight U.S. companies.
“Decarbonization sits firmly at the top of the sustainability agenda,” the authors said. “As governments and policy makers increasingly work toward mitigating and adapting to climate change, companies are under increasing pressure to decarbonize in order to align their business models with a low-carbon economy.”
In 2021, President Joe Biden put the U.S. on a path to a decarbonized economy, with the goal of reaching net-zero emissions by 2050. In an executive order, the White House said the U.S. will “lead by example in tackling the climate crisis.” And the 2022 Inflation Reduction Act, or IRA—the biggest package of climate investments in U.S. history—directs new federal spending toward reducing carbon emissions.
The authors said the urgency of climate change exposes investors to transitional risk—companies that don’t transition to a low-carbon economy could end up with so-called stranded assets—and physical risk, as the frequency of climate events raises the probability of disruption to physical assets and supply chains.
But companies that are making an effort to align with a low-carbon economy by offering solutions could come out ahead.
To make the list, companies had to meet Cit’s climate criteria in the areas of climate mitigation—providing solutions to reduce emissions or the plastic problem, for example—or climate adaptation—providing technology such as imaging equipment and drones, or creating climate-resilient seeds. The climate criteria also screened for a commitment to science-based targets and excluded companies that didn’t map to themes related to water, the circular economy, pollution, or biodiversity.
Companies were also assessed on their overall sustainability based on their Truvalue Labs’ environmental, social, and governance, or ESG, rating, which Citi said was a proxy for a company’s sustainability efforts.
Citi sorted companies into three groups: those leading on climate and leading on sustainability overall; those leading on climate but rated lower on their overall sustainability efforts as reflected in their ESG scores; and those leading on climate and making the fastest progress in their sustainability efforts.
Eight U.S. companies make the cut. Here’s a look at which stocks screened well on Citi’s climate credentials.
The first group skews toward the industrials and materials sectors and includes companies that are in the top quintile of the overall ESG score distribution, which demonstrates an overall commitment to ESG sustainability, the authors said.
U.S. companies in this group include aluminum-can maker Ball (ticker: BALL), best known for making aluminum packaging for drinks, such as cans and cups;
Crown Holdings
(CCK); a big player in the packaging business—producing aluminum cans, glass bottles, and other odds and ends;
Eaton
(ETN), which makes a range of products such as electric components, brakes, and cylinders; and
Ecolab
(ECL), provider of water-treatment, hygiene, and infection-prevention goods and services.
Citi has a Neutral rating on Ball and a Buy rating on Crown and Eaton but doesn’t cover Ecolab.
Companies in the second group pass Citi’s climate criteria but have average and below average ESG ratings. These stocks “may not be well aligned to all three E, S and G pillars but are demonstrating strong commitments to their climate sustainability credentials,” the authors said.
Three U.S. companies made this list:
Salesforce
(CRM), the cloud-based enterprise software provider;
ServiceNow
(NOW), the enterprise workflow software company; and
Workday
(WDAY), the leader in cloud-based human-resources software. Citi has a Buy rating on ServiceNow and a Neutral rating on Salesforce and Workday.
The third group screened well on their climate credentials and have momentum in their ESG ratings. The authors said ESG ratings are a great starting point but shouldn’t be used in isolation. “We believe they should be applied in conjunction with in-depth analysis of key climate metrics and effective company engagement,” the report said. “In particular, the momentum of a firm’s ESG rating can be equally, if not more, indicative.”
Crown, which Citi rates Buy, also made it into this group, as did sportswear company
Nike
(NKE), which Citi rates Neutral.
Write to Lauren Foster at lauren.foster@barrons.com
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