Karniol-Tambour_Power of Ideas Pull Quote Graphic_02 [1920x1080].jpg
Research & Insights

Investing in Climate Solutions and Climate Improvers on the Way to Net Zero

Re-published with permission from Milken Institute, the original article can be found here.

To align an investment portfolio with Net Zero — the goal of mitigating climate change by transitioning to net zero greenhouse gas emissions — it is important to first recognize that greenhouse gas emissions are highly concentrated. The publicly traded firms in 11 key emissions-intensive sectors account for about 90 percent of public company emissions and about 60 percent of all global emissions. These sectors are utilities, oil and gas, mining, construction, chemicals, engines and machinery, airlines, transportation, autos, food producers, and forestry and paper. Global decarbonization goals cannot be met without reducing emissions in these sectors (or replacing these companies with cleaner competitors). For investors’ actions to translate into real-world emissions reductions, they need to focus on the sectors that represent a large share of the problem.

There is an important role for investors to play in emissions-intensive sectors. Movement by these sectors to reduce greenhouse gas emissions could have the largest impact on real-world decarbonization, and access to capital is critical for them. The Glasgow Financial Alliance for Net Zero estimates that more than $30 trillion in investments (~4 percent global GDP annually) will be needed to finance the climate transition by 2030. This represents a meaningful increase in investment from current levels of around $10 trillion. Much of the necessary investment will need to occur in these sectors, at existing publicly traded companies or at competitors that will displace them.

How Investors Should Provide Capital

There are two ways investors with Net Zero goals should provide capital in emissions-intensive sectors:

Allocating to Climate Solutions: Climate Solutions are companies whose products and services directly support moving the global economy toward achieving climate goals. For example, utilities can contribute to the climate transition by generating power from renewables instead of fossil fuels, railroads are an energy-efficient substitute for moving goods around compared to aircraft or trucks, and construction firms can manufacture efficient insulation materials to reduce emissions from heating and cooling. These companies will play an important role in reducing some of the largest categories of greenhouse gas emissions, namely electricity and heat, transportation, and industry/construction, respectively.

Allocating to Carbon Improvers: Carbon Improvers are companies on a clear and credible pathway to reducing their emissions. Companies with the largest scope to decarbonize are those with high spot emissions today — improvements in emissions-intensive sectors are most important as their emissions need to decrease most for the world to reach Net Zero. Through both capital allocation and engagement, investors can play an important role in ensuring that more and more companies take actions to decarbonize. Carbon Improvers can decrease their emissions via changes in their production processes (e.g., an aluminum producer switching from coal to hydropower) and/or through a shift in their product mix toward climate solutions (e.g., a car company shifting to make electric vehicles).

The Role of Measuring Portfolio Emissions

Climate Solutions and Carbon Improvers can have more impact on the Net Zero transition over time — but it is likely to have higher spot-emissions metrics today compared with simply reducing allocations to emissions-intensive sectors. The majority of Climate Solutions can be found in emissions-intensive sectors, as these are the companies creating the tangible products and infrastructure that are needed for a greener, net-zero economy. For example, electric vehicles are associated with far lower downstream emissions — which is how they contribute to real-world emissions reductions — but generate roughly similar emissions to internal combustion engine vehicles during production. And the most valuable improvement plans for Carbon Improvers are in companies that start out with high emissions, such that it’s valuable to reduce them.

If Climate Solutions providers and Carbon Improvers are successful in their missions, they will see falling emissions over time while having a tangible impact on real-world decarbonization. Providing capital to companies that meet these criteria aligns investors’ portfolios with the Net Zero transition.

Please see important disclaimers and other information. Information contained herein is only current as of the publish date and is intended only to provide the observations and views of Bridgewater Associates, LP (“Bridgewater”) as of the date of publication unless otherwise indicated. The views expressed herein are solely those of Bridgewater and are subject to change without notice. Every investment involves risk and in volatile or uncertain market conditions, significant variations in the value or return on that investment may occur, including the risk of a complete loss of an investor’s entire investment. Past performance is not a guide to future performance.

Stay Informed
Sign up to receive our latest research on the forces shaping global economies and markets.
You're almost finished.
You will receive an email confirmation shortly.
There's been an error. Please start over and try again.
Stay Informed
Sign up to receive our latest research on the forces shaping global economies and markets.

Disclaimer & Agreement

Bridgewater Associates, LP is a global investment management firm. Bridgewater Associates, LP advises certain private investment funds and institutional clients, and is not available to provide investment advisory or similar services to most other investors. This website is a resource for audiences other than investors such as potential employees, researchers, students, counterparties and industry participants. Bridgewater Associates, LP believes it is useful for such persons to have an accurate source of relevant information. Under no circumstances should any information presented on this website be construed as an offer to sell, or solicitation of any offer to purchase, any securities or other investments. This website does not contain the information that an investor should consider or evaluate to make a potential investment. Offering materials relating to investments in entities managed by Bridgewater Associates, LP are not available to the general public.

To view this content, you must agree to the following terms, in addition to and supplementing the Bridgewater Terms of Use and Privacy Policy:

I confirm to Bridgewater Associates, LP and agree that:
  • I am entering this website only to obtain general information regarding Bridgewater Associates, LP and not for any other purpose.
  • I understand that investments managed by Bridgewater Associates, LP are not available to the general public.
  • I understand that this website does not contain the information I would need to consider for an investment, and that such information is only available to a limited group of persons and institutions meeting specified criteria.
  • I understand that this website has not been reviewed or approved by, filed with, or otherwise furnished to any governmental or similar authority, and is intended only to provide limited information to members of the public who have a legitimate interest in that information for reasons unrelated to making investments.
  • I understand that when Bridgewater Associates, LP makes third party information available, Bridgewater generally will not have verified statements made by the third party, and the presentation of information may omit important information.
  • I understand that third party materials such as live interviews made available by Bridgewater Associates, LP generally will not have been edited by Bridgewater and statements in those materials by individuals associated with Bridgewater should be understood in the conversational context in which they were made, which may include providing historical background.
  • The content constitutes the proprietary intellectual property of Bridgewater or its licensors and that I will not directly or indirectly copy, modify, recast, create derivative works, post, publish, display, redistribute, disclose, or make available the content, in whole or in part, to any third parties, or assist others to do the same, or otherwise make any commercial use of the content without the prior written consent of Bridgewater.

By registering my information below and clicking "Agree," I certify that I have read, understand and agree to the foregoing Disclaimer, Terms of Use and Privacy Policy.
This website uses cookies. Click here for additional details. By continuing to use this website, you consent to the use of cookies.

Internet Explorer is not supported by this website.

For optimal browsing we recommend using Chrome, Safari, or Firefox.