Stock market's CO2 footprint is bigger than thought, report says

Corporations and their investors are under mounting pressure to reduce their carbon footprint.
Corporations and their investors are under mounting pressure to reduce their carbon footprint.PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Publicly traded companies are responsible for roughly twice as much carbon dioxide (CO2) as previously estimated, underscoring the need for shareholder activism in the fight against global warming, according to a study by Generation Investment Management.

The firm, co-founded by former United States vice-president Al Gore, estimates that listed companies are responsible for 40 per cent of all climate-warming emissions. It reached that conclusion by looking beyond a corporation's own carbon footprint, known as Scope 1, and including customer emissions, known as Scope 3.

The research, which was published on Monday (Oct 11), "highlights the importance of capital allocation choices and meaningful portfolio engagement if we are to be successful in delivering a net-zero world by 2050,", said Generation Investment Management co-chief investment officer Miguel Nogales.

"If the world needs to get to net-zero by 2050, the ambition for public companies overall should be 2040 at the latest - and they must focus on de-carbonisation in the near term."

Corporations and their investors are under mounting pressure to reduce their carbon footprint as scientists warn the planet is overheating at a far more dangerous pace than previously feared.

The urgent need for more ambitious climate policies will be addressed by world leaders at the upcoming COP26 summit in Glasgow, Scotland, where the goal will be to agree on measurable targets to prevent a catastrophic rise in temperatures.

Generation Investment Management's response to the climate crisis has been to blacklist all fossil-fuel stocks, which it has done for over a decade. Co-founder and former Goldman Sachs Asset Management executive David Blood said in a recent interview that global capital markets only have about five years left to deliver meaningful action in the fight against climate change, before it is too late.

Nogales said the firm's analysis "suggests that the collective importance of over 10,000 listed companies globally has been underplayed".

He also said that done properly, climate-friendly investor activism can "unleash untold potential for innovation and collaboration".

Ms Claire Elsdon, joint global director of capital markets at CDP, a non-profit dedicated to getting companies to improve their climate-related disclosures, said the Generation Investment Management report shows that "investor engagement is critical" in steering companies toward net-zero emissions.

She said that now, "more than ever", companies need to provide transparent data.

That means following standards set by the Task Force on Climate-Related Financial Disclosures, and adhering to science-based targets, she said.

"The tide is turning against companies not taking note of investor demands," Ms Elsdon said.