Investment bank UBS has picked a list of stocks with an outperform rating that can help investors "drastically" cut their exposure to carbon emissions, naming companies from the U.S., China and Europe. "Carbon has become an extremely important investment theme. The proportion of funds launched in the past five years with the word "Carbon" in their name has more than doubled compared with the previous five years and from 2016 to 2020, global sustainable investment has grown by 55%," the analysts wrote in a July 28 research note. UBS looked at the ratios of carbon emissions to sales, earnings and market capitalization for each company, and then produced a "composite carbon score," based on the three metrics. It screened for stocks that its analysts rate as buy or neutral that have low composite scores in their sector. "A company with a low composite score will be efficient in producing its goods and services from a carbon perspective, will make only a small contribution towards your portfolio's carbon footprint and will hopefully have a lower exposure to carbon risk," the analysts, led by Claire Jones, stated. They also referred to a report earlier this year where they looked at the emissions-to-sales ratio. "We found that investors could drastically cut their average carbon intensity without underperforming the benchmark in most regions, and in Europe a low carbon intensity portfolio would have strongly outperformed," the note stated. UBS ran screens to find the best and worst 20 stocks in the U.S. and globally, and produced a shortlist of "Most favoured names from MSCI World by composite carbon score." In the U.S., some of its buy-rated top picks include real estate firm Prologis , toy firm Hasbro and financial services firm Mastercard . Global stocks on UBS's buy-rated preferred list include payment processor GMO Payment Gateway , headquartered in Tokyo, French cosmetics giant L'Oreal and German online marketplace Scout24 . The bank's longer list of buy-rated stock picks includes Asian firms, with India's Asian Paints , China's Bank of Ningbo and chemicals company Shenzhen Capchem Technology making its "most favoured" list from the MSCI AC index, (excluding Japan). On UBS's longer list of "most favoured" stocks from the MSCI Europe index are buy-rated French luxury group Hermes , Dutch payment company Adyen and British data firm Experian . In the U.S., UBS's buy-rated long list picks include tech firm Nvidia , cloud software company Arista Networks and asset manager BlackRock , all from the MSCI US index. While politicians and business leaders are touting their commitment to the so-called energy transition, fossil fuel use is rising and the U.S. Energy Information Administration expects carbon emissions from energy-related sources to grow. - CNBC's Sam Meredith contributed to this report.
A sign of Swiss banking giant UBS is seen at a branch in Zurich on October 26, 2018.
Fabrice Coffrini | AFP | Getty Images
Investment bank UBS has picked a list of stocks with an outperform rating that can help investors "drastically" cut their exposure to carbon emissions, naming companies from the U.S., China and Europe.