Resist Doomism: How Investors Can Address Climate Risks Here and Now

Our
analysis
of
6,500+
companies shows
that
90%
of
the
largest
public
companies
that
we
assessed
are
significantly
misaligned
to
a
1.5-degree
future.
In
fact,
in
aggregate,
they represent
an
emissions
pathway
to
a
3-degree
temperature
rise
by
the
end
of
the
century.

So
here’s
where
I
tell
you
to
resist
succumbing
to
doomism,
as
my
colleague
Hortense
Bioy

has
said,
because
it
diverts
action.
There
has
been
progress,
even
if
it
doesn’t
always
feel
like
it.
Remember,
we
were
once
on
track
for
a
4-degree
temperature
rise!
So
the
point
is
not
whether
the
ambition
is
achievable,
it’s
that
the
train
has
left
the
station.
Investors
who
treat
climate
transition
risks
as
investment
risks
and
adaptation
opportunities
as
investment
opportunities
are
accounting
for
that
reality.

Climate
risks
aren’t
new,
even
if
the
past
year’s
extreme
heat,
forest
fires,
and
floods
around
the
world
put
them
under
a
more
personal
spotlight.
What
is
new
is
that
the
tools
for
an
investor
to
act
have
meaningfully
matured. To
that
end,
here
are
three
things
you
can
do
right
now
to
consider
the
role
of
the
climate
in
your
investments:

First,
look
beyond
stated
commitments
to
hold
companies
accountable
for
transparency
of
data
and
action.

The
data
that
tracks
components
like
decarbonization
is
getting
better,
cleaner,
and
more
accessible.
As
an
investor,
you
deserve
transparency
into
a
company’s
climate
risks…
and
how
future
climate
scenarios
could
create
opportunities.
The
more
a
company
discloses
and
the
more
standardization
the
world
adopts,
the
better
we’ll
be
able
to
serve
you
as
an
investor
with
ratings
and
insights
that
make
climate-aware
investing
even
more
actionable.

Second,
diversify
your
portfolio
by
seeking
investments
in
companies
with
lower
climate
transition
risk
exposure.

As
the
transition
accelerates,
companies
that
don’t
aggressively
transform
themselves
may
find
access
to
capital
and
insurance
reduced,
because
onetime
partners
may
deem
them
too
risky.

Our
Low
Carbon
Transition
Ratings
provide
investors
with
multiple
signals
to
assess
how
well
a
company
is
prepared
to
reduce
its
carbon
emissions.
The
main
signal
is
what
we
call
the
“implied
temperature
rating,”
or
ITR
for
short,
which
expresses
as
a
temperature
how
aligned
a
company
is
to
a
1.5-degree
net-zero
pathway
by
2050.
A
company’s
ITR
signals
how
much
the
Earth
would
warm
if
all
companies
in
the
world
exceeded
their
carbon
budget
to
the
same
degree.
The
ITR
is
driven
by
projections
of
a
company’s
carbon
emissions
paired
with
a
deep
dive
into
the
actions
a
company
is
taking
to
transform
its
business
and
meet
net-zero
commitments.
In
short,
it
tells
you
whether
a
company
is
putting
the
pedal
to
the
metal.
The
strongest
management
scores,
for
instance,
are
found
in
telecom
services,
automobiles,
household
products,
utilities,
containers,
and
packaging.

Finally,
consider
how
your
portfolio
would
adapt
to
diverging
climate
outcomes.

My
colleague
Adam
Fleck
often

points
out

that
it’s
important
to
differentiate
between
the
world
we
want
and
the
world
as
it
might
be.
Even
as
the
world
works
to
mitigate,
the
climate
is
changing
and
we
will
have
to
adapt.
The
same
Morningstar
ratings
you’d
use
to
account
for
a
1.5-degree
future
point
you
to
companies
reasonably
prepared
and—reasonably
priced—in
a
2.0-degree
scenario.
If
we
assume
a
future
with
more
frequent
and
more
intense
weather
events,
we
can
apply
our
Physical
Climate
Risk
Metrics
to
examine
pertinent
risks
across
time
horizons
to
physical
assets
and
compare
exposure
against
a
company’s
peers.

Of
course,
there’s
plenty
of
work
ahead—particularly
on
measuring
and
abating
Scope
3
emissions—but
the
focus
of

Morningstar’s
climate
capability

will
remain
helping
investors
in
the
here
and
now
practically
address
tangible
climate
risks
in
their
portfolio.
That’s
an
actionable
reality
that
has
arrived.

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