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    Ice cubes, burning logs and the road to net zero: Episode 1

    Ice cubes, burning logs and the road to net zero: Episode 1

    Investing in the climate transition requires stepping beyond carbon-footprint analyses and gaining a clear sight of companies’ decarbonisation trajectories. By doing so, investors can judge whether businesses are transition opportunities to be captured or risks to be avoided.

    With this forward-looking view, we believe that some of the best net-zero opportunities exist among companies whose current emissions would exclude them from low-carbon strategies but, due to their action on achieving carbon-reduction targets, indicate that they are on viable decarbonisation pathways. Their potential to thrive in a world aligning to – and achieving – net zero could be underpriced by the market.

    We define these transition opportunities as ‘ice cubes’ because their progress on reducing emissions is helping to cool the economy. In direct contrast, what we define as transition risks or ‘burning logs’ are the heavy emitters with no apparent plans to decarbonise. They are doing nothing to advance the transition and will likely become casualties at or on the way to net zero.

    In the first episode of our new podcast series on ice cubes, burning logs and the road to net zero, Head of Sustainable Investment Research Strategy and Stewardship Chris Kaminker and Head of Sustainability Research Thomas Höhne talk about the impact of climate change on the economy and the investment implication of carbon-intensive industries that are engaged in decarbonisation.     

    Head of Sustainable Investment Research Strategy and Stewardship Chris Kaminker: “There is a very interesting class of companies that have high carbon footprints, but are decarbonising.

    “We call them ‘ice cubes’ because they are significantly reducing global warming and because they have the effect of cooling down the economy.”

    CIO views - feature article FI TNZ - ice-cubes.svg

    Source: LOIM

    Head of Sustainability Research Thomas Höhne: “It's taken us about 50 years to double our emissions to where we are today. Now, to achieve some of the key objectives of the Paris agreement, we have actually need to cut our emissions by approximately half within a decade.

    “So all of these emissions, all of these structural economic changes we've made over the span of 50 years, we now have to reverse in the span of only 10 years. That should tell you something about the breakneck pace at which this transition is going to need to evolve over the next few years.”

    To find out more about ice cubes, burning logs and the road to net zero, listen to the full episode below.

    Top three takeaways for investors

    •    The greatest positive impact on decarbonisation is destined to come from companies that are currently high emitters and that have the commercial need and financial resources to transition to a much lower level of emissions in the future. 
    •    Using temperature in portfolio construction or in investment management gives investors the confidence to venture into some of these higher carbon industries and sectors, and to identify those companies that are on credible decarbonisation pathways.
    •    An “ice cube” is a company that operates in a carbon-intensive sector but whose strategies and commitments may bring it into line with the climate-related objectives set out in the Paris Accord. Their potential to thrive in a world aligning to – and achieving – net zero could be underpriced by the market.

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