Is ESG a threat to FTSE 100 businesses?
Alan Dobbie, co-manager of Rathbone Income, gives his view on whether ESG is a threat to FTSE 100 companies.
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So, there’s a view out there that the UK market is full of old economy, ESG laggards, companies that are going to find themselves on the wrong side of history as we transition to net zero. And while it’s certainly true that carbon intensive industries like energy and mining make up a big part of the FTSE, we think this should be seen as more of an opportunity than a threat. That’s because there’s been a change in the discussion around ESG, particularly the path to net zero over recent years.
While it is still vital that we continue to invest in new green technologies, much of the heavy lifting of decarbonisation has to be done by the carbon-intensive industries. We can’t just ignore sectors that are vital to the global economy, like energy, mining, steel, cement, and hope that the problem goes away. We get to net zero by working constructively with these businesses, holding them to account, but also helping them to transition. And there’s a real opportunity within the UK market to invest in these carbon improver businesses, those that are making dramatic improvements to their Scope 1, 2 and 3 emissions.
One example of this type of business we own in our fund is DCC [Plc]. Historically, this company was involved in distributing heating oil and LPG cylinders to homes and businesses not connected to the grid. So, it’s an essential but very carbon-heavy business. Over recent years, the company has taken a number of significant but measured steps to decarbonise their model. They now work proactively with their customers to help them reduce their emissions. So, that could involve switching them from heating oil to BioLPG or installing solar panels or heat pumps. And importantly, the company aim to make this transition profitably. They have an ambitious target to double profits whilst halving their Scope 1, 2 and 3 emissions by 2030. So, hopefully it’ll be a win-win for both the planet and shareholders.
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