investment viewpoints

Finding net-zero accelerators in the utilities sector

Finding net-zero accelerators in the utilities sector
Ashton Parker - Head of Credit Research

Ashton Parker

Head of Credit Research

The path to decarbonisation will be led by companies with credible plans to reach net-zero carbon emissions, but it also risks being strewn with companies that failed to react in a timely manner. How can investors spot the opportunities and future-proof their portfolios?

At LOIM, we have prioritised building carbon expertise to evaluate the trajectory of companies on the way to net zero. Our approach uses a science-based, forward-looking methodology because future decarbonisation relies on companies setting (and meeting) targets to align with the goals of the Paris Agreement, and eventually eradicating emissions by 2050.

We see opportunities across all sectors of the economy – including high-emissions industries. This recognises that the greatest positive impact on decarbonisation will come from companies that are currently high emitters but have the commercial need and financial resources to transition to much lower emissions in the future. Other approaches relying on simple exclusions fail to take this into account, and miss key opportunities to fund the transition.

Decarbonisation requires firms to change their business models in transformations that are largely financed through debt markets. As such, fixed income investors can play a crucial role in backing the transition.

Our target net zero strategy in fixed income focuses on finding ‘ice cubes’: borrowers with defined carbon-reduction strategies that help to ‘cool’ the economy over time. What’s the case for multinational utility, Enel1?

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1 Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or securities. It should not be assumed that the recommendations made in the future will be profitable or will equal the performance of the securities discussed in this document.

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