2016 et carbon rankings report - ET Index

FOREWORD

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2016 ET CARBON RANKINGS REPORT TRACKING THE CARBON EFFICIENCY OF THE WORLD’S LARGEST LISTED COMPANIES 2016 CARBON RANKINGS REPORT

ET INDEX RESEARCH

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CONTENTS

3 About ET Index Research 4 Foreword 7 Executive Summary Engaged indexes, carbon risk and performance 10 Index investing and its implications for reducing carbon risk 11 Engaged Tracking (ET) indexes 12 Decarbonising portfolios without sacrificing performance Understanding the ET Carbon Rankings 14 Sector breakdown 16 Disclosure 21 The importance of Scope 3 (value chain) emissions Carbon reduction potential 24 Benchmarking median carbon efficiency 25 Carbon reduction potential by sector 28 Carbon reduction potential by industry ET Global Carbon Rankings 2016 34 ET Global 800 Carbon Leaders 35 Carbon Efficiency Sector Rankings 36 ET Carbon Disclosure Leaders 38 ET Sector Carbon Leaders 40 ET Industry Carbon Leaders ET Carbon Ranking methodology 43 ET Carbon Ranking Universe 44 Methodology 47 Spotlight on Scope 3 48 Treatment of Scope 3 in the ET Carbon Ranking methodology 48 Overcoming the lack of data 49 Disclosure requirements, current emissions and intensity Appendix 50 Regional results 53 Information for reporting companies 54 Sustainable Industry Classification System (SICS) taxonomy 56 The ET Carbon Ranking Quality Assurance Panel 59 References

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2016 CARBON RANKINGS REPORT

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ABOUT ET INDEX RESEARCH

ET Index Research is a mission-driven organisation dedicated to helping investors and corporates identify, understand, and manage climate and carbon-related risks. We help investors to reduce their exposure to carbon risk without sacrificing performance. Our methodology is designed to shift investment towards carbon-efficient companies across the economy. Engaged Tracking (ET) Investors take a systematic approach - incentivising the world’s largest companies to lower their greenhouse gas emissions and to improve the levels of transparency in their carbon and climate risk reporting.

We do this by producing the most comprehensive public ranking of the world’s largest listed companies according to the carbon intensity of their activities; by analysing carbon risk in investor portfolios; and by producing low-carbon and fossilfree indexes that can be used by investors as benchmarks or to create customisable low-carbon investment strategies. ET Index Research is supported by family office investors and Climate-KIC, the European Union’s main climate innovation initiative. For more information or to view the public ET Carbon Rankings, please visit etindex.com.


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FOREWORD

Investors need to be aware that the landmark Paris Climate Agreement has changed the macroeconomic environment. The world is now set on a pathway towards economy-wide decarbonisation. The arrival of carbon pricing and mandatory climate risk disclosure in key capital markets poses new business risks and opportunities. The US coal sector is in decline. European power utilities face an existential crisis.1 It is clear that industries and companies that choose to ignore technological shifts and underestimate the rapidity of the shift to a low-carbon economy will suffer financially. The G7 nations have committed to phasing out fossil-fuel subsidies by 2025 and renewable energy has finally arrived at scale. In many countries, clean power generation is now cheaper, on average, than fossil fuels. Costs of clean power will continue to fall as technology and efficiency improve. This trend will accelerate as fossil fuel subsidies are phased out across the G7 economies. Carbon-intensive companies that do not prepare for the transition will be penalised by the market. By ratifying the Paris Climate Agreement, governments have provided a clear signal to all investors that the economy will decarbonise at an ever-increasing rate. As a result, we expect to see an ever-accelerating shift in the allocation of capital away from highcarbon assets towards lower-carbon ones.

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It is clear that there will be winners and losers in the race to decarbonise the global economy. Prudent investors should be seeking to understand what economywide decarbonisation will look like. They should also consider how to honour fiduciary duties to their beneficiaries in that context, while noting that the modern legal definition of fiduciary duty covers the prudent management of all material financial risks, including carbon and climate risk.2 ET Index Research has demonstrated the importance of identifying carbon risk and the link between carbon emissions and equity returns in a special report.3 Consistent with this research, the ET Global 800 Low Carbon Transition Index tracks the world’s 800 largest companies, but reduces carbon exposure by 75% by weighting investment towards more carbon- efficient companies and away from carbon- intensive ones. If a pension fund had pursued a lowcarbon investment strategy, tracking this index from the first ET Carbon Rankings in 2011 to October 2016, it would have earned 1.78% more each year than by tracking the same companies in a conventional index. To make informed decisions about which companies are exposed to carbon risk in the new market ushered in by the Paris Climate Agreement, investors need, as a starting point, reliable greenhouse gas emissions data on investee companies.

FOREWORD

The international Financial Stability Board recognises the issue of carbon risk and has set up a Task Force on Climate Related Financial Disclosures to make recommendations on how companies should disclose climate-related financial information so that investors and other capital market participants can “understand the concentrations of carbon-related assets in the financial sector and their exposures to climate-related risk”. 4 For investors to get a full picture of carbon risk they need to go beyond direct emissions from a company’s own activities (Scope 1 and 2) and understand indirect emissions from the activities in its value chain (Scope 3), from production of the raw materials it uses to the use of the goods it sells. Scope 3 emissions are typically the largest source of emissions within a company’s total footprint, and a major source of its carbon and climate-related risk. These value chain carbon costs can affect a company’s suppliers and customers, and the viability of a company’s core business. Costs linked to increased regulation and explicit emissions pricing cannot always be passed through the supply chain or to the final consumer. The materiality of Scope 3 emissions has been most strongly demonstrated in the US coal industry, where tightening emissions regulation has combined with other factors to decimate shareholder value.5 The financial importance of Scope 3 emissions data has been revealed by ET Index Research analysis of the performance of high-carbon and lowcarbon intensity companies.6 Over the 2010-2016 period, low-Scope 3 intensity and low-Scope 1 and 2 intensity portfolios both outperformed high-intensity portfolios, by 7.2% and 4.8%, respectively. The greater performance difference between portfolios sorted on Scope 3 intensity further confirms the financial materiality of Scope 3 emissions, in addition to basic Scope 1 and 2 emissions.

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At present, not every country enforces mandatory corporate greenhouse gas emissions reporting across Scope 1, 2 and 3.7 Therefore, one of the key functions of the ET Carbon Rankings is to shine a light on companies around the world that are failing to place this information into the public domain in a clear, comparable, and complete format; and to encourage them to disclose. Corporate emissions reporting will be a central metric in tracking the transition to a low-carbon economy and managing transition risk. The central function of the Paris Climate Agreement is to guide a global response to the threat of climate change by keeping global temperature rises to well below 2 °C. This requires a rapid transition to net zero emissions across all sectors of the economy.7 Market pricing of carbon and climate-related risk, whether it be direct or indirect, will necessarily be focused on greenhouse gas emissions. For the prudent investor, following a lowcarbon investment strategy is a logical imperative. However, not all low-carbon strategies are created equal. According to Martin Skancke, Chair of the UN PRI, investors “need to differentiate between products that reduce individual exposure to carbon risk versus those that reduce collective aggregate climate change risk.” An investor who merely shifts the weights in their portfolio to lowcarbon stocks, without engaging with other market participants or investee companies, reduces their own exposure to carbon risk but does nothing to reduce systemic risk. An investor who not only reduces their own exposure but also engages with other market participants and investee companies to encourage the flow of capital to low-carbon investments, benefits both themselves and the market.


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FOREWORD

Reducing the systemic threat of climate change is a priority for all investors. Empirical research has shown that a 1 degree Celsius increase in global average temperature leads to a 5.7% decline in equity valuations. Thus, at current rates, each year’s global emissions are reducing stock market returns by 0.1%.9 ET Index Research was established specifically to address the systemic nature of carbon risk.10 The ET Carbon Rankings and the corresponding ET Low Carbon Index Series reduce individual investor exposure to carbon risk by shifting capital away from high-carbon companies in all sectors, while closely tracking the market. They reduce aggregate exposure to carbon and climate risk by clearly signalling to the largest listed companies and their supply chains that they

James Cameron

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must decarbonise in order to move up the Rankings and gain a greater weighting within the Index. A greater weighting in the Index means companies receive a larger share of invested capital. The ET Index Research methodology provides investors with a tool to drive capital market alignment with economy-wide decarbonisation targets agreed to in Paris. This mechanism offers investors a systematic and cost-effective approach to helping the world avoid the worst effects of climate change. Let’s use it. James Cameron & Chris Huhne, Co-Chairs, ET Index Research

Chris Huhne

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EXECUTIVE SUMMARY

The 2016 ET Carbon Rankings are a tool for investors to monitor and manage exposure to carbon risk, enabling them to identify companies that are decarbonising their operations. They measure the carbon efficiency of the world’s largest 2,000 listed companies, making up 85% of global stock market value. They account for approximately $45 trillion in market capitalisation and approximately 9.5 billion tonnes of CO2 in direct emissions, an amount that exceeds the combined total emissions of the United States, Canada and the European Union.11 They are the only publicly available rankings to assess both the carbon efficiency of companies’ direct operations (Scope 1 and 2 emissions) and of their full value chain (Scope 3), from transportation of raw materials to the use of the products they sell. Scope 3 emissions are of critical importance to investors because they typically make up 75% of companies’ carbon footprints and therefore reveal their exposure to increased costs across their value chain.12 By focusing on carbon efficiency – how much carbon each company emits for every $1 million of revenue generated – the Rankings allow investors to make direct comparisons between companies of different sizes and across different sectors.13 They look at each of the largest listed companies by region, according to market capitalisation. They do not exclusively focus on leading or laggard companies in terms of emissions or disclosure.

