Corporate US’ reversal to ‘business as usual’ could spell ITR increase, LOIM warns
US corporations are now more likely to scale back on their decarbonisation targets; nevertheless, the manager does not plan to reduce its regional exposure.
With the Trump administration adopting a more conservative stance on climate compared with its predecessor, firms in the US are now more likely to revert to a ‘business as usual’ approach. This shift could trigger the need for investors to revise climate scenarios within their net zero strategies, Swiss manager Lombard Odier Investment Management (LOIM) has warned.
“To take into account the rollback of US climate policies, we are evaluating the potential consequences of US companies reverting to a business-as-usual approach rather than accelerating their decarbonisation efforts,” LOIM equity portfolio managers Nicolas Mieszkalski, Alexey Medvedev and Cheick Dembele said in a recent note to investors.
The managers acknowledge that while there has so far been little public backtracking from climate targets among US corporations, a “baseline scenario”—which combines historical emissions with future targets—would be the most realistic outcome. In such a scenario, Implied Temperature Rise (ITR) scores in the US would stand at 2.7°C, while the global average would be at 2.5°C.
While some major investors, ranging from Alliance Bernstein to Dutch pension fund ABP, have scaled back allocations to certain US firms in anticipation of macroeconomic headwinds, LOIM does not intend to reduce its allocation to the US.
“Even under the most extreme assumption—where US companies revert entirely to historical emission trends—we are still able to construct a portfolio that is aligned with a 2°C pathway,” the manager said.
Rather than revising the geographic breakdown of its portfolio, it intends to increase allocations to transition-ready firms within the respective regions.
“Rather than shifting allocations between regions, we will instead emphasise stock selection within regions—favouring transitioners and reducing exposure to laggards within Europe and Asia,” LOIM said.
