How should LGPS investors engage with companies where carbon emissions are intrinsically high? MFS Investment Management sheds some light with a case study of Anglo-German gas giant Linde.
While many LGPS Pools now have net zero targets in place, they continue to face the challenge of balancing a carbon reduction of their portfolios with delivering real world impact.
A case in point is the German gas firm Linde, which moved its headquarters to the UK in 2018 and is a FTSE100 constituent.
Industrial gas manufacturers have a reputation of being among the largest emitters of CO2. Hence, due to the nature of the sector within which it operates, Linde is a company with a relatively large carbon footprint.
But MFS believes that LGPS investors need to look beyond the analysis of Scope 1 and Scope 2 carbon emissions data and adopt a system wide perspective on emissions data accounting
MFS Investment Management has been engaging closely with Linde to monitor the firm’s contributions to reducing emissions along its value chain. Despite the firm’s high carbon footprint, it offers a case study for incorporating Scope 3 carbon data into investment analysis and the power of active ownership.
There’s more than one side to carbon Emissions Data
Linde is one of the oldest and largest industrial gas manufacturers, with business operations spanning gas, engineering, procurement and construction. As the industrial gas industry ranks among the world’s largest emitters of CO2, there is a risk that by looking solely at standard data, investors could miss some of the positive underlying environmental attributes of the company.
For example, in 2021, Linde emitted 39.9m metric tons of CO2, but that is not the whole story. During MFS’s engagements with the company, the manager was reminded by management of the role that Linde’s products play in the overall economy. Overall, its products and technologies helped keep 88m metric tons of carbon emissions from being released into the atmosphere by other players along the value chain. In MFS’s view, these avoided emissions are relevant in their valuation of Linde, particularly as they examine the company’s long-term success in the context of the transition to net zero.
The full case study can be accessed here.
FOR INSTITUTIONAL USE ONLY
Note to UK readers: Issued in the UK by MFS International (U.K.) Limited (“MIL UK”), a private limited company registered in England and Wales with the company number 03062718, and authorised and regulated in the conduct of investment business by the UK Financial Conduct Authority. MIL UK, an indirect subsidiary of MFS®, has its registered office at One Carter Lane, London, EC4V 5ER.
The views expressed are those of MFS and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product
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