Climate leadership ‘compatible with growth’ in apparel and healthcare sectors, but not materials

CDP research finds the financial realities of decarbonisation vary across business types, as Japanese firms take poll position

Research has found that companies in certain sectors have an easier time combining climate leadership with growth.

The latest annual ‘fitness check’ from environmental reporting platform CDP analysed the disclosures of more than 10,000 firms.

It concluded that those in the apparel sector that it classified as ‘climate leaders’ because they were “implementing robust environmental strategies” had seen their market capitalisation grow by 14% more than competitors who simply disclosed climate information.

The trend was also prevalent in Infrastructure and Biotech, Healthcare & Pharma.

But not all sectors have experienced the same levels of compatibility between climate leadership and financial growth

“The power generation sector has one of the highest proportions of leadership-level companies (22%), second only to financial services (26%),” CDP observed.

“But while the financial services sector has shown strong growth in market capitalisation, power companies have faced difficulties.”

The invasion of Ukraine coupled with increases in interest rates and construction costs, and flagging wholesale electricity prices, have “led to a more muted investor appetite in supporting the energy transition” in the power sector, CDP said.

In the materials sector – which the report defines as steel, cement, chemicals, wood and paper materials, metals and mining – climate leaders have struggled to outperform their competitors.

This is partly down to mounting energy prices, the high upfront costs of switching to low-carbon alternatives, and difficulties in scaling technological solutions.

Businesses in the food & beverage space, as well as those involved in manufacturing, fossil fuels and retail, were generally deemed ‘neutral’ across both climate performance and market-cap growth.

Hospitality and Transport were classified as ‘poor’ on both pillars.

Japanese companies leading

Geographically, Japanese firms were found to be leading across climate, forests and water.

“It is the only country where more than 10% of companies are leaders across all three themes,” noted CDP, with particular emphasis on the manufacturing sector.

Unsurprisingly, perhaps, companies in the US were low scorers in the analysis, along with those in Brazil.