Research by Morningstar Sustainalytics has found “significant disparities” in the climate transition performance of companies and funds, with none currently aligned to a net zero pathway consistent with limiting climate change to 1.5°C. Only 17% of the 10,000 firms analysed for transition readiness and less than 3% of 60,000 active and passive investment vehicles are on a 2°C trajectory, the data and analytics provider added. However, the study, which utilised Morningstar Sustainalytics’ Low Carbon Transition Ratings, found that funds are rated as taking more effective climate action than corporates, with 30% achieving strong emissions management scores compared to 14% of companies. Morningstar Sustainalytics said funds’ better performance was due partly to their overall bias toward developed countries and large-cap firms, also noting that green bond funds had stronger emissions management scores than other strategies. Europe was reported as having the highest proportion of companies and funds managing their transition risk and emissions effectively. “Some businesses and investments will benefit from the transition, while others will be disadvantaged. Given the varying levels of climate action taken by companies and funds, investors must be discerning in their choices,” said Hortense Bioy, Head of Sustainable Investing Research at Morningstar Sustainalytics. Separately, ratings provider Sustainable Fitch has launched an expanded Transition Assessment analytical product through the development of new sector-specific methodologies covering hard-to-abate sectors such as mining, steel and cement. The assessment is an opinion on the ambition, credibility and implementation of entities’ climate transition plans in carbon-intensive sectors, aiming to help investors differentiate between companies on their progress towards net zero.
