The most important change will be transforming the global economy from one using predominantly fossil fuels to one using various forms of renewable energy, which will require an investment of some $5 trillion annually through 2030, which is double current rates, and then falling to $4.5 trillion annually through 2050.
To score sectors and companies on their capacity to embrace the challenges of the net-zero pledge, Columbia Threadneedle analysts looked at two primary areas—compliance or regulatory costs, and the earnings, risks and opportunities associated with decarbonization—and six metrics: carbon cost as a percentage of revenue; how easily a carbon cost can be passed onto customers; any other emissions taxes or credits; impact to existing revenue; new earnings sources; and decarbonization costs, said Meg O’Connor, a senior equity analyst at the firm..
“Our sector experts analyzed the impact of net-zero commitments on the securities that they covered. They also assessed valuation impact, and existence of a net-zero target at the company level,” she said, adding that the spotlight was thrown on more than 2,000 companies in the U.S. and in the European Union, and across equities, investment-grade debt and high-yield debt.
Analysis showed that 53% of companies would not be all that impacted by a net-zero transition, and 16%, including utilities, communications and financials, would gain from the shift. But 31% would take a real hit, and those included consumer staples, consumer discretionary, industrials, real estate, materials (especially chemicals, and metals and mining), and all traditional oil and gas companies.
“We are very, very excited for the opportunities that we can see. Some of these will be solutions at the industry level, where companies are going to come up with new products and new ideas,” Mergen said. “This is definitely a long-term journey, and we keep our eyes on the long-term trends. But for our clients, we need to translate this to their portfolio outcomes and their expectations about their goals, and how we’re going to meet those goals by managing their money.”