European Firms Under Threat Of Coal Return

European businesses that switch to coal as a substitute for Russian gas see a drop in their ESG ratings, forcing them to work harder to win over investors who are still concerned about sustainability.

Major European investors say they won’t modify their investing principles of achieving net zero objectives on greenhouse gas emissions by 2050 or earlier, despite an energy crisis brought on by sanctions against Russia. Investors evaluate companies’ merits using ESG ratings produced by organizations like MSCI or Sustainalytics. Companies get a bad rap for burning coal because it produces more carbon dioxide than alternatives like oil and gas.

Despite this, some European nations, like Germany and Italy, are contemplating reintroducing coal because of the Ukraine situation, which has reduced Russian gas deliveries. Some businesses, including German producers of specialty chemicals Lanxess, have also hinted that they may use more coal.

European Firms Under Energy and Pollution Pressure

Companies compelled to use the fuel by economic constraints or national legislation may be able to gain ground by focusing on the S and G in ESG or by finding other methods to enhance their environmental credentials.

But few businesses have so far been able to identify a solution to stop using the very polluting fuel. Lanxess, which previously admitted that burning more coal harms its carbon footprint, declined to comment on this possibility. However, it has emphasized that if it overcharges the market, it may have to close plants and lay off workers, which might have an impact on the “social” side of its business. For businesses wishing to maintain their ratings, there are alternative possibilities. Sustainable Fitch’s head of climate risk, David McNeil, stated that while evaluating a firm, the organization considers its whole ESG effect.

He said that they would consider it if a power company issued a green bond. Some businesses, including the Italian utility Enel (BIT: ENEI), have issued bonds with sustainability-related performance metrics. Green bonds and sustainability-linked bonds, which support environmental initiatives, have, on the other hand, done poorly in recent months as the general corporate debt