Finding The Leaders On The Path To A Low Carbon Future

| Equities | Perspectives


While the effects of global warming may still be a topic of debate in certain circles, its impact on finance is undisputable. Recent global regulatory measures in response to the climate urgency has placed sustainability at the top of investors’ agendas, generating a sea change in the direction that money will flow for generations to come. Being at the intersection of increasing interest in sustainable solutions and evolving regulations offers a unique opportunity for both investors and companies, especially those with a head start in addressing the climate challenge. Who are these “champions” of the transition to a low carbon economy, and how do we find the right ones to invest in?

Mitigators and Enablers

When it comes to investing in the climate transition, candidate companies can be divided into two categories: Mitigators and Enablers.

Fig-new Mitigators contribute to the transition to a low-carbon economy mainly by reducing and/or maintaining their own emissions in line with Paris Agreement goals. At its core, mitigation aims to reduce or prevent GHG emissions, in an effort to make the negative impacts of climate change less severe1.

Enablers, on the other hand, are solution-providers, companies who primarily contribute by providing products and services that support other companies and activities on their decarbonisation path.

Climate change mitigation can come in various forms, such as increasing the share of renewable versus non-renewable energy consumption or improving energy efficiency. According to the EU Green Deal, the goal is to reach net-zero emissions by 2050 and before that, a 50-55% reduction by 20302. To reach these goals, sectors with low GHG emissions levels need to expand while high emitting ones will have to decarbonise. For activities within these sectors, this equates to either low-carbon alternatives or an environmental performance well above the sector average. Therefore, as per EU taxonomy, a mitigating company contributes to the transition to a low carbon economy by decreasing its own GHG emissions, in line with the well below 2 °C and 1.5 °C warming objectives set out by the Paris Agreement. However, being a mitigator does not simply mean having low GHG emissions, but also being a top performer within a given sector.

As previously described, climate enabling companies are those that provide decarbonisation solutions that facilitate the transition to a sustainable economy. Enabling activities are those that produce goods or services that can improve the environmental performance of other sectors2. More specifically, enablers or solution-providers promote low-carbon performance or substantial GHG emission reduction. Producers of renewable energy, manufacturers of wind turbines, solar farm operators, and providers of carbon capture technologies are all examples of companies falling under the enabling umbrella. These companies either exclusively provide enabling solutions or dedicate a portion of their activities to such an objective. Companies with full revenue exposure to naturally green activities are also called Substantial Contributors under regulatory definitions.

Unearthing the Leaders on the Road to Decarbonisation

Mitigators: We can produce a preliminary list of eligible candidates by applying a quantitative screen from the data that companies provide on all scopes of their emissions. The first step is to identify companies involved in high impact climate activities, by following the mapping of the EU PSF3 on which NACE sectors have a high versus low impact on climate change issues. For the company to then qualify as a mitigator, one needs to confirm that its contribution is consistent with the 1.5 °C climate trajectory and estimate its current environmental performance. For this stage of the identification process, quantitative data may be primarily used, especially GHG emissions data, to pick the best environmental performers. These can be determined by tallying their total scope 1, 2 and 3 emissions at company level, including all of the underlying assets. Then, by reviewing the emissions trend over time, one can deduct if the company is already implementing any emission reduction plan. In the same vein, one can estimate a company’s alignment with the 1.5 °C scenario by using their emission pledges and quantitative projections as put forward by the Science Based Targets Initiative (SBTi), which considers a company’s own GHG emissions. Naturally, only companies reporting on all scopes 1, 2 and 3 of their emissions and those with forward-looking emission plans can be potentially eligible as a mitigating company.


Mitigators support the transition to a low-carbon economy by reducing their own emissions and typically operate in high carbon emitting sectors. The EU Taxonomy identifies the priority sectors for mitigation as well as the relevant activities within these sectors. From that standpoint, Ørsted and Quadra Power Generation are both electric utility companies, classified as NACE D35.11 or “production of electricity”. Thus, at face value, both companies can be considered eligible. Ørsted is the world’s largest offshore wind electric utility company with 55% of generated power coming from wind and 31% from biomass, and it has 12GW of installed renewable capacity. Its activity explicitly complies with the EU taxonomy under “electricity generation from wind power” and “electricity generation from bioenergy” activities. In contrast, Quadra’s power generation activity is almost entirely based on thermal coal. As such, Quadra’s activity does not comply with the EU Taxonomy, as coal power generation hampers the transition to a low-carbon economy. Thus, Quadra does not qualify as a mitigator, unlike Ørsted, despite being involved in similar activities and having the same NACE classifications, which are not sufficiently granular for the activity “production in electricity”.

