As we mark another annual Earth Day around the world, unfortunately less than 10% of the over 8,000 companies assessed globally by Morningstar Sustainalytics Low Carbon Transition Ratings (LCTR) consistently implement best practices. However, bright spots do exist, and a handful of companies are leading by example. In its most recent report based on its Low Carbon Transition Ratings (LCTR), Morningstar Sustainalytics identified six best practices followed by industries leading the low carbon transition.

Pustav Joshi – Associate Director, Climate Research, Morningstar Sustainalytics:

“Companies that consistently employ most of the low carbon transition best practices comprise less than 10% of the companies we currently assess and are concentrated in just a handful of global industries. It is extremely important for all companies, particularly those in the highest carbon emitting industries, to reflect on these best practices and begin to take action to address their exposure to climate risks. And while this may seem to be a complex global problem, the six best practices are actually quite simple.”

One: Set GHG Targets. Just over 20% of LCTR companies assessed by Morningstar Sustainalytics have set some kind of GHG (greenhouse gas) emissions reduction target. Top industry percentages include containers and packaging (46%), paper and forestry (41%) and household products (39%).

Two: Connect Executive Pay to GHG Targets. Only 8% of companies across the entire LCTR universe have a disclosure link between performance against GHG targets and executive pay. Financial incentives for management must be linked to all aspects of business performance.

Three: Use Carbon Pricing. Companies which use carbon pricing to make business decisions today will be well prepared for when future regulations such as a carbon tax or cap and trade market mechanisms may require it.

Four: Have a Sustainable Financing Strategy. Just 10% of companies assessed have issued green bonds or loans to raise green capital to finance sustainable projects.

Five: Leverage Technology. Smart companies use emerging tools like waste heat recovery and utilization and smart technology for energy savings. Green hydrogen and carbon capture, utilization and storage technologies are also popular among oil and gas producers.

Six: Track Supply Chain Emissions. Only 8% of companies assessed engage their supplies to set and report on GHG reduction targets and, amazingly, only 2% of companies require their suppliers to engage with their own suppliers on emission reductions. Scope 3 emissions testing can make a big difference in industries with large and complex supply chains.

To speak in more detail with Pustav Joshi, contact Tim Benedict at [email protected] or (203) 339-1912.