Emissions-Cutting Equities Seen Suffering as Investors Adopt Broad Green Themes Under EU ‘Taxonomy’

ANALYSIS SUMMARY

By Mathew Carr

Sept. 10, 2021 — Companies focussed on cutting emissions of greenhouse gas may have their support eroded in stock markets as investors adopt competing “green themes”, according to Morgan Stanley analysts.

The European Commission’s Platform on Sustainable Finance last month proposed four additional green criteria.

(3) Sustainable Use and Protection of Water and Marine Resources;

(4) Transition to a Circular Economy;

(5) Pollution Prevention and Control; and

(6) Protection and Restoration of Biodiversity and Ecosystems.

The initial two were:

(1) Climate Change Mitigation

(2) Climate Change Adaptation

The plan for the additional EU taxonomy sustainable finance criteria represents a first draft of what could be adopted by the EU
Commission for both corporate and investor disclosure.

Here are some of the implications, according to Morgan Stanley:

Morgan Stanley Research Sept. 10, 2021

So one of the implications is some of the stocks focussed on cutting emissions may lose some market support as investors switch to companies focussed on the four new themes.

As the bank indicates, this could be a temporary “re-rating”.

Yet, the industries impacted make a long list:

While anything that takes away from the urgent climate flight might be seen initially as a bad thing. In this case it’s not, really.

It’s still bad if we have air clogged with particulates, even if temperatures are lower. All environmental problems need to be addressed simultaneously — that’s what the EU is trying to do.

Having green themes compete against each other will potentially be brilliant as it gives investors options — even if the system being developed is perhaps too complex and potentially too prescriptive.

A couple more important things to keep in mind:

The environment and sustainability has been a hot investment theme:

And there’s still more than a year of debate to come:

NOTES

Platform: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/overview-sustainable-finance/platform-sustainable-finance_en

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