However, data quality and availability is often found wanting, and lack of transparency and disclosure often result in missing or lagged data, often by as much as two years. Following the initial quantitative selection process as described above, it is therefore important to reach out to the remaining candidate companies to complete data collection and to verify its integrity.

Enablers: While it is relatively easy to think of enabling activities, it is much more difficult to identify the enabling companies with the highest contribution to and impact on the transition to a low carbon economy. This is mainly because the question as to whether the company operates in an enabling activity is not purely binary. Before measuring the enabling impact of a company, one must first determine whether its activity is eligible, which is hard to achieve with conventional data. Indeed, it requires a human assessment to determine the proper requirements, by studying company specific activity. For instance, starting from a broad list of activities deemed to be enabling (solar, wind, hydrogen, green transportation, and mobility, etc.) one can extract a list of candidate companies based on their sector of operation. The next step is to determine whether the company’s activity meets the enabling criteria. For this, EU taxonomy can help. Based on the mapping between the NACE sector of the candidate’s specific activity and the eligible regulatory activity list, one can determine if the company qualifies. A qualitative analysis is then required to provide a holistic view of how much of an impact the enabling activity can have, the growth prospects of the specific ‘green’ activity in play, and the risks going forward, given that many candidates have only recently developed these parts of their business, thereby creating a much larger competitive field.


Enablers provide solutions and support other companies and activities on their decarbonisation path. For instance, ITM Power is an energy storage and clean fuel company. Per EU taxonomy, its activity falls under “manufacture of equipment for the production and use of hydrogen”. By virtue of manufacturing hydrogen electrolysers, ITM Power enables the production of ‘green’ hydrogen. The company’s activity therefore easily complies with the substantial contribution criteria of the taxonomy. In contrast, Linde Engineering, which designs and constructs plants for the production of industrial gasses, including hydrogen, does not fully comply with the EU taxonomy. While also providing technologies that generate ‘green’ or ‘blue’ hydrogen, Linde Engineering is primarily involved in the production of ‘grey’ hydrogen from steam reforming, using natural gas, LPG or naphtha. This is the most carbon-intensive method of manufacturing hydrogen and as such is not compliant with the taxonomy’s technical screening criteria for hydrogen production. As a result, the economic activity of Linde Engineering would not qualify as a taxonomy eligible activity.

Another challenge with enabling companies can be their relatively high GHG emissions in the short-term. Indeed, our society today runs on machines that mostly rely on fossil fuel energy. Thus, producing more efficient or green powered machines to replace existing ones requires more emissions in the short-term to accelerate the transition over time. Finally, although enabling companies mostly contribute to the reduction efforts of other sectors, their own emission reduction and mitigation still need to be monitored.

Putting Them All Together

Mitigation efforts alone are not enough to effectively fight climate change. Based on the fifth Assessment Report of the IPCC from 2014, with the mitigation strategies in place today, global warming is likely to exceed 4 °C by 2100. As such, current efforts to alleviate the negative effects of climate change through mitigators alone are not sufficient. Investing in companies on the path towards the 1.5 °C warming objective is a good start, but it is also crucial to include companies that offer products and services supporting others on their journey to a low carbon future. Without the help from enabling technologies, the economy will not be able to decarbonise at a rate consistent with the ambitious goals set by the Paris Agreement. So to truly support the transition to a low carbon economy and reach the climate change objectives, a climate fund should invest in two types of companies, one focused on mitigating the climate threat, and the other providing solutions to combat it.


Paris Agreement: International treaty on climate change, adopted in 2015. It covers climate change mitigation, adaptation, and finance. Its long-term temperature goal is to keep the rise in mean global temperature to well below 2 °C above pre-industrial levels, and preferably limit the increase to 1.5 °C.

GHG: Greenhouse gases

EU Taxonomy: a common classification system for sustainable economic activities. This paper addresses the first two of the six environmental objectives defined by Taxonomy Regulation, which came into effect in 2022:

  • Climate change mitigation
  • Climate change adaptation

NACE: Statistical classification of economic activities in the European Community (Nomenclature générale des activités économiques dans les Communautés européennes).

SBTi: The Science Based Targets initiative(SBTi) is a collaboration between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature. Since 2015 more than 1,000 companies joined the initiative to set a science-based climate target.

IPCC: The Intergovernmental Panel on Climate Change (IPCC) is the United Nations body for assessing the science related to climate change.

1EU Taxonomy Regulation – Article 2 (5)

2European Green Deal – Climate Action and the Green Deal

3Platform on Sustainable Finance – EU taxonomy NACE alternate classification mapping

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Document issued February 2022.