The prospect of a shrinking equity universe
The number of companies aligned with a world that limits temperature rise to 1.5°C could shrink as the reductions needed to reach net-zero emissions grow steeper with each passing year. That could leave investors struggling to find companies to invest in.
- Implementing net-zero portfolios in practice
- Highlights from Climate Week NYC 2021
- The prospect of a shrinking equity universe
- How climate indexes can support a net-zero strategy
- Examining climate risk over varying time horizons
- An analytical framework for a net-zero journey
- Preparing for action across your organization
- “Net-Zero Now” is a call to action for capital
Companies are short of the mark
The number of companies aligned with a 1.5°C world could become increasingly limited as the reductions needed to reach net-zero emissions grow steeper with each passing year, according to MSCI.
Ninety percent of the world’s publicly listed companies were not on track to reduce their emissions for keeping global warming to 1.5°C, as of Sept. 8, 2021.
To keep warming at 1.5°C, every publicly listed company would need to reduce its carbon intensity by an average of 10% every year until 2050.
Historically fewer than one in four companies have managed to reduce their emissions by that much.
There is a limit to how much investors can shift their capital if 90% of companies run “too hot,” meaning that their emissions trajectories would take us to a world beyond a 1.5 rise in temperature.
Societal action required
No action. Business as usual scenario.
Portfolio construction challenge
Option 1: Decarbonize
Option 2: Rebalance
Option 3: Divest/Invest
Source: MSCI ESG Research, as of Nov.30, 2020
Honey I Shrunk the Equity Universe. An interactive exhibit that shows how different climate scenarios might impact equity investment opportunities.