The Paris Climate Agreement came into force in November 2016 committing the world’s nations to decarbonise the global economy. Few, if any, sectors will be unaffected.14 The debate about the low-carbon transition has largely focused on fossil fuel companies and divestment, but the ET Carbon Rankings take a systemic approach that is designed to encourage decarbonisation in every sector, supporting the transition to a low-carbon economy and a climate-secure world. The ET Carbon Rankings are designed to encourage investors to switch investment to more carbon-efficient companies, reducing their own exposure to carbon risk and rewarding companies that take action and disclose. The Rankings are produced using a transparent methodology and based on publicly available carbon data for the reporting year ending in 2015. Data is subjected to a rigorous verification process and reviewed by the ranked companies. The Rankings are overseen by an independent quality assurance panel which consists of professionals from different disciplines and backgrounds who review the methodology, assisting the process of integrating new rules as and when they become feasible and appropriate. Please refer to the appendix for more details on the Panel.


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EXECUTIVE SUMMARY

Key Findings • Carbon-efficient stocks perform better than carbon-intensive stocks. A portfolio formed of the stocks in the most carbon-efficient half of the ET Carbon Rankings Universe, has outperformed a corresponding portfolio formed of the most carbon-inefficient half of the universe by 9% over five years. • Companies that report their emissions are making rapid progress in decarbonising their operations. Among the world’s 800 largest listed companies, 363 reported their Scope 1 and 2 emissions. These disclosers increased their carbon efficiency by an average of 15% from 2015 to 2016, saving 360 million tonnes of CO2, equivalent to the annual emissions of Turkey. • Leading companies could save the equivalent of Japan’s annual emissions by achieving mid-range carbon efficiency for their sector. Analysis of just the 363 companies that have reported Scope 1 & 2 emissions shows that if the most carbon-intensive companies achieved the median level of carbon efficiency it would save 1.4 billion tonnes of CO2, equivalent to the annual emissions of Japan.

• Just 27 companies in five carbon-intensive industries could save 1.2 billion tonnes of CO2. If these companies achieved the median level of Scope 1 and 2 carbon efficiency for their industry it would save twice as much CO2 as South Korea emits each year. The industries are: Electric Utilities; Oil and Gas Exploration and Production; Construction Materials; Chemicals; and Real Estate Owners, Developers and Investment Trusts. • Computer software company Oracle is the world’s most carbon-efficient company, producing just 34 tonnes of carbon dioxide across Scopes 1, 2 and 3 for every $1 million of revenue. The median carbon efficiency across the world’s 2,000 largest listed companies is 1,538 tonnes across Scopes 1, 2 and 3. • Most companies are still not aware of the benefits of carbon emissions disclosure. The number of companies reporting public and complete Scope 1 and 2 emissions has grown from 38% in 2011 to 41% in 2016. • Few companies are reporting emissions from their value chain, but this is changing rapidly. Reporting of full Scope 3 emissions doubled from 1% of companies in 2015 to 2% in 2016. • 25 companies make it into the ET Carbon Disclosure Leaders list, which is reserved for companies that disclose complete Scope 1 and 2 emissions that have been independently assured by a third-party and that disclose all 15 Scope 3 Categories.

“ 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. Better disclosure by companies is therefore a must if markets are to correctly identify and price climate risk and direct capital to low carbon opportunities. This is at the core of the work of the FSB Task Force on Climate-related Financial Disclosures.” Jon Williams, Partner, Sustainability and Climate Change, PwC

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EXECUTIVE SUMMARY

Carbon Context The historic Paris Climate Agreement puts carbon risk on the agenda for all investors with the commitment to keep global temperature rises below 2 °C. It includes specific reference to ensuring that finance flows in alignment with the pathway towards low greenhouse gas emissions and climateresilient development. Mark Carney, Governor of the Bank of England and chairman of the international Financial Stability Board (FSB), has warned that action to limit climate change could leave fossil fuels and other high-carbon investments as worthless stranded assets threatening investors with huge losses.15 A task force set up by the FSB is due to make recommendations in December 2016 on how asset owners and the companies they invest in should report on the potential impact of climate change on their bottom line.

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There is also growing awareness of the importance of reporting and reducing emissions across companies’ full value chain. Dell, Toyota and Unilever are among more than 200 companies worldwide that have signed up to the Science Based Targets initiative and pledged to reduce emissions in line with the global commitment to keep climate change below 2 °C.16 This includes carrying out a full assessment of their Scope 3 emissions. World leaders have committed to avoiding dangerous climate change. It is now vital for the world’s largest companies to show leadership on emissions accounting and reporting, and setting decarbonisation targets. Those that act will play an important part in achieving that goal. Those that fail to act risk seeing their businesses undermined by global action to cut carbon.

The ET Carbon Rankings have three key objectives to support the transition to a low-carbon economy and a climate-secure world: 1. They enable investors to identify their exposure to carbon risk and manage it by switching investment to more efficient companies across the economy or within sectors. 2. They provide investors with an engagement tool that incentivises companies to reduce and disclose their carbon emissions.

3. They underpin the ET Low Carbon and Fossil Free Index Series, allowing investors to closely track traditional market indexes such as the FTSE 100 or S&P 500, achieving significant carbon reductions without sacrificing performance.

“ 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 indices have the potential to perform in line with or better than parent indices.” Isabelle Rucart, Head of Sustainable ETFs & Index Investments, BlackRock


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ENGAGED INDEXES, CARBON RISK AND PERFORMANCE: INDEX INVESTING AND ITS IMPLICATIONS FOR REDUCING CARBON RISK Index investing strategies – also referred to as passive investing – are rapidly growing as a proportion of the market. In 2016, passive equity vehicles accounted for over 40% of total US equity fund assets, up from 18.8% a decade ago, according to Morningstar.17 This is representative of the global trend, with over $4 trillion in savings now in index funds. The reason for this shift in assets is clear. Investors are disillusioned with active investing strategies that charge higher fees and typically fail to perform better than more cost-effective index-based counterparts.18 In a low-return environment where fees and performance come under particularly harsh scrutiny, it is hard to see an end to this accelerating shift towards passive investing, particularly as technology continues to drive down costs. This has important ramifications for how financial flows can be guided to address the financial risks and opportunities linked to climate change.

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Firstly, stock market indexes, acting as benchmarks for fund performance or as the basis of investment strategies, will occupy an increasingly important role in the allocation of capital across the economy. However, pure index investing strategies reward companies solely on the basis of current financial performance and fail to anticipate future risks and opportunities such as those created by the low-carbon transition. Secondly, the role of investor engagement on climate change with investee companies will become an increasingly important function for index houses and passive investment funds. Blackrock, Vanguard and other asset management giants have been openly criticised for their failure to use their position of significant influence to vote on shareholder resolutions relating to climate change.19

ENGAGED INDEXES, CARBON RISK AND PERFORMANCE

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ENGAGED TRACKING INDEXES

Engaged Tracking Indexes embed the principle of investor engagement directly into the index investment strategy. They include non-financial criteria, such as sustainability indicators, when weighting companies within the index. The index provider contacts index constituents to inform them of the non-financial criteria on which they will be ranked and what steps are required to improve their position.

ET Low Carbon Indexes enable investors to position themselves in a forward looking way to reduce their exposure to systemic carbon risk, while simultaneously signalling to investee companies that investors expect a swift transition to more carbon-efficient business models. They provide a systematic tool for redistributing capital from high to low-carbon companies in the most efficient manner possible.

Simply put, companies have to do better on non-financial performance to move up the rankings and to attract more investor capital.

In the case of the ET Carbon Rankings and corresponding ET Low Carbon and Fossil Free Index Series, constituent companies are informed of the following Engaged Tracking Investor expectations:

This provides an innovative and costeffective form of index investing which incorporates stewardship principles and shareholder engagement. Engaged Tracking Indexes clearly communicate investor expectations to constituent companies. They are a systematic tool for reallocating capital according to non-financial performance in a transparent manner. ET Low Carbon Indexes go beyond reweighting companies according to the intensity of their direct carbon emissions and take into account the full scope of their carbon footprint. Reweighting within the index is done according to a company’s ET Carbon Rank®, which includes Scope 1, 2 and 3 emissions. The ET Low Carbon Index® methodology incentivises ever increasing disclosure and lowering of emissions since these are the criteria upon which the Rankings are based.

• Measure and disclose a full Scope 1, 2 and 3 greenhouse gas emissions inventory. • Disclose in annual reports how action to limit global warming as part of the Paris Agreement may affect operations. • Publish business transition plans that explain how the company will manage the business risks and opportunities arising from a 2 °C regulatory environment, including those related to GHG emissions, capital expenditure, remuneration policy, and political spending, among other enterprise risks. • Communicate how such a business transition plan can be implemented.


