ET Index Research has revealed in a report launched today that global leaders in carbon reporting have the potential to save the equivalent of Japan’s annual CO2 emissions by reaching standard levels of carbon-efficiency for their sector.
Nearly half of the world’s 800 largest listed companies have disclosed their emissions, and have improved their carbon efficiency by 15% in the last year, but there are huge variations in performance. If the dirtiest 50% of disclosers achieved just mid-range carbon intensity for their sector they could save 1.4 billion tonnes of CO2, as much as Japan emits in a year.
The 2016 ET Carbon Rankings report demonstrates that investors can help drive decarbonisation of the economy and make money by switching investment to favour companies with above-average levels of carbon efficiency. It reveals that out of the world’s 2,000 biggest companies, the 1,000 least carbon-intensive have outperformed the 1,000 most carbon-intensive over the last five years.
Some companies can be over 100 times less carbon intensive than others in the very same industry
Chris Huhne, former UK 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 over 100 times less carbon intensive than others in the very same industry. Backing the champions makes sense because carbon-efficient companies have outperformed the market average over the last five years.”
James Cameron, former chairman of Climate Change Capital, and Co-chair of ET Index Research, said: “The Paris Climate Agreement has committed us to keeping climate change well below 2°C and this will require a rapid transition to net zero emissions across all sectors of the economy. Proper allocation of capital is key to a smooth transition and the ET Carbon Rankings provide a methodology that is transparent and comprehensive, enabling companies and investors to identify, understand and manage their emissions in a systematic way.”
The ET Global Carbon Rankings are the most comprehensive public analysis of the world’s largest listed companies by their carbon efficiency – the amount of carbon they emit for every million dollars of revenue they generate.
Carbon disclosure leaders have saved equivalent of Turkey’s annual emissions
Out of the world’s 800 largest listed companies just 363 have fully disclosed their direct emissions from their operations and the electricity they use (Scope 1 and 2). These disclosers have increased their carbon efficiency by an average 15% from 2015 to 2016, saving 360 million tonnes of CO2, equivalent to the annual emissions of Turkey. [i]
However, there is a huge range of carbon efficiency even within the same industry. Petronas Chemicals Group, in Malaysia, emits 13,961 tonnes of CO2 for every million dollars of revenue, making it 51 times less carbon-efficient than the median average (mid-range) for the Chemicals industry, and 481 times less than the industry leader, the UK’s Johnson Matthey. [ii]
Electric Power Development of Japan emits 8,127 tonnes of CO2 per million dollars revenue, making it 16 times less carbon-efficient than the median average for the Electric Utilities industry and 133 times less than the best performer, Italy’s Terna Rete Eletrrica Nazionale.
Just 27 companies could save 1.2 billion tonnes of CO2 if they achieved the median carbon intensity in their industries: Electric Utilities; Oil and Gas Exploration and Production; Construction Materials; Chemicals; and Real Estate Owners, Developers and Investment Trusts. [iii]
Within the whole group of 363 disclosers, if the least carbon-efficient 50% achieved median carbon intensity for their sector, they would save 1.4 billion tonnes of CO2 a year. [iv] If non-disclosing companies took similar action potential savings would be far higher even if it was only limited to Scope 1 and 2 emissions under their direct control.
Ranking the world’s 2,000 largest listed companies by carbon-efficiency
The ET Carbon Rankings Universe measures the carbon efficiency of the world’s 2,000 largest listed companies, which account for $45 trillion in market capitalisation – 85% of world stock market value – and more direct emissions than the US, Canada and EU put together. They are the only public rankings to go beyond Scope 1 and 2 emissions to assess Scope 3 emissions from companies’ value chains – from transporting raw materials to the use of their products.
Sam Gill, Co-founder and CEO of ET Index Research, said: “Scope 3 emissions are vital in understanding the full extent of a company’s exposure to carbon risk because they usually account for by far the largest part of its carbon footprint. For example, Honda’s carbon intensity is 43 times higher when you consider consumer use of its vehicles and other Scope 3 emissions. It is virtually impossible to imagine a scenario in which carbon-intensive companies, across the entire value chain, are not penalised after the Paris Agreement.”
