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The Carbon 100: quantifying the carbon emissions, intensities and exposures of the FTSE 100
13 June 2005
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Key Findings
Overall, this study yields five key findings:
- UK corporate emissions are globally significant. Direct carbon emissions from the UK’s 100 largest companies by market capitalisation amounted to 480 million tonnes of CO2-e in 2003/04, or about 1.6% of the global total. By way of comparison, the UK emits 2.2% of global GHGs. In addition, emissions from the products sold by five UK oil and mining companies account for over 10% of total global emissions from fossil fuels. A carbon constrained world could therefore pose significant challenges for investors in a number of UK companies.
- Emissions are concentrated in terms of sectors and stocks Just five sectors accounting for 29% of market capitalisation generated 85% of direct carbon emissions: Oil & Gas, Electricity, Mining, Steel and Leisure. In addition, two-thirds of emissions are accounted for by five companies: Shell, BP, Scottish Power, Corus and BHP Billiton. The concentrated nature of emissions provides a focus for further investment analysis and shareholder engagement.
- Carbon intensity varies considerably between and within sectors Carbon intensity measures the dependence of business operations on carbon emissions. On average, FTSE 100 companies generate 1,126 tonnes of direct and indirect CO2-e per £mn of turnover. This average masks a wide variation in intensities. Thus, 20 companies generate more than 1,000 tonnes, while 17 generate less than a 100 tonnes for each £mn of turnover. Finally, there can be wide variations in carbon intensity within sectors, ranging from eight times in the mining sector to 20 times in the leisure sector.
- Value could be at risk from carbon internalisation Carbon emissions create environmental and economic costs. Two carbon exposure scenarios show that value is at risk from necessary measures to internalise these costs into market prices. If the UK government’s estimate of the marginal damage of a tonne of carbon is used, as much as 12% of FTSE 100 EBITDA could be at risk, with 26 companies having a carbon exposure greater than 10% of EBITDA. The extent of this risk depends on the pace of regulatory measures, the dynamics of market competition and reputational pressures to improve carbon management. The ability of companies to pass on the costs of carbon to its customers will be a critical determinant of the eventual business impact of internalisation.
- Corporate disclosure to investors is incomplete. Under half of FTSE 100 companies disclose their carbon emissions, accounting for over two-thirds of emissions. In addition, even for those companies that do report, there is still a considerable lack of comparability in reported data.
Extract
To date, much of the investor effort has been focused on encouraging disclosure from companies about their greenhouse gas (GHG) emissions, most notably carbon dioxide (CO2). Some success has been achieved, although disclosures by companies are still not comparable. This report aims to move the debate on to carbon performance, so that meaningful comparisons can be drawn about each company’s contribution to climate change.
To this end, Henderson commissioned Trucost to profile the carbon emissions of the top 100 listed companies in the UK (the FTSE 100), their carbon intensity in terms of turnover, earnings before interest, taxation, depreciation and amortisation (EBITDA) and market capitalisation, and their exposure to measures that internalise the costs of carbon. These calculations were made on the companies’ global emissions, not just those within the UK. Where emissions data was not publicly available, an estimate was made using Trucost’s environmental profiling system. The study also reviewed the quality and quantity of current disclosures to investors.
Why did Henderson Global Investors commission the research?
Climate change is widely recognised as the most significant environmental issue facing the global economy. 2005 is set to be a pivotal year, with regulatory controls on carbon tightening and discussions starting on global carbon reductions after 2012. Investors need to understand how their investments are contributing to the problem, and also how they could be impacted by a changing climate. This report addresses the first of these challenges.
Report image: Analysing carbon emissions
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