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DECARBONISING PORTFOLIOS WITHOUT SACRIFICING PERFORMANCE

ET Index Research offers a suite of indexes which track major market indexes like the S&P 500 allowing investors to significantly reduce their exposure to carbon risk without sacrificing performance. Each index provides three options allowing investors to balance reduction in carbon exposure against tracking error (standard deviation from performance of the conventional portfolio). Custom variations based on the Rankings can also be created to suit specific investor requirements. ET Low Carbon Tracker Index Series: 25% reduction in emissions versus the conventional index. Very low tracking error – suitable for pension funds and other tracking error constrained investors. ET Low Carbon Benchmark Index Series: 50% reduction in emissions versus the conventional index. Low tracking error based on balance between carbon reduction and deviation from the conventional index. ET Low Carbon Transition Index Series: 75% reduction in emissions versus conventional index. Medium tracking error – focused on carbon reduction.

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Table 1 demonstrates that ET Low Carbon Indexes can achieve very significant reductions in carbon emissions while generating similar returns to the conventional indexes they track. It compares the performance of a conventional index of the world’s 800 largest listed companies with three ET Low Carbon Indexes investing in the same companies, but adjusting their weightings based on their position in the ET Global 800 Carbon Ranking. All three weighted indexes delivered better returns over five years and two outperformed over three years. The Engaged Tracking approach can be used to create low-carbon versions of any index. Other global indexes such as the FTSE All World, MSCI All Country World Index and S&P Global 1200 achieved similar performances over the same time frame as the ET Global 800 Low Carbon Index Series, highlighting the potential of the ET Global 800 Low Carbon Index Series as a viable index benchmark.

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Carbon Intensity Reduction

5Y Total Returns

3Y Annualised Returns

5Y Annualised Returns

1Y Total Returns

3Y Total Returns

ET Global 800 Low Carbon Tracker

25.00%

0.33%

12.87%

57.78%

4.11%

9.54%

ET Global 800 Low Carbon Benchmark

50.00%

-0.41%

13.29%

61.11%

4.24%

10.00%

ET Global 800 Low Carbon Transition

75.00%

-0.77%

15.10%

67.65%

4.79%

10.87%

Conventional Global 800

-

2.21%

13.02%

54.56%

4.16%

9.09%

FTSE All World

-

2.77%

12.09%

51.74%

3.87%

8.69%

MSCI ACWI

-

2.63%

11.73%

51.20%

3.76%

8.61%

S&P Global 1200

-

2.62%

13.82%

57.75%

4.41%

9.53%

Index

The ET Global Carbon Risk Factor tracks the difference in returns between low-intensity stocks and high-intensity stocks.

Figure 1 shows that the low-intensity portfolio has outperformed the high-intensity portfolio by 9% over the past five years.

The ‘risk factor’ is calculated by first constructing an equal-weight portfolio of all stocks in the ET Carbon Rankings Universe and then constructing a low-carbon tilted version of this portfolio in the same way the ET Low Carbon Indexes are tilted. The carbon factor is then calculated as the difference in return between the tilted and the equalweight portfolios. This can be viewed as the difference in return between a low- and a high-intensity portfolio, formed of the top and bottom halves of the ET Carbon Rankings Universe, respectively. This makes the carbon factor a pure barometer of the performance of carbon-tilted strategies over time.

The ET Global Carbon Risk Factor is now available on Bloomberg under the ticker “ETIXCRBF Index”.

TABLE 1: ET GLOBAL 800 LOW CARBON INDEX SERIES PERFORMANCE OVER 5 YEARS TO END OCTOBER 2016.

ET Index Research analysis reveals that companies in the top half of the 2015 ET Global 800 Carbon Ranking, that is the most carbon-efficient 400 global companies, have experienced greater Return on Equity, Return on Assets, Growth in Net Income, and Growth in Revenue over the past year to October 2016 than companies in the bottom half.20

FIGURE 1: THE ET GLOBAL CARBON RISK FACTOR


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UNDERSTANDING THE ET CARBON RANKINGS: SECTOR BREAKDOWN

The 2016 ET Carbon Rankings measure the carbon efficiency of the world’s largest 2,000 listed companies, making up 85% of global stock market value. They account for approximately $45 trillion in market capitalisation and approximately 9.5 billion tonnes of CO2 in direct emissions, an amount that exceeds the combined total emissions of the United States, Canada and the European Union.

Figure 2 and Table 2 provide a breakdown of the global ET Carbon Ranking Universe, highlighting the percentage represented by each SICS sector across the 2,000 largest listed companies. Financials makes up 19%, with Infrastructure accounting for 13%, followed by Technology & Communications with 11%.

FIGURE 2: SECTOR BREAKDOWN OF THE ET CARBON RANKING UNIVERSE – 2,000 LARGEST LISTED COMPANIES.

Financials

Infrastructure Technology and Communications Resource Transformation Non−Renewable Resources Consumption II

Services

Transportation

Health Care

Consumption I Renewable Resources and Alternative Energy

0

5

10

Percentage of companies

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15

20

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UNDERSTANDING THE ET CARBON RANKINGS

To understand the Rankings results it is important to understand the sector composition of the Rankings Universe. For a breakdown of the ET Sector Carbon Leaders, that is the most carbon efficient companies in each SICS sector that report complete data, please refer to page 38.

SICS sector

For the ET Industry Carbon Leaders, the list reserved for the most carbon efficient company in each SICS industry that discloses complete data, please refer to page 40. The full ET Carbon Ranking can be viewed online at etindex.com.

Number of Companies

Percentage

Consumption I

127

6.4%

Consumption II

155

7.8%

Financials

380

19.2%

Health Care

129

6.5%

Infrastructure

260

13.1%

Non-Renewable Resources

209

10.5%

9

0.5%

Resource Transformation

210

10.6%

Services

139

7.0%

Technology and Communications

228

11.5%

Transportation

138

7.0%

Renewable Resources and Alternative Energy

TABLE 2: SECTOR BREAKDOWN OF THE ET CARBON RANKING UNIVERSE – 2,000 LARGEST LISTED COMPANIES.

The ET Carbon Rankings use the Sustainable industry Classification System™ (SICS®) from SASB®, the Sustainability Accounting Standards Board®. The SICS categorises companies into 10 sectors, 35 subsectors and 80+ industries in accordance with their resource intensity, sustainability impact, and sustainability innovation potential. SASB splits the Consumption sector into Consumption I, covering food and drink, and Consumption II, covering consumer goods. See page 54 of the appendix for the full taxonomy.


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DISCLOSURE

Disclosure is the first step towards managing and reducing emissions. The proof is in the data. Companies that report their emissions are making rapid progress in decarbonising their operations. Among the world’s 800 largest listed companies 363 reported their Scope 1 and 2 emissions. These disclosing companies increased their carbon efficiency by an average of 15% from 2015 to 2016, from 221 tonnes of carbon dioxide to 189 tonnes for every million dollars of revenue. This reduction has saved approximately 360 million tonnes of carbon dioxide, roughly equivalent to the annual emissions of Turkey (please see infographic on page 27). Across the entire ET Carbon Ranking global universe of the world’s 2,000 largest listed companies, the 812 companies which disclosed full Scope 1 and 2 emissions increased carbon efficiency by 3%. This figure mirrors the findings of the PwC Low Carbon Economy Index, which shows a global fall in the intensity of country-wide emissions of 2.8% in 2015.21

Companies that make public their emissions data demonstrate that they are monitoring it and are willing to be judged on their efforts. Investors and other stakeholders will form a view of companies that do not make their emissions data public, often assuming the worst. Scope 1 and 2 Disclosure As shown in Figure 3, the number of companies reporting complete Scope 1 and 2 data has remained virtually static since 2015, down 1% from 42% in 2015 to 41% in 2016. Although it has increased since 2011, the first year for which the ET Carbon Rankings employed an intensity-based ranking system. The trend continues towards a greater number of companies having their data independently assured each year, with an increase of 28% since 2011 (from 18% to 23%). ET Index Research expects this trend to continue as the carbon reporting landscape matures.

3a_HistoricalDisclosureCategories_S12_all_data_Publication

FIGURE 3: SCOPE 1 AND 2 DISCLOSURE – 2,000 LARGEST LISTED COMPANIES.

2016 2015 2011 0

25

50

75

100

Percentage of companies Public, complete and third−party assurance

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Public, complete and no third−party assurance

Incomplete

No public data

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Scope 3 Disclosure Scope 3 disclosure is improving rapidly. The proportion of companies reporting all 15 Scope 3 categories increased from 1% to 2% between 2015 and 2016. The proportion of companies reporting 10 or more Scope 3 categories has increased from 1% to 3% over the same period. ET Index Research expects to see the number of companies reporting full Scope 3 data grow exponentially as the Science Based Targets Initiative gathers momentum. The proportion could quickly reach 10% as 200 companies have already signed up to the initiative at time of publication, committing to set carbon emissions reduction targets in line with a 2 °C scenario. Of particular relevance to the ET Carbon Rankings is the requirement that companies carry out a full Scope 3 (value chain) emissions inventory in order to participate. As shown in Figure 4, a large number of companies are still failing to complete a full Scope 3 inventory whereby all 15 Scope 3 categories are disclosed, including those that are not relevant or material

to the company. However, although all 15 categories are not frequently being disclosed, meaningful numbers are being disclosed in every Scope 3 category by at least one company in every SICS sector. The only Scope 3 category where ET Index Research was unable to find a reasonable number was the Financial industry which did not disclose a meaningful number for Scope 3 Category 15: Investments. Several companies completed a partial inventory for this category but acknowledged that it was far from complete. Where no data is available for a given Scope 3 category at the sector level, the highest reported emissions intensity for that category, from any company in the universe, is used. This is irrespective of the sector. Figure 4 shows that 75% of companies disclosed no Scope 3 data in 2016; in 2015 it was 71%. This reflects a tightening of ET Index Research criteria rather than a fall in disclosure. The Rankings now only recognise Scope 3 data that is broken down by individual Scope 3 category, whereas in previous years a single total Scope 3 number was accepted.

