Carbon-efficient companies generate best returns, study finds

6th December 2016

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The stock market performance of carbon-efficient firms is superior to that of companies that have done little to tackle their CO2 intensity, according to investment specialists ET Index Research.

ETI ranked the 2,000 largest listed companies globally by how much carbon they emitted in 2015 for every $1 million of revenue generated. The analysis included scope three emissions, which cover indirect emissions such as transporting raw materials to the use in products.

A portfolio of stocks of the most carbon-efficient listed businesses against a corresponding non carbon-weighted portfolio and found that it outperformed the market by nine per cent over five years.

ETI said carbon risk had become a mainstream concern since the Paris agreement last year. Its findings echo those of other studies, including a paper from investors BlackRock, which found that low carbon indexes have the potential to perform in line with, or better than, the companies they are benchmarked against, and research by the CDP.

The research by the investment specialists found a huge variation on carbon efficiency between the best and worst performers. If the dirtiest 50% of disclosers improved just enough to achieve mid-range carbon intensity for their sector they could save 1.4 billion tonnes of CO – as much as Japan emits in a year.

For example, Malaysia-based Petronas Chemicals Group emitted 13,961 tonnes of CO2 for every million dollars of revenue in 2015, making it 51 times less carbon-efficient than the median (mid-range) for the chemicals industry, and 481 times less than the industry leader, UK’s Johnson Matthey.

Chris Huhne, former secretary of state for energy and climate change and co-chair of ET Index Research, said: ‘Sector by sector there are champions and dunces. Some companies can be more than 100 times less carbon intensive than others in the very same industry.’

Computer software company Oracle was the world’s most carbon-efficient company in 2015, producing just 34 tonnes of carbon across scopes one, two and three for every $1 million of revenue. Two other US companies made up the top three, biotechnology company Biogen (40 t/CO2) and software company Adobe Systems (41 t/CO2).

Twenty-five companies were selected for the ETI’s Carbon Disclosure Leaders List, an index of companies that have disclosed and independently verified all their scope one and two emissions as well as reported on all 15 scope three categories. These include Mondelez, British Land, Royal Dutch Shell, Sony, Honda, Nissan and UPS.

ETI is supported by Climate-KIC, an EU public-private innovation partnership.

A taskforce set up by the international financial stability board is due to make recommendations this month on how companies should report on the potential impact of climate change on their bottom line.


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