BMO Nesbitt Burns analyst Doug Morrow has released a new ‘climate opportunities screen’ for stocks that contribute to addressing climate change. The intended benefit for investors lies in Mr. Morrow’s contention that climate change will soon become a central determinant of stock valuations – climate friendly companies will be valued at a premium over those more harmful to the environment.
The analyst is convinced that the negative effects of climate change are already apparent. He estimates that the global incidence of extreme weather events has increased by a factor of six since 1970. He also cited a Swiss Re study concluding that insurance-related losses from climate change have jumped four times since 1990.
The stock screen begins with the 432 stocks ranked outperform at BMO and then assesses management for factors like policies for net-zero emissions, full disclosure of existing carbon emissions, and board oversite of climate-related targets.
The 99 companies that made it through this stage were then analyzed for the successful reduction of greenhouse gas emissions in the past three years, and had a strong policy for further reductions by 2030 or earlier. Stocks that made it through have carbon emissions in the lowest quartile relative to their peer group.
The list was cut to 47 stocks ahead of stage three, which incorporates Bloomberg’s rating scale of physical climate risk. Bloomberg’s scoring methodology includes not only emissions but also effects of operations on soil, energy use, supplier compliance with emissions guidelines and waste and water management.
The fourth broad stage assessed the remaining 35 companies for potential earnings upside from global decarbonization efforts. Stocks making it through included producers of critical material for renewable power, smart grid expertise, energy transition finance, and developers of sustainable packaging.
There are 26 survivors of Mr. Morrow’s screen. These are, in alphabetical order, Adobe Systems, AstraZeneca, Avery Dennison, Ваker Hughes Co., ВНР, Brookfield Renewable Раrtners, ВXР, Canadian Imperial Bank of Commerce, Equinix, Federal Realty Investment (FRI), Freeport-McMoRan, Magna International, Microsoft, Moody’s Corp., National Bank of Canada, Pfizer, Prologis, Regency Centers, salesforce.com, ServiceNow, SLB, Stantec, TransAlta, Vale S.A., Wheaton Precious Metals and WSP Global.
If you’re curious why CIBC, one of Canada’s Big Five banks made the list, it’s primarily because they have targets for lowering emissions, including third party verification. Also have climate expertise on its board of directors.
-- Scott Barlow, Globe and Mail market strategist
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The Rundown
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Tuesday’s analyst upgrades and downgrades
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Compiled by Globe Investor Staff