Utilities With High Carbon Emissions Intensity: Investment or Gamble?

Climate risks have often been positioned as major unfunded liabilities, particularly in the utilities sector. In the financial services community, BlackRock made a big splash with news about increasing putting additional pressure on companies to commit to address climate-related business risk and net zero emissions. In the past, JUST Capital has looked at how GHG intensity – the amount of GHG emissions per dollar of revenue – relates to performance on the stock market. Our analysis found that the top quintile of each industry outperformed the bottom one by almost 25% over the trailing year. This week, the JUST team is turning to this topic once again, this time focusing on the  utility sector.

With the social and political pendulum swinging towards accelerated decarbonization, utilities that emit a comparatively high amount of carbon may be challenged by stranded assets and/or potentially high costs to upgrade equipment. In addition to this, we found that companies with lower emissions intensity also hold less financial leverage:

While financial leverage can improve earnings significantly, it also increases downside risks that a company – and thus ultimately the company’s shareholders – face. In the context presented here, companies in the utility sector with high carbon emissions intensity would appear to be gradually taking on higher risk. If you are interested in supporting our mission, we are happy to discuss data needs, index licensing, and other ways we can partner. Please reach out to our Director of Business Development, Charlie Mahoney, at cmahoney@justcapital.com to discuss how we can create a more JUST economy together.