4a_HistoricalDisclosureCategories_S3_all_data_Publication FIGURE 4: SCOPE 3 DISCLOSURE BY CATEGORY AND TREND OVER TIME – 2,000 LARGEST LISTED COMPANIES.

2016 2015 2011 0

25

50

75

100

Percentage of companies 15 Categories Disclosed

10 to 14 Categories Disclosed


No Public Data


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Disclosure by Sector As shown in Figure 5, the Renewable Resources and Alternative Energy SICS sector performs best in terms of the quality of disclosure with 67% of companies reporting complete data and 44% featuring in the top disclosure category: public, complete and third-party assured. However, it is not particularly surprising that this sector performs well, given that being low carbon is a key marketing touch point. The ET Carbon Rankings feature only nine companies in this sector, which includes Vestas Wind Systems. The Resource Transformation sector has the second-best record with 51% of companies disclosing complete data, and 30% having their data independently assured. The Resource Transformation sector is well

represented in the Rankings with 210 companies overall. It includes names such as BASF, Dow Chemical and BAE Systems. The Transportation sector comes third, with 39% of companies disclosing complete information, and 22% of those having their data independently assured. This sector is represented by 138 companies and includes names such as UPS, Deutsche Post and TNT. The Health Care, Financials, and Consumption II (consumer goods) sectors have the lowest levels of disclosure with 32%, 34% and 37% disclosing complete data, respectively. It could be argued that they are traditionally viewed as ‘low risk’ sectors and therefore experience less pressure than more carbon-intensive sectors to disclose.

FIGURE 5: DISCLOSURE AND THIRD-PARTY ASSURANCE LANDSCAPE AND TREND FOR SCOPE 1 & 2 DATA BY SECTOR – 2,000 LARGEST LISTED COMPANIES.

Renewable Resources and Alternative Energy Resource Transformation Consumption I

Non−Renewable Resources Infrastructure

Technology and Communications Transportation

Services

Consumption II

Financials

Health Care

0

25

50

75

100


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Incomplete

No public data

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Figure 6 shows that Scope 3 disclosure follows a similar pattern. The Renewable Resources and Alternative Energy sector ranks first for the percentage of companies disclosing complete Scope 3 data across all

15 categories, with 11%. It is followed by Technology & Communications and Transportation with 5% and 4%, respectively.

FIGURE 6: SCOPE 3 DISCLOSURE BY CATEGORY AND SECTOR – 2,000 LARGEST LISTED COMPANIES.

Renewable Resources and Alternative Energy Technology and Communications Transportation Resource Transformation Non−Renewable Resources Consumption I

Health Care

Infrastructure

Services

Financials

Consumption II

0

25

50

75

100




No Public Data


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20


Disclosure by Region As shown by Figure 7, across the developed markets, Europe leads the pack with the highest levels of public disclosure of Scope 1 and 2 data. Two thirds, 67%, of the ET Europe 300 – Europe’s 300 largest listed companies – disclose complete data and 23% disclose some data, even though it is classified as incomplete according to the ET Carbon Ranking methodology.

Only 43% of North America’s 300 largest listed companies – the ET North America 300 – report complete data across Scope 1 and 2. The Asia-Pacific region, which is a composite of developed and emerging economies, is similar to North America, with 41% of the ET Asia Pacific 300 disclosing complete Scope 1 and 2 data. The lowest level of public disclosure, 12%, is in the ET BRICS 300 which tracks the 300 largest listed companies in Brazil, Russia, India, China and South Africa.

3c_DisclosureCategories_S12_Region FIGURE 7: DISCLOSURE AND THIRD-PARTY ASSURANCE LANDSCAPE AND TREND FOR SCOPE 1 & 2 DATA BY REGION.

ET Global 800 ET Europe 300 ET North America 300 ET Asia− Pacific 300 ET BRICS 300 0

25

50

75

100



The picture is different for Scope 3 disclosure (Figure 8): 7% of Asia Pacific companies disclose 10 or more categories; North America and Europe follow with

Incomplete

No public data

6% and 4%, respectively. Fewer than 1% of BRICS companies disclose 10 or more Scope 3 categories.

4c_DisclosureCategories_S3_Region FIGURE 8: DISCLOSURE BY SCOPE 3 CATEGORY AND REGION

ET Global 800 ET Europe 300 ET North America 300 ET Asia− Pacific 300 ET BRICS 300 0

25

50

75

100


ET INDEX RESEARCH




No Public Data


21

THE IMPORTANCE OF SCOPE 3 (VALUE CHAIN) EMISSIONS

Scope 3 (value chain) emissions represent emissions over which the company has influence but not control, ranging from production and transportation of raw materials to the end use of sold products by a company, or business travel. They are of critical importance to investors because they typically make up 75% of a company’s carbon footprint and therefore reveal their exposure to increased costs across their value chain. Government regulation, the development of low-carbon technologies and consumer demand are among factors which are incentivising low-carbon business models. This affects companies in all sectors but the impact of these factors is easiest to see in high-carbon sectors such as the automobile and fossil fuel industries. Scope 3 Materiality: Automotive sector Automotive companies with higher Scope 3 emissions are exposed to market risks as consumer preference and government support switch to lower and zero emissions vehicles.22 Recent scandals, such as those involving VW and Mitsubishi Motors, indicate how tightening emissions regulations and enforcement of existing rules can lead to rapid shareholder value destruction. Emissions rules are tightening across all G20 countries and more regulators may follow the US Department of Justice in penalising misconduct. The world’s largest automotive manufacturers must be ready to address the environmental and human health impacts of excessive air pollution from their product, including carbon emissions.23

Scope 3 Materiality: Oil, Gas and Coal sector Global action to keep climate change below 2 °C threatens the business model of oil, gas and coal companies. Mark Carney, Governor of the Bank of England, has warned that vast reserves could become unburnable stranded assets, threatening investors with huge losses. However, companies like Exxon can appear carbon-efficient if judged solely on Scope 1 and 2 emissions. This is particularly true for companies that have high revenues and that are relatively carbon-efficient in their process for extracting and distributing fossil fuels. The true impact of a fossil-fuel company is in the use of the products it sells (Scope 3 category 11).24 Including Scope 3 emissions is essential to understanding the carbon efficiency of a company such as Exxon and its exposure to carbon risk. Furthermore, a drop in demand for fossil fuels across the economy will directly affect companies in the supply chain, so understanding the full extent of a company’s carbon exposure throughout the value chain is key to understanding the risk. Figures 9 and 10 confirm previous analysis by ET Index Research and ACCA (the Association of Chartered Certified Accountants), finding that Scope 3 emissions typically account for at least 75% of a company’s carbon footprint.25 The data shows that in the relatively small sample of companies which have disclosed each of the 15 Scope 3 categories, these emissions account for 80% of the total carbon footprint. Across the larger sample of companies that have disclosed at least 10 Scope 3 categories, that number drops to 76%.


ET INDEX RESEARCH

22


Material Scope 3 categories by sector

FIGURE 9: AVERAGE SCOPE 1 AND 2 INTENSITY COMPARED WITH SCOPE 3 INTENSITY AS A PERCENTAGE OF THE TOTAL FOOTPRINT FOR COMPANIES DISCLOSING ALL 15 SCOPE 3 CATEGORIES IN THE ET CARBON RANKING UNIVERSE.

80%

Average Scope 3 as % of Total Intensity

20%

Average Scope 1 and 2 as % of Total Intensity

FIGURE 10: AVERAGE SCOPE 1 AND 2 INTENSITY COMPARED WITH SCOPE 3 INTENSITY AS A PERCENTAGE OF THE TOTAL FOOTPRINT FOR COMPANIES DISCLOSING AT LEAST 10 SCOPE 3 CATEGORIES IN THE ET CARBON RANKING UNIVERSE.

