By Thomas Kostigen
Many companies are touting their plans to become carbon neutral. AT&T, WalMart, Google, Apple and many other tech companies have recently announced their zero carbon emissions goals. And Morgan Stanley, Citigroup, and Bank of America are pledging not to finance companies that emit carbon emissions, something that will surely force even more corporations to commit to carbon neutrality.
But what does going carbon neutral really mean, and should it matter to investors? According to the World Resources Institute carbon neutrality means “annual zero net anthropogenic (human caused or influenced) CO2 emissions by a certain date. By definition, carbon neutrality means every ton of anthropogenic CO2 emitted is compensated with an equivalent amount of CO2 removed (e.g. via carbon sequestration).” Companies can achieve this status by either elimination their reliance on fossil fuels, thereby erasing their carbon footprint. Or they can trade or purchase carbon credits. Planting trees (which sequester carbon) or trading credits with organizations that produce clean energy are examples of this strategy.
Carbon neutrality is first and foremost good for the planet, of course. However, it may also be good for portfolios.
If companies can’t get proper financing because of their carbon footprint then they are at financial risk. That, in turn, can bear out in share prices causing their value to dive. BlackRock, the world’s largest asset manager, has already warned public companies that it will not invest in them if they aren’t climate friendly. That increasingly means going carbon neutral. And it isn’t just public companies that are experiencing the financial carrot and stick.
Crunchbase, the tech industry publication, observes, “If we look at hot areas for venture funding and IPOs, we see more evidence that low carbon footprints deliver returns. Investors are putting record sums into plant-based protein startups, seen as a more humane and environmentally sound alternative to meat. The first big IPO of the batch, Beyond Meat, is now worth over $9 billion. Other low-carbon sectors, including connected fitness, sustainable packaging, telemedicine and distance learning are all seeing a surge in deals. While some of that may be pandemic-related, it’s likely we’ll also see longer-term shifts.”
Recent evidence of this is Amazon’s announcement that it has invested $2 billion in five startups that focus on carbon neutrality. Amazon has pledged $10 billion to invest in companies that address climate change.
To be sure, carbon neutrality alone is no reason to invest in a company. There are fundamentals to be analyzed and traditional market prospects to be figured. A good financial advisor can help vet the good companies from the pack of those merely looking to do good.
Still, there is a global trend clearly aimed at going carbon neutral. Countries are embracing the idea, too. China, the world’s biggest carbon emitter, last week said it has a plan to become carbon neutral by 2060. The European Union last year said it hopes to be carbon neutral by 2050. Even those whose business is carbon emissions are promising carbon neutrality: Oil company BP has made the commitment.
With the world bent on curbing carbon emissions, carbon neutrality may be the new basis on which to judge and evaluate everything from companies to countries for prosperity prospects.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.