Credit Suisse names top stocks for carbon reduction after ‘code red’ U.N. climate report

Published Tue, Aug 24 202111:43 AM EDT

A recent report from the United Nation's climate scientists, which was called " code red for humanity ," could boost businesses focused on reducing carbon, Credit Suisse said. The firm sees upside for companies exposed to themes including industrial energy efficiency and building energy efficiency. "Climate change will become one of the most important ESG factors for companies to consider and deliver on, especially for high-emitting sectors like utilities, materials, energy, transportation, and agriculture," the firm wrote in a recent note to clients. ESG refers to a form of sustainable investing that focuses on environmental, social and corporate governance factors. "In other sectors where direct emissions are relatively small, we expect increased scrutiny of the management of indirect and value-chain emissions as the business community steps up climate action," the firm added. 'Irreversible' changes The climate report from the U.N.-backed group was released on Aug. 9 and delivered the starkest warning yet about the deepening climate emergency. The report, which was based on more than 200 scientists' analysis of more than 14,000 studies, found that some of the changes already in motion will be "irreversible" for centuries to come. The report also noted that the window to avoid the worst impacts is running out, and large-scale coordinated action must be taken now to cut emissions. The report sets the agenda for the upcoming U.N. climate talks, known as COP26, which will be held in November in Glasgow. "While more ambitious emissions reduction policies will translate into transition risks for fossil-fuel exposed sectors, it will also necessitate an acceleration in investment in the decarbonization enablers and drivers," noted Credit Suisse. With this in mind, the firm scanned its sustainable investing portfolio for stocks that look best positioned to rally off current levels. The firm rates each name on the list at outperform, and each stock also screens well on quality, momentum and valuation factors. Building energy efficiency, green infrastructure Schneider Electric , Emerson Electric and Johnson Controls are among the stocks Credit Suisse highlighted under its building energy efficiency theme. Buildings account for nearly 40% of greenhouse gas emissions, so making them more environmentally-friendly is vital for reducing emissions. President Joe Biden has called for buildings to be upgraded and weatherized, as well as the construction of sustainable housing units. In a similar vein, Credit Suisse pointed to green infrastructure name MasTec as another stock that stands to benefit from the buildout of renewable energy, while Eaton Corporation is a key operator within the industrial energy efficiency ecosystem. "When it comes to the Buildings world, Construction/Building sector lags on digitization and this results in inefficiencies and waste throughout the building lifecycle of design, construction, operation and decommissioning," Credit Suisse said. "We see potential for the industry to catch up, especially given governments' push for better building energy efficiency and customers' desire to save energy." Biden is also focused on greater adoption of electric vehicles, and recently called for 50% of new vehicle sales to be electric by 2030. As EVs make up a greater number of cars on the road, Credit Suisse pointed to Analog Devices , Aptiv and Cummins as names that will benefit from transport efficiencies. On the flip side, the firm said traditional "renewable energy" stocks including solar and wind plays currently look expensive. "Long-term growth prospects for the themes remains compelling in our view, however, the mix of profitability and momentum is better for other themes at the moment," Credit Suisse said. - CNBC's Michael Bloom contributed reporting.

Busakorn Pongparnit | Moment | Getty Images

A recent report from the United Nation's climate scientists, which was called "code red for humanity," could boost businesses focused on reducing carbon, Credit Suisse said.

The firm sees upside for companies exposed to themes including industrial energy efficiency and building energy efficiency.