76%

Average Scope 3 as % of Total Intensity

24%

Average Scope 1 and 2 as % of Total Intensity

Table 3 seeks to highlight which of the 15 Scope 3 categories are more likely to be material for any given sector. In every sector, for each Scope 3 category, the maximum percentage of total Scope 3 intensity represented by that category for a single company is shown. The three highest categories for each sector are highlighted in the table and are likely to be ‘material’. Thus, in the Infrastructure sector we can see that Fuel and Energy-related Activities make up 99% of one company’s Scope 3 emissions and Downstream Leased Assets make up 97% of another company’s Scope 3 emissions. Both these categories are likely to be highly material. Conversely, Business Travel, Employee Commuting, Processing of Sold Products and Upstream Leased Assets make up no more than 1% of any company’s Scope 3 emissions within the sector, suggesting these may not be material categories for this sector. The data sample includes all companies that are disclosing 10 or more Scope 3 categories. Thus, the percentages can be considered to be calculated on fairly complete Scope 3 disclosures only. If relatively incomplete disclosures were included, then a sector with a company which disclosed only one category would have a 100% maximum percentage for that particular category. There are likely to be some categories which are material but are not highlighted in this table, because there has not yet been adequate disclosure. The ET Carbon Ranking methodology includes all Scope 3 categories in the analysis of companies in each sector.

ET INDEX RESEARCH


23


SICS sector

Business travel

Capital goods

Downstream leased assets

Downstream transportation and distribution

Employee commuting

End of life treatment of sold products

Franchises

Fuel-and-energy-related activities

Investments

Processing of sold products

Purchased goods and services

Upstream leased assets

Upstream transportation and distribution

Use of sold products

Waste generated in operations

Infrastructure

1%

29%

97%

2%

1%

7%

0%

99%

17%

1%

44%

0%

14%

83%

7%

Financials

49%

12%

0%

33%

81%

1%

0%

34%

0%

0%

51%

0%

0%

1%

19%


1%

17%

0%

9%

1%

34%

0%

74%

2%

0%

51%

0%

2%

99%

2%


52%

92%

9%

5%

26%

7%

1%

65%

8%

1%

70%

6%

18%

88%

1%

Transportation

1%

23%

0%

1%

12%

7%

0%

59%

1%

0%

87%

0%

84%

100%

0%

Consumption I

5%

16%

0%

8%

1%

34%

0%

2%

34%

0%

72%

0%

7%

5%

1%

Health Care

6%

36%

1%

5%

4%

4%

0%

7%

6%

0%

76%

2%

16%

60%

5%


0%

1%

0%

9%

2%

4%

0%

43%

0%

96%

53%

0%

19%

99%

0%

Services

2%

4%

0%

13%

1%

10%

98%

0%

0%

0%

68%

0%

9%

84%

0%

Consumption II

0%

26%

14%

0%

1%

1%

0%

5%

1%

0%

48%

0%

4%

0%

1%


0%

0%

0%

9%

0%

0%

0%

15%

0%

20%

28%

0%

28%

0%

1%

TABLE 3: MAXIMUM PERCENTAGE OF TOTAL SCOPE 3 EMISSIONS INTENSITY BY CATEGORY.


ET INDEX RESEARCH

24

CARBON REDUCTION POTENTIAL: BENCHMARKING MEDIAN CARBON EFFICIENCY The ET Carbon Rankings are designed to encourage investors to shift investment to more carbon-efficient companies, reducing their own exposure to carbon risk and rewarding companies that take action and disclose it. This is intended to drive decarbonisation across the economy, by incentivising each company to become more carbon-efficient. The ET Low Carbon Index Series, which is based on the ET Carbon Rankings, weights investment towards the 50% of companies that are less carbon-intensive and away from the 50% that are more carbon-intensive. Thus, the Index Series rewards companies that achieve greater than median carbon efficiency. In this section, the median carbon-efficiency is used as a benchmark to get a sense of the carbon reduction potential associated with this approach (see Figure 11). Analysis of just the 363 companies that have disclosed complete Scope 1 and 2 emissions in the ET Global 800 reveals that in each sector, if the 50% which are more carbonFIGURE 11:

intensive were to achieve the median level of carbon efficiency, it would save 1.4 billion tonnes of carbon dioxide a year, equivalent to the emissions of Japan, the world’s third largest economy.26 Further analysis reveals that 86% of these savings – 1.2 billion tonnes of carbon dioxide, equivalent to twice the emissions of South Korea – could be made by companies in just five industries: Electric Utilities; Oil and Gas Exploration and Production; Construction Materials; Chemicals; and Real Estate Owners, Developers and Investment Trusts.27 This analysis only looks at those companies that have disclosed complete Scope 1 and 2 emissions, and does not consider the impact of Scope 3 emissions which typically account for 75% of companies’ total emissions. It is safe to assume that far greater savings could be made if the world’s largest companies took action to increase their carbon efficiency to the median level in their sector across the full range of their direct and value chain emissions.

Highest

CARBON REDUCTION POTENTIAL.

Intensity

Reduction to median

Median

Reduction to lowest

Lowest

ET INDEX RESEARCH


25

CARBON REDUCTION POTENTIAL

CARBON REDUCTION POTENTIAL BY SECTOR

Table 4 shows the potential to reduce emissions across the 11 SICS sectors of the economy if every company with an emissions intensity greater than the median value for their sector were to reduce their emissions to achieve that level of carbon efficiency. Three sectors account for 86% of the entire emissions reduction potential, 1.26 billion tonnes of carbon dioxide a year. This is one and a half times the total emissions from global aviation.28

The Infrastructure sector is the most carbon-intensive of all. If the least carbonefficient companies achieved the median level it would cut the sector’s emissions by 53%, saving 579 million tonnes of carbon dioxide per year, slightly more than the total annual emissions of Canada.29 AvalonBay Communities, Swire Pacific and Vinci are among 33 companies disclosing complete data in this sector.

TABLE 4: EMISSIONS REDUCTION POTENTIAL ACROSS THE 11 SECTORS (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Median Intensity for sector (Scope 1 & 2 tCO2e/$m Revenue)

Average Intensity for sector (Scope 1 & 2 tCO2e/$m Revenue)

% Reduction if every Company lowers Emissions to level of Median Intensity (Scope 1 & 2 tCO2e/$m Revenue)

GHG Emissions Reduction Potential if every Company lowers Emissions to level of Median (tCO2e)

1,095,182,247

1,578

327

467

53

579,182,625


31

595

1,753,953,949

2,950

431

488

28

483,076,854


46

198

356,475,870

1,803

91

122

54

192,817,032


52

44

134,408,182

3,032

25

29

43

57,974,508

Consumption I

37

90

97,653,019

1,091

63

70

29

28,392,328

Transportation

28

152

400,877,838

2,637

144

141

5

20,590,672

Health Care

32

21

37,430,119

1,809

11

13

44

16,639,459

Financials

59

5

28,257,454

5,457

3

4

37

10,514,678

Consumption II

23

38

87,684,138

2,326

36

36

6

4,973,246

Services

20

62

42,279,592

685

55

56

11

4,614,909


2

166

2,733,861

16

166

166

–

–

Average

33

188

366,994,206

2,126

123

145

28

127,161,483

Total

363

2,065

4,036,936,269

23,384

1,352

1,592

310

1,398,776,311

Total Revenue ($m)

Total Scope 1+2 Emissions of Disclosing Companies (tCO2e)

694

Weighted Average Carbon Intensity (Scope 1 & 2 tCO2e/$m Revenue)

33

Number of Companies

Infrastructure

SICS sector


ET INDEX RESEARCH

26


Non-Renewable Resources is the second most carbon-intensive SICS sector. If the least carbon-efficient companies achieved the median level it would cut sector emissions by 28%, saving 483 million tonnes of carbon dioxide a year, roughly equivalent to the annual emissions of Saudi Arabia.30 Royal Dutch Shell, Siam Cement and Rio Tinto are among 31 companies disclosing complete data in this sector.

The Resource Transformation sector has the potential to achieve the third greatest savings in emissions and the greatest percentage reduction. If the least carbonefficient companies achieved the median level it would cut sector emissions by 54%, saving 193 million tonnes of carbon dioxide a year, half the annual emissions of Australia.31 Mitsubishi Electric Corp, Siemens and General Electric are among 46 companies disclosing complete data in this sector.

FIGURE 12: SECTORS WITH THE GREATEST ABSOLUTE EMISSIONS REDUCTION POTENTIAL (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Infrastructure Non−Renewable Resources Resource Transformation Consumption I Technology and Communications Health Care

Transportation

Services

Consumption II

Financials Renewable Resources and Alternative Energy

0

500,000,000

1,000,000,000

1,500,000,000

GHG Emissions (tCO2e) GHG Emissions after Reduction Potential Achieved

Figure 12 shows the 11 SICS sectors in order of their potential to reduce absolute carbon emissions, if every company with an emissions intensity greater than the median value were to achieve the same level as the median company within the sector. FIgure 13 shows the 11 SICS sectors ranked in order of their potential to reduce carbon emissions relative to total emissions intensity for the sector, under the same scenario as ET INDEX RESEARCH


Potential Reduction in GHG Emissions (tCO2)

Figure 12 and Table 4. The emissions-intensity reduction potential is shown by calculating the emissions that could be saved if every company with an emissions intensity greater than the median value were to achieve the same level as the median company within the sector. Figure 14 displays country level emissions figures that these reductions can be compared to.