Computer software company Oracle is the world’s most carbon-efficient company, producing just 34 tonnes of carbon across Scopes 1, 2 and 3 for every $1 million of revenue. It is followed by two more US companies, biotechnology company Biogen at 40 tonnes, and software company Adobe Systems at 41 tonnes. [v]
Carbon-efficient companies outperform
The ET Carbon Rankings reward companies that achieve greater than median carbon efficiency within their sector and industry. The ET Low Carbon Index Series, which is based on the ET Carbon Rankings, tracks conventional market indexes but weights investment towards the 50% of companies that are less carbon-intensive and away from the 50% that are more carbon-intensive.
The ET Global 800 Low-Carbon Transition Index tracks the world’s 800 biggest companies, but reduces carbon exposure by 75%. It has outperformed a conventional market capitalisation index tracking the same companies by 1.78% a year over the last five years to October 2016. [vi]
The ET Global Carbon Risk Factor, available on Bloomberg, shows that a basket of the 2,000 largest listed companies weighted to favour more carbon-efficient companies has outperformed a conventional, non-carbon-weighted basket by 9% over five years. [vii]
Carbon risk has become a mainstream investor concern following the Paris Climate Agreement, which commits countries to keeping global temperature rises well below 2°C. A task force 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.
Isabelle Rucart, EMEA Head of Sustainable ETFs & Index Investments at BlackRock, said: “As stated in the recent BlackRock Investment Institute paper “Adapting portfolios to climate change”, we think that incorporating climate considerations in the investment process should and can be a fiduciary duty. On top of this, low carbon indexes have the potential to perform in line with or better than parent indexes.”
Jon Williams, Partner, Sustainability and Climate Change, at PwC, said: “It is quite clear that the low carbon transition is underway, with carbon intensity falling 2.8% globally in 2015. As a result, investors will be increasingly asking companies to disclose the risks and opportunities arising from climate change. This will include scope 1,2 and 3 emissions, and increasingly the wider financial impacts of climate change, such as the impact on asset valuations, investments, disposals and earnings.”
The ET Carbon Rankings are based on publicly disclosed data, reviewed by each company and overseen by an independent quality assurance panel. Where companies report incomplete information ET Index applies the highest reported emissions figure from any company in the same sector. This is intended to penalise non-disclosure and provide an incentive to disclose.
Are the UK Governments Plans for the Energy Sector Smart?
The revolution in the energy sector marches on, wind turbines and solar panels are harnessing more renewable energy than ever before – so where is it all leading?
The UK government have recently announced plans to modernise the way we produce, store and use electricity. And, if realised, the plans could be just the thing to bring the energy sector in line with 21st century technology and ideologies.
Central to the plans is an initiative that will see smart meters installed in homes and businesses the length and breadth of the country – and their aim? To create an environment where electricity can be managed more efficiently.
The news has prompted some speculation about how energy suppliers will react and many are predicting a price war. This could benefit consumers of electricity and investors, many of whom may be looking to make a profit by trading energy company shares online using platforms such as Oanda – but the potential for good news doesn’t end there.
Introducing New Technology
The plan, titled Smart Systems and Flexibility is being rolled out in the hope that it will have a positive impact in three core areas.
- To offer consumers greater control by making smart meters available for all homes and businesses by 2020. Energy users will be able to monitor, control and record the amount of energy they use.
- Incentivise energy suppliers to change the manner in which they buy electricity, to offer more smart tariffs and more off-peak periods for energy consumption.
- Introduce new standards for electrical appliances – it is hoped that the new wave of appliances will recognise when electricity is at its cheapest and at its most expensive and respond accordingly.
How the Plans Will Affect Solar Energy
Around 7 million houses in the UK have solar panels and the government say that their plan will benefit them as they will be able to store electricity on batteries. The stored energy can then be used by the household and excess energy can be exported to the national grid – in this instance lower tariffs or even payment for the excess energy will bring down annual costs significantly.
