Morgan Stanley: These global stocks will pop as Europe updates its ambitious carbon targets

Published Wed, Jul 7 202111:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Morgan Stanley have picked multiple stocks set to do well as Europe lays out how it plans to meet its ambitious carbon reduction targets. The investment bank's picks, which cover renewables, autos and more, come ahead of the EU's so-called "Fit for 55 Package" due to be announced next week. On July 14, the European Union will announce the framework for how it plans to reduce carbon emissions by at least 55% by 2030. "We have reviewed EC [European Commission] published documents, speeches and leaked draft legislation to identify potential changes and the companies likely to be affected," Morgan Stanley's analysts, led by Victoria Irving, wrote in a July 1 research note. It named a slew of companies which it said were "well placed to benefit from the broad objectives of the legislation, given their exposure to different themes including renewables, green mobility, renovation, sustainable fuels (biofuels and green hydrogen) and LNG [liquefied natural gas]." Here is a selection: Biofuels and renewables Morgan Stanley expects the E.U. to increase taxes for high carbon sectors – such as aviation and shipping – and give incentives to low carbon companies, such as renewable diesel firm Neste , which the bank said was one of the "best placed" firms to benefit. It also picked Italian electricity firm Enel among its "renewables leaders," along with French firm Engie and Danish firm Orsted . Spain's Iberdrola and German energy firm RWE are also on Morgan Stanley's list of companies likely to benefit from EU subsidies. Green transport Rail firm Alstom and automaker Daimler are among Morgan Stanley's "Green Mobility" picks. "We would expect to see confirmation that the automotive industry could see a further tightening of EU CO2 fleet average emissions towards a 50% reduction by 2030 (from 37.5% currently), given the EU's new 55% 2030 emissions reduction target," the analysts wrote. "Furthermore, the review of the Directive on deployment of the alternative fuels infrastructure will aim to ensure that the relevant infrastructure is in place to support the roll-out of EVs [electric vehicles] and a continued push towards rail transport," they added. Renovation Construction firms Covestro and Sika are set to benefit from a "renovation wave" of buildings needed to meet EU energy targets, Morgan Stanley said. "Policy options for buildings potentially being considered include a new binding target for an annual increase in renewables used in heating and cooling, a ban on fossil fuels in district heating and cooling and an EU benchmark for renewables used in buildings," the analysts wrote.

This photograph shows turbines at the Borkum Riffgrund 2 wind farm, which Orsted owns 50% of.

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