27


FIGURE 13: SECTORS WITH THE GREATEST PROPORTIONAL EMISSIONS REDUCTION POTENTIAL (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Infrastructure Non−Renewable Resources Resource Transformation Consumption I Technology and Communications Health Care

Transportation

Services

Consumption II

Financials Renewable Resources and Alternative Energy

0

200

400

600

800

Carbon intensity (tCO2e/$m Revenue) Carbon Intensity after Reduction Potential Achieved

Potential Reduction in Carbon intensity (tCO2e/$m Revenue)

CANADA 566 MT CO2

IRAN 618 MT CO2

GERMANY 767 MT CO2

FIGURE 14: GLOBAL CO2 EMISSIONS FROM FOSSIL FUEL USE AND CEMENT PRODUCTION 2014

RUSSIAN FEDERATION 1,766 MT CO2 SOUTH KOREA 610 MT CO2

TURKEY 353 MT CO2

UK 415 MT CO2

MEXICO 456 MT CO2 Mt CO2 (million tonnes)

JAPAN 1,279 MT CO2

UNITED STATES 5,335 MT CO2

CHINA 10,541 MT CO2 SAUDI ARABIA 495 MT CO2

BRAZIL 501 MT CO2

0 – 100 100 – 500

1500 – 5000

INDONESIA 453 MT CO2

AUSTRALIA 409 MT CO2

500 – 700 700 – 1500

INDIA 2,342 MT CO2

SOUTH AFRICA 393 MT CO2

> 5000

Source: Emission Database for Global Atmospheric Research (EDGAR)


ET INDEX RESEARCH

28


CARBON REDUCTION POTENTIAL BY INDUSTRY

Infrastructure, Non-Renewable Resources and Resource Transformation are the three SICS sectors with the greatest opportunity to cut carbon. Table 5 delves deeper, looking at the SICS industries within these sectors that have the greatest potential to reduce emissions if every company with an emissions intensity greater than the median value were to achieve the same level as the median company within the sector. The Electric Utilities industry, which includes companies such as American Electric Power, E.ON and Enel, has the greatest potential to reduce emissions. If the least carbon-efficient companies achieved the median level it would save 462 million tonnes of carbon a year, slightly more than the annual fossil fuel and industrial process emissions of Mexico.32 The Oil and Gas Exploration and Production industry, which includes companies such as Royal Dutch Shell, Total and Conoco Phillips, has the next greatest potential to reduce emissions. If the least carbon-efficient companies achieved the median level it would save 294 million tonnes of carbon a year, almost the annual electricity emissions of Poland.33 The third greatest potential for emissions reduction is in the Construction Materials industry, which includes cement companies such as CRH, Siam Cement and LafargeHolcim. This industry could save 175

ET INDEX RESEARCH


million tonnes of carbon a year, slightly less than the emissions of Vietnam, if the least carbon-efficient companies achieved the median level.34 These three industries together with two others, the Chemicals industry and the Real Estate Owners, Developers and Investment Trusts industry have the potential to save nearly 1.2 billion tonnes of carbon a year equivalent to the emissions of Japan - if the least carbon-efficient companies achieved the median level.35 Figure 15 shows the SICS industries within the Infrastructure, Non-Renewable Resources and Resource Transformation SICS sectors in order of their potential to reduce absolute carbon emissions, if every company with an emissions intensity greater than the median value were to achieve the same level as the median company within the industry. Figure 16 shows the SICS industries within the Infrastructure, Non-Renewable Resources and Resource Transformation SICS sectors in order of their potential to reduce carbon emissions relative to the total emissions intensity for the industry. The emissionsintensity reduction potential is shown by calculating the emissions that could be saved if every company with an emissions intensity greater than the median value were to achieve the same level as the median company within the industry.

29


TABLE 5: EMISSIONS REDUCTION POTENTIAL ACROSS 18 INDUSTRIES IN THE INFRASTRUCTURE, NON-RENEWABLE RESOURCES AND RESOURCE TRANSFORMATION SECTORS (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

SICS industry

Number of Companies


Total Emissions of Disclosing Companies (tCO2e)

Total Revenue ($m)

Median Intensity for industry (Scope 1 & 2 tCO2e/$m Revenue)

Average Intensity for industry (Scope 1 & 2 tCO2e/$m Revenue)

% Reduction if every Company lowers Emissions to level of Median Intensity (Scope 1 & 2 tCO2e/$m Revenue)

GHG Emissions Reduction Potential if every company lowers Emissions to level of Median (tCO2e)

Electric Utilities

13

1,030

871,567,417

846

484

723

53

462,340,833

Oil and Gas – Exploration and Production

15

547

1,243,022,897

2,273

418

482

24

294,165,687

Construction Materials

4

2,239

274,397,777

123

807

1,153

64

175,476,159

Chemicals

16

629

261,941,435

417

273

393

56

147,989,602

Real Estate Owners, Developers and Investment Trusts

9

621

107,138,767

172

79

149

87

93,513,175

Industrial Machinery and Goods

8

158

44,092,472

279

33

50

79

34,784,243

Gas Utilities

3

382

28,863,371

76

102

194

73

21,134,869

Oil and Gas – Midstream

3

1,357

90,340,081

67

1,232

1,084

9

8,311,307

Containers and Packaging

2

363

19,130,478

53

275

275

24

4,669,812

Electrical and Electronic Equipment

12

35

21,574,662

615

30

31

15

3,266,246

Metals and Mining

5

463

137,853,744

298

454

408

2

2,665,132

Oil and Gas – Services

3

80

6,796,369

84

51

59

36

2,458,569

Engineering and Construction Services

5

49

19,446,541

399

43

42

11

2,193,748

Aerospace and Defense

8

22

9,736,823

440

17

18

22

2,107,128

Waste Management

1

1,672

36,915,487

22

1,672

1,672

–

–

Integrated Utilities

1

5,231

31,000,022

6

5,231

5,231

–

–

Iron and Steel Producers

1

15

1,543,082

106

15

15

–

–

Home Builders

1

4

250,642

57

4

4

–

–

Average

12

828

178,089,559

352

623

666

39

88,320,199

Total

220

15,725

3,383,701,626

6,685

11,843

12,649

586

1,324,802,983


ET INDEX RESEARCH

30


FIGURE 15: INDUSTRIES WITH THE GREATEST ABSOLUTE EMISSIONS REDUCTION POTENTIAL (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Electric Utilities Oil and Gas − Exploration & Production Construction Materials Chemicals Real Estate Owners, Developers and Investment Trusts Industrial Machinery and Goods Gas Utilities Oil and Gas − Midstream Containers and Packaging Electrical and Electronic Equipment Metals and Mining Oil and Gas − Services Engineering and Construction Services Aerospace and Defense Integrated Utilities Waste Management Home Builders Iron and Steel Producers 0

400,000,000

800,000,000

1,200,000,000

GHG Emissions (tCO2e) Carbon emissions after Reduction Potential Achieved

Potential Reduction in GHG Emissions (tCO2e)

FIGURE 16: INDUSTRIES WITH THE GREATEST PROPORTIONAL EMISSIONS REDUCTION POTENTIAL (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Construction Materials Electric Utilities Real Estate Owners, Developers and Investment Trusts Chemicals Gas Utilities Oil and Gas − Exploration & Production Industrial Machinery and Goods Oil and Gas − Midstream Containers and Packaging Oil and Gas − Services Metals and Mining Engineering and Construction Services Electrical and ElectronicEquipment Aerospace and Defense Integrated Utilities Waste Management Home Builders Iron and Steel Producers 0

2,000

4,000

Carbon Intensity (tCO2e/$m Revenue) Carbon Intensity after Reduction Potential Achieved

ET INDEX RESEARCH



6,000

31


Table 6 shows the best and worst performers in the five most carbon-intensive industries, illustrating the huge differences in Scope 1 and 2 carbon efficiency. In Electric Utilities, the worst performer, Electric Power Development of Japan, is 16 times less carbon-efficient than the industry median and 133 times less efficient than the best performer, Italy’s Terna Rete Eletrrica Nazionale. A similar picture emerges in other industries. It should be noted that the worst performers in this table are at least measuring and disclosing their emissions, an indication that they are also likely to be managing them. In every industry there are many more companies which are not even disclosing their emissions. The best Scope 1 and 2 performers are not necessarily the best when Scope 3 is taken into account. For example, when value chain emissions are added Germany’s E.On is the industry leader in Electric Utlities with a carbon efficiency of 1,869 tCO2e/$m revenue compared with Terna Rete’s 6,588 tCO2e/$m revenue. Table 7 shows the reduction potential if every company within the industries highlighted below were to reduce its emissions to the level of the most carbon-efficient company within the same industry (the ‘lowest’ is

illustrated in Figure 11). Companies should compete on carbon efficiency as they compete in other areas and target industryleading emissions intensity. Analysis of the 363 companies that have disclosed complete Scope 1 and 2 emissions in the ET Global 800 reveals that if every company were to achieve the carbon efficiency of the industry leaders it would save 2.8 billion tonnes of carbon dioxide a year, just below the annual emissions of India.36 The greatest gains can be made within the Oil and Gas – Exploration and Production industry. If every company were to lower its emissions to the level of the best in the industry, savings of 1.22 billion tonnes of carbon dioxide could be made. This is equivalent to twice the annual emissions of South Korea.37 The Electric Utilities industry could save 0.78 billion tonnes of carbon dioxide, equivalent to the emissions of Germany while the Chemicals industry could save 0.25 billion tonnes carbon dioxide, equivalent to the emissions of Ukraine.38 These are not trivial sums and highlight that investors have a key role to play in encouraging all investee companies to align with industry best practice.