The rate of return on energy exported to the national grid is currently between 6% and 10%, but there are many variables to take into account, such as, the cost of battery storage and light levels. Still, those with state-of-the-art solar electricity systems could end up with an annual profit after selling their excess energy.
The Internet of Things
Much of what the plans set out to achieve are linked to the now ubiquitous “internet of things” – where, for example, appliances and heating systems are connected to the internet in order to make them function more smartly.
Companies like Hive have already made great inroads into this type of technology, but the road that the government plans are heading down, will, potentially, go much further -blockchain technology looms and has already proved to be a game changer in the world of currency.
It has already been suggested that the peer to peer selling of energy and exporting it to the national grid may eventually be done using blockchain technology.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don and Alex Tapscott, Blockchain Revolution (2016)
The upshot of the government’s plans for the revolution of the energy sector, is that technology will play an indelible role in making it more efficient, more flexible and ultimately more sustainable.
4 Case Studies on the Benefits of Solar Energy
Demand for solar energy is growing at a surprising rate. New figures from SolarPower Europe show that solar energy production has risen 50% since the summer of 2016.
However, many people are still skeptical of the benefits of solar energy.Does it actually make a significant reduction in our carbon footprint? Is it actually cost-effective for the company over the long-run?
A number of case studies have been conducted, which indicate solar energy can be enormously beneficial. Here are some of the most compelling studies on the subject.
1. Boulder Nissan
When you think of companies that leverage solar power, car dealerships probably aren’t the first ones that come to mind. However, Boulder Nissan is highly committed to promoting green energy. They worked with Independent Power Systems to setup a number of solar cells. Here were the results:
- Boulder Nissan has reduced coal generated electricity by 65%.
- They are on track to run on 100% renewable energy within the next 13 years.
- Boulder Nissan reduced CO2 emissions by 416,000 lbs. within the first year after installing their solar panels.
This is one of the most impressive solar energy case studies a small business has published in recent years. It shows that even small companies in rural communities can make a major difference by adapting solar energy.
2. Valley Electric Association
In 2015, the Valley Electric Association (VEA) created an 80-acre solar garden. Before retiring from the legislature, U.S. Senate Minority Leader Harry Reid praised the new project as a way to make the state more energy dependent and reduce our carbon footprint.
“This facility will provide its customers with the opportunity to purchase 100 percent of their electricity from clean energy produced in Nevada,” Reid told reporters with the Pahrump Valley Times. “That’s a step forward for the Silver State, but it also proves that utilities can work with customers to provide clean renewable energy that they demand.”
The solar energy that VEA produced was drastically higher than anyone would have predicted. SolarWorld estimates that the solar garden created 32,680,000 kwh every year, which was enough to power nearly 4,000 homes.
This was a major undertaking for a purple state, which may inspire their peers throughout the Midwest to develop solar gardens of their own. It will reduce dependency on the electric grid, which is a problem for many remote states in the central part of the country.
3. Las Vegas Casinos
A number of Las Vegas casinos have started investing in solar panels over the last couple of years. The Guardian reports that many of these casinos have cut costs considerably. Some of them are even selling the energy back to the grid.
“It’s no accident that we put the array on top of a conference center. This is good business for us,” Cindy Ortega, chief sustainability officer at MGM Resorts told Guardian reporters. “We are looking at leaving the power system, and one of the reasons for that is we can procure more renewable energy on the open market.”
There have been many benefits for casinos using solar energy. They are some of the most energy-intensive institutions in the world, so this has helped them become much more cost-effective. It also helps minimize disruptions to their customers learning online keno strategies in the event of any problems with the electric grid.
4. Boston College
Boston College has been committed to many green initiatives over the years. A group of researchers experimented with solar cells on different parts of the campus to see where they could produce the most electricity. They discovered that the best locationwas at St. Clement’sHall. The solar cells there dramatically. It would also reduce CO2 emissions by 521,702 lbs. a year and be enough to save 10,869 trees.
Boston College is exploring new ways to expand their usage of solar cells. They may be able to invest in more effective solar panels that can generate far more solar energy.
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