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Corporate disclosure of greenhouse gas emissions is incomplete and lacks clarity. Three quarters of companies in the ASX200 do not disclose any comparable quantitative emissions data. 22% of companies do disclose emissions, but in many cases companies disclose emission data normalised by production figures or employee numbers, and extra research is required to derive total company emissions. Corporate reporting of greenhouse gases should be quantitative and split clearly between direct and indirect sources. Data should cover all regions and business operations, and should be expressed in absolute terms and covering each reporting period. Disclosure should be timely and preferably published with the annual report. Such disclosure would allow investors sufficient information for an informed view of companies’ relative carbon-related risks.
Emissions are concentrated in particular sectors of the Australian economy. Just four sectors contributed 74% of direct carbon emissions: Metals & Mining, Oil & Gas, Airlines and Construction Materials. Furthermore, nearly half of emissions are accounted for by four companies: BHP Billiton, Rio Tinto, Bluescope Steel and Qantas.
Carbon intensity varies considerably between sectors. Carbon intensity measures the dependence of business operations on carbon emissions. On average, ASX200 companies generate 408 tonnes of direct and indirect CO2-e per million of turnover (AUD), which is comparable to the FTSE100 where companies averaged 480 tonnes per million turnover as at June 20061. Carbon intensities varied widely between companies and sectors, with 19 companies emitting more than 1,000 tonnes of CO2-e per million of turnover, whilst over 100 emit less than 100 tonnes per million turnover.
Company value could be at risk from costs resulting from GHG emissions. Trucost examined two carbon pricing scenarios to assess the exposure companies would face if carbon emissions were priced firstly using a market price, and secondly using a social cost. The two pricing scenarios show a number of companies face signifi cant risk to their value should they have to pay for their GHG emissions. Using the EU Emissions Trading Scheme phase 2 price at 31st March 2007, equivalent to AUD28.81 per tonne CO2-e, 57 companies have a carbon exposure greater than 1% of turnover. Using the social cost of carbon, estimated by the Stern review to be AUD110.68, the average impact on the S&P ASX200 is 4.39% of turnover. The ability for companies to reduce these costs and pass them on to their customers will be a critical factor in the business impact of carbon internalisation.
VicSuper commissioned Trucost to profile the carbon emissions of the top 200 listed companies in Australia, their carbon intensity in terms of turnover, earnings before interest, tax, depreciation and amortisation (EBITDA) and market capitalisation. Using these traditional financial metrics allows investors to compare company exposure to existing and expected regulations that will impose costs through a price on carbon emissions.
This analysis includes emissions from global operations and not just those emitted within Australia. It covers direct emissions caused by a company’s use of fuel combustion or GHGs emitted through an industrial process controlled by the company. It also covers indirect emissions which arise from the supply of goods and services to the company, the main source usually being electricity purchased from fossil fuel-based power generators.
Why did VicSuper commission the research?
The analysis was commissioned by VicSuper to provide insight into the impact of Australia’s 200 largest public companies on climate change through their greenhouse gas (GHG) emissions. It showed the extent to which the profits of different companies are dependent on GHG emissions and how each company could be affected when regulation puts a cost on their emissions. It also addressed the adequacy of current company reporting on this important issue.
The relative carbon emissions performance of Australian companies in the S&P ASX200 were analysed, allowing meaningful comparisons to be drawn about each company’s and industry sector exposure to potential issues such as increased carbon costs or changing consumer demand. It was also intended that the study would help companies, and the investors in these companies, identify and manage such risks.