What If Bond Issuers Meet Their Emissions-Reduction Targets?

For fixed-income investors with a climate mandate, what could it mean if the issuers in their portfolio meet their emissions-reduction targets? Looking at the emissions targets of companies in the MSCI Corporate Bond Indexes, we found that a notable degree of emission reduction (around 20%) could be achieved at the portfolio level by 2030, assuming the composition of the indexes remains largely unchanged.

We compared the most recent Scope 1 and 2 (S1+2) greenhouse-gas (GHG) emissions of these issuers with their 2030 projected S1+2 emissions, taking the issuers’ reduction targets at face value.¹ On average, these companies would reduce their emissions by around 20% relative to the most recent levels in our database.

Companies in energy, utilities and materials — the sectors commonly with the highest S1+2 emissions intensities — targeted carbon-emissions reductions of 20% to 40% in the investment-grade indexes by 2030. In contrast, projected emissions reductions for high-yield issuers in these sectors are lower, averaging 10% to 20%. Notably, the EUR-denominated high-yield index projected a larger reduction among utilities companies, driven by issuers in the electric-utilities sub-industry.

What if companies do not meet their targets, however? We’ll explore additional scenarios in an upcoming blog post.