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The Net Zero Club

Published on 04/02/2021

In an age where it’s a necessity to get groceries, clothing and everything in between, delivered contactlessly directly to our doors, it can have a negative impact on the climate. There are more deliveries on the road, more plastic and cardboard packaging, our goods are travelling further than many of us have been in almost a year. So, what are companies doing to reduce their impact on the climate, and is this affecting the stock market?

Missed our previous ESG focussed articles? You can find them here.

There are plenty of companies introducing eco-friendly ranges in their repertoire, but the next level some are going to is by pledging carbon neutrality and carbon negativity. There are over 630,000 publicly traded companies in the world, and of these, a large portion are stepping up and setting goals to become carbon neutral and even carbon negative.

But what is carbon neutral or negative? And what has this done to stock prices?

A carbon-neutral product or company is one that is removing the same amount of carbon dioxide it’s emitting to achieve net-zero carbon emissions. They do this by purchasing carbon offsets, or credits, to make up the difference. Carbon offset schemes give companies the ability to invest in environmental projects around the world, usually based in developing countries, in order to balance out their footprints. Individual consumers can also buy these credits should they wish to offset any environmentally impactful activity, like their holidays abroad.

Big names like Apple and Siemens have pledged carbon neutrality by 2030. Jeff Bezos, (soon to be former) CEO of Amazon has pledged carbon neutrality for the company by 2040, and Ford Motor Company has pledged to be carbon neutral by 2050.

Last year China pledged carbon neutrality by 2060, which is pretty wild considering that since 2011 they have been burning more coal than the rest of the world combined. The large scale investment required to hit this target is said to raise China’s GDP by as much as 5% later this decade, as well as cut global warming by as much as 0.25C. China follows more than 20 countries and regions around the world, mainly in Europe who have pledged carbon neutrality between 2035 and 2050. Bhutan is currently the only carbon negative country in the world.

A carbon negative (or climate positive) company (or country) removes more carbon from the atmosphere than it releases. This is the next step beyond carbon neutrality, one used to spectacular effect by Brooklyn based spirits company called Air Co. They source waste gases from manufacturing plants and ethanol factories which are then liquefied and transported to the company’s distillery, where it’s converted to alcohol.

Top hitters like Microsoft and Intuit have pledged to be carbon negative by 2030.

There is growing evidence to suggest that working towards a carbon-neutral or negative goal can help boost a company's share price. A report from the Carbon Disclosure Project (CPD) found a correlation between companies reducing carbon emissions and an increase in their stock prices. Whilst implementing carbon-neutral initiatives may be costly, in the long run, it has shown to be beneficial both for the company and the environment. Sounds like a win, win really.

Backing this up, in 2018 a study by the University of Waterloo in Canada showed that companies that fail to curb their carbon emissions are likely to see their stock prices depreciate and their assets devalued as a consequence. According to this study, in as little as eight years from now, we could see climate change directly impacting the markets via physical risk to infrastructure increasing equity holding risk, especially in climate-sensitive regions, and indirectly through more stringent environmental regulations.

So whether ESG is high on your agenda or not, it looks as though we’re heading towards a carbon neutral crescendo in the coming years. That’s why here at Upside, we’ve included an ESG option when developing investment ideas and portfolios. We know that choice is important when it comes to investing.

There's a science to measuring carbon, and a science to being right.

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