TABLE 6: BEST AND WORST CARBON EFFICIENCY PERFORMERS IN THE FIVE MOST CARBONINTENSIVE INDUSTRIES (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Industry Median Intensity Scope 1 & 2 (tCO2e/$m Revenue)

% of Median

Name

Country

SICS industry

Scope 1 & 2 Intensity (tCO2e/$m Revenue)

Terna Rete Elettrica Nazionale SpA

Italy

Electric Utilities

61

484

13%

Electric Power Development Co Ltd

Japan

Electric Utilities

8,127

484

1,679%

Genel Energy Plc

UK

Oil and Gas Exploration and Production

5

418

1%

Cairn Energy Plc

UK

Oil and Gas Exploration and Production

4,123

418

986%

Sika AG

Switzerland


28

807

3%

UltraTech Cement Ltd

India


9,443

807

1,170%

Johnson Matthey Plc

UK

Chemicals

29

273

11%

Petronas Chemicals Group Bhd

Malaysia

Chemicals

13,961

273

5,114%

Prologis Inc

US


3

79

4%

Hopewell Holdings Ltd

Hong Kong


16,440

79

20,810%


ET INDEX RESEARCH

32


TABLE 7:

Figure 17 shows the SICS industries within the Infrastructure, Non-Renewable Resources and Resource Transformation SICS sectors in order of their potential to reduce absolute carbon emissions, if all companies reduced their emissions intensity to the level of the most carbon-efficient company within their industry. Figure 18 shows the SICS industries within the Infrastructure, Non-Renewable Resources

and Resource Transformation SICS sectors in order of their potential to reduce carbon emissions relative to the total emissions intensity for the industry. The emissionsintensity reduction potential is shown by calculating the emissions that could be saved if every company reduced its emissions intensity to the level of the most carbonefficient company within its industry.

Number of Companies


Total Emissions of Disclosing Companies (tCO2e)

Total Revenue ($m)

Minimum Intensity for Industry (Scope 1 & 2 tCO2e/$m Revenue)

Average Intensity for industry (Scope 1 & 2 tCO2e/$m Revenue)

% Reduction if every Company lowers Emissions to level of most Carbon Efficient Intensity (Scope 1 & 2 tCO2e/$m Revenue)

GHG Emissions Reduction Potential if every Company lowers emissions to level of of most carbon efficient (tCO2e)

EMISSIONS REDUCTION POTENTIAL ACROSS 18 INDUSTRIES IN THE INFRASTRUCTURE, NONRENEWABLE RESOURCES AND RESOURCE TRANSFORMATION SECTORS IF ALL COMPANIES LOWERED EMISSIONS TO THE LEVEL OF THE MOST CARBON-EFFICIENT COMPANY (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.


15

547

1,243,022,897

2,273

10

482

98

1,220,978,775

Electric Utilities

13

1,030

871,567,417

846

109

723

89

779,768,017

Chemicals

16

629

261,941,435

417

32

393

95

248,730,805


4

2,239

274,397,777

123

296

1,153

87

238,176,753


9

621

107,138,767

172

3

149

99

106,586,984

Metals and Mining

5

463

137,853,744

298

221

408

52

72,162,609


3

1,357

90,340,081

67

451

1,084

67

60,302,305


8

158

44,092,472

279

10

50

93

41,196,052

Gas Utilities

3

382

28,863,371

76

94

194

75

21,780,144


12

35

21,574,662

615

15

31

59

12,655,628


5

49

19,446,541

399

25

42

50

9,682,108


2

363

19,130,478

53

186

275

49

9,339,624


8

22

9,736,823

440

13

18

42

4,054,821


3

80

6,796,369

84

35

59

57

3,865,787

Waste Management

1

1,672

36,915,487

22

1,672

1,672

–

–


1

5,231

31,000,022

6

5,231

5,231

–

–


1

15

1,543,082

106

15

15

–

–

Home Builders

1

4

250,642

57

4

4

–

–

Average

12

828

178,089,559

352

468

666

71

199,097,510

Total

220

15,725

3,383,701,626

6,685

8,890

12,649

1,068

2,986,462,657

SICS industry

ET INDEX RESEARCH


33


FIGURE 17: INDUSTRIES WITH THE GREATEST ABSOLUTE EMISSIONS REDUCTION POTENTIAL IF ALL COMPANIES LOWERED EMISSIONS TO THE LEVEL OF THE MOST CARBON-EFFICIENT COMPANY IN THEIR INDUSTRY (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Oil and Gas − Exploration & Production Electric Utilities Chemicals Construction Materials Real Estate Owners, Developers and Investment Trusts Metals and Mining Oil and Gas − Midstream Industrial Machinery and Goods Gas Utilities Electrical and Electronic Equipment Engineering and Construction Services Containers and Packaging Aerospace and Defense Oil and Gas − Services Integrated Utilities Waste Management Home Builders Iron and Steel Producers 0

400,000,000

800,000,000

1,200,000,000

GHG Emissions (tCO2e) Carbon emissions after Reduction Potential Achieved

Potential Reduction in GHG Emissions (tCO2e)

FIGURE 18: INDUSTRIES WITH THE GREATEST PROPORTIONAL EMISSIONS REDUCTION POTENTIAL IF ALL COMPANIES LOWERED EMISSIONS TO THE LEVEL OF THE MOST EFFICIENT COMPANY IN THEIR INDUSTRY (COMPANIES DISCLOSING COMPLETE SCOPE 1 & 2 DATA) – WORLD’S 800 LARGEST LISTED COMPANIES.

Construction Materials Electric Utilities Oil and Gas − Midstream Real Estate Owners, Developers and Investment Trusts Chemicals Oil and Gas − Exploration & Production Gas Utilities Metals and Mining Containers and Packaging Industrial Machinery and Goods Oil and Gas − Services Engineering and Construction Services Electrical and ElectronicEquipment Aerospace and Defense Integrated Utilities Waste Management Home Builders Iron and Steel Producers 0

2,000

4,000

6,000

Carbon intensity (tCO2e/$m Revenue) Carbon Intensity after Reduction Potential Achieved



ET INDEX RESEARCH

34

ET GLOBAL CARBON RANKINGS 2016: ET GLOBAL 800 CARBON LEADERS 2016

The ET Global 800 Carbon Rankings rank the 800 largest listed companies in the world according to their carbon efficiency, based on the intensity of their combined Scope 1, 2 and 3 emissions. Computer software company Oracle tops the Rankings. It generates just 34 tonnes of carbon dioxide for every $1 million of revenue, making it nearly four times as carbon-efficient as the company in tenth place. Other companies have lower Scope 1 TABLE 8: ET GLOBAL 800 CARBON LEADERS

ET INDEX RESEARCH

ET Global 800 Carbon Rank

Company name

1

and 2 emissions but its Scope 3 performance puts it firmly at the front of the pack. Table 8 shows the ET Global 800 Carbon Leaders, the top ten most carbon-efficient companies in the ET Global 800. They include four each from North America and Europe and two from Asia Pacific. Five are from the Health Care sector, four from Technology & Communications and one from the Consumption sector covering the manufacture and retail of consumer goods, which are among the most carbon-efficient sectors.

Scope 1, 2 & 3 Intensity (tCO2e/$m Revenue)


Oracle Corp

34

2

Biogen Inc

3

SICS sector

Region

10


North America

40

5

Health Care

North America

Adobe Systems Inc

41

9


North America

4

UCB SA

73

15

Health Care

Europe

5

Amgen Inc

74

17

Health Care

North America

6

Astellas Pharma Inc

75

22

Health Care

Asia-Pacific

7

CSL Ltd

99

43

Health Care

Asia-Pacific

8

Telefonica SA

110

33


Europe

9

Carrefour SA

131

37

Consumption II

Europe

10

Koninklijke KPN NV

133

5


Europe


35

ET GLOBAL CARBON RANKINGS 2016

CARBON EFFICIENCY SECTOR RANKINGS

Some sectors are inherently more carbonintensive than others, so it is no surprise that the financial sector is the most carbon-efficient sector and Resource Transformation, Infrastructure and NonRenewable Resources are at the bottom. Table 9 shows the average rank of each sector across the 2016 ET Global 800 Carbon Ranking along with the average Scope 1, 2 and 3 intensity. As one would expect, the average rank is roughly in line

with the average Scope 1, 2 and 3 intensity for each sector. Notably, Technology & Communications, despite having many highly-ranked companies, has a relatively poor average rank and relatively high average Scope 1, 2 and 3 intensity. This is because this sector also has many companies that are either relatively carbon-intensive, or that are poor disclosers. The same can be said for the Services sector.

Sector rank

SICS sector

Average Rank

Average Scope 1, 2 & 3 Intensity

1

Financials

141

359

2

Consumption II39

194

969

3

Health Care

294

629

4


332

1091

5


397

837

6

Consumption I40

411

1343

7

Transportation

480

2440

8


615

13367

9

Services

628

6409

10

Infrastructure

668

14686

11


686

18779


TABLE 9: AVERAGE ET GLOBAL 800 CARBON RANK BY SECTOR

ET INDEX RESEARCH

36


ET CARBON DISCLOSURE LEADERS 2016

ET Carbon Disclosure Leaders are the companies that are doing most to measure and communicate their carbon exposure. These are companies that are reporting public, complete data for Scope 1 and 2 emissions, obtaining independent assurance of this data, and disclosing all 15 Scope 3 Categories. In 2016 there are 25 companies that make it into the list. Many of them are never likely to feature as one of the top ten most carbon-efficient companies because they are in more carbon-intensive sectors such as Resource Transformation and Infrastructure. Most of them are not even leaders in their own sector. However, these are companies that are proactively seeking to manage their carbon risk exposure.

ET INDEX RESEARCH


By measuring and reporting on carbon emissions across their operations they are demonstrating that they are taking the issue seriously and gathering the information they will need to improve their carbon efficiency. Companies that disclose their Scope 1 and 2 emissions increased their carbon efficiency by 15% from 2015 to 2016, going from 221 tonnes of CO2 per million dollar of revenue to 189. The Asia-Pacific region is the most heavily represented region with 10 companies, followed by Europe with 8, North America with 6, and BRICS with 1. Table 10 includes companies from the ET Carbon Ranking Universe, which covers the world’s 2,000 largest listed companies. Companies in the ET Global 800 Rankings have their rank listed.

37


Revenues $m




Company name

SICS sector

Region

Mondelez International Inc

Consumption I

North America

29,636

573

52

301

Aeon Co Ltd

Consumption II

Asia-Pacific

57,458

124

20

NA

Baxter International Inc

Health Care

North America

9,968

540

70

285

Biogen Inc

Health Care

North America

10,764

40

5

2

Sanofi

Health Care

Europe

38,696

282

28

33

British Land Co PLC/The

Infrastructure

Europe

897

14,162

56

NA

Exelon Corp

Infrastructure

North America

29,447

4,086

426

567

Ferrovial SA

Infrastructure

Europe

10,768

394

56

174

Gas Natural SDG SA

Infrastructure

Europe

28,948

5,494

833

596

Cemex SAB de CV


North America

14,254

4,095

3,388

NA

Kumba Iron Ore Ltd


BRICS

2,847

43,664

422

NA

Royal Dutch Shell PLC


Europe

264,960

2,594

306

509

TOTAL SA


Europe

143,421

4,057

319

566

Akzo Nobel NV


Europe

16,494

1,533

215

441

BASF SE


Europe

78,199

1,846

275

446

Omron Corp


Asia-Pacific

7,746

1,122

36

NA

Toshiba Corp


Asia-Pacific

60,849

1,318

50

NA

Canon Inc


Asia-Pacific

31,405

246

39

29

Konica Minolta Inc


Asia-Pacific

9,167

149

44

NA

NTT DOCOMO Inc


Asia-Pacific

40,074

219

42

22

Sony Corp


Asia-Pacific

75,111

310

16

62

Honda Motor Co Ltd

Transportation

Asia-Pacific

121,848

1,878

43

451

Mazda Motor Corp

Transportation

Asia-Pacific

27,736

1,258

27

NA

Nissan Motor Co Ltd

Transportation

Asia-Pacific

103,994

1,413

32

422

United Parcel Service Inc

Transportation

North America

58,363

489

223

263

TABLE 10: ET CARBON DISCLOSURE LEADERS 2016


ET INDEX RESEARCH

38


ET SECTOR CARBON LEADERS 2016 TABLE 11: ET SECTOR CARBON LEADERS 2016

ET Sector Carbon Leaders are the three most carbon-efficient companies in each sector (based on the intensity of their combined Scope 1, 2 and 3 emissions) that disclose

complete data for Scope 1 and 2. They are drawn from the ET Carbon Ranking Universe, which covers the world’s 2,000 largest listed companies.

Revenues




Company name

SICS sector

Diageo PLC

Consumption I

17,036

497

46

274

Unicharm Corp

Household and Personal Products

6,105

240

27

NA

Uni-President Enterprises Corp

Consumption I

13,109

534

11

NA

Aeon Co Ltd

Consumption II

57,458

124

20

NA

J Sainsbury PLC

Consumption II

38,534

129

36

NA

METRO AG

Consumption II

68,033

129

35

NA

AXA SA

Financials

123,745

292

1

34

Hartford Financial Services Group Inc

Financials

18,377

293

2

35

T&D Holdings Inc

Financials

21,653

292

3

NA

Amgen Inc

Health Care

21,662

74

17

5

Biogen Inc

Health Care

10,764

40

5

2

UCB SA

Health Care

4,302

73

15

4

Barratt Developments PLC

Infrastructure

5,923

582

5

NA

Ferrovial SA

Infrastructure

10,768

394

56

174

Sekisui Chemical Co Ltd

Infrastructure

10,173

445

83

NA

Cie de Saint-Gobain


43,982

1,005

296

415

CRH PLC


26,235

1,541

831

442

ET INDEX RESEARCH


39


TABLE 11: ET SECTOR CARBON LEADERS 2016 (CONTINUED)

Revenues




Company name

SICS sector

Sika AG


5,706

681

28

NA

Vestas Wind Systems A/S


9,350

653

8

375

Weyerhaeuser Co


7,082

1,020

376

416

Mitsubishi Electric Corp


39,522

1,227

31

419

Omron Corp


7,746

1,123

36

NA

Sumitomo Chemical Co Ltd


21,728

1,166

153

NA

Liberty Global PLC

Services

18,280

5,995

27

599

Sky PLC

Services

15,738

5,972

4

598

Twenty-First Century Fox Inc

Services

28,987

5,998

6

607

Adobe Systems Inc


4,796

41

9

3

Oracle Corp


38,226

34

10

1

Proximus SADP


6,673

92

19

NA

Daimler AG

Transportation

165,910

541

20

286

MTR Corp Ltd

Transportation

5,379

471

244

252


Transportation

58,363

223

489

263

MTR Corp ltd

Transportation

5,379

471

244

252


ET INDEX RESEARCH

40


ET INDUSTRY CARBON LEADERS 2016

TABLE 12: ET INDUSTRY CARBON LEADERS 2016

ET Industry Carbon Leaders are the most carbon-efficient companies in each industry (based on the intensity of their combined Scope 1, 2 and 3 emissions) that disclose

complete data for Scope 1 and 2. They are drawn from the ET Carbon Ranking Universe, which covers the world’s 2,000 largest listed companies. Scope 1, 2 & 3 Intensity (tCO2e/$m Revenue)



Company name

SICS industry

Region

Revenues $m

WPP PLC

Advertising and Marketing

Europe

18,700

6,003

7

609

Boeing Co/The


North America

96,114

2,242

14

475

Archer-Daniels-Midland Co

Agricultural Products

North America

67,702

788

265

386


Air Freight and Logistics

North America

58,363

489

223

263

Japan Airlines Co Ltd

Airlines

Asia-Pacific

12,294

1,248

683

NA

Diageo PLC

Alcoholic Beverages

Europe

17,036

497

46

274

Christian Dior SE

Apparel, Accessories and Footwear

Europe

42,195

333

7

99

Stanley Black & Decker Inc

Appliance Manufacturing

North America

11,172

5,352

31

594

Bank of New York Mellon Corp/The

Asset Management and Custody Activities

North America

15,494

340

1

106

Toyota Industries Corp

Auto Parts

Asia-Pacific

19,808

901

1

406

Daimler AG

Automobiles

Europe

165,910

541

20

286

Biogen Inc

Biotechnology

North America

10,764

40

5

2

LIXIL Group Corp

Building Products and Furnishings

Asia-Pacific

15,591

573

49

NA

Sky PLC

Cable and Satellite

Europe

15,738

5,972

4

598

Kangwon Land Inc

Casinos and Gaming

Asia-Pacific

1,444

6,537

49

NA

Sumitomo Chemical Co Ltd

Chemicals

Asia-Pacific

21,728

1,166

153

NA

Intesa Sanpaolo SpA

Commercial Banks

Europe

26,928

294

3

49

Sika AG


Europe

5,706

681

28

NA

Cielo SA

Consumer Finance

BRICS

3,389

317

1

65

ET INDEX RESEARCH


41


TABLE 12: ET INDUSTRY CARBON LEADERS 2016 (CONTINUED)

3M Co


North America

30,274

42,899

186

781

Carnival PLC

Cruise Lines

North America

15,714

7,148

660

652

Galenica AG

Drug Retailers and Convenience Stores

Europe

4,101

2,976

2

NA

E.ON SE

Electric Utilities

Europe

129,003

1,869

649

450

Mitsubishi Electric Corp


Asia-Pacific

39,522

1,227

31

419

Ferrovial SA


Europe

10,768

394

56

174

METRO AG

Food Retailers and Distributors

Europe

68,033

129

35

NA

Weyerhaeuser Co

Forestry and Logging

North America

7,082

1,020

376

416

Hong Kong & China Gas Co Ltd

Gas Utilities

BRICS

3,817

4,755

94

587

Ricoh Co Ltd

Hardware

Asia-Pacific

20,405

154

25

NA

McKesson Corp

Health Care Distributors

North America

179,045

585

1

307

Sekisui Chemical Co Ltd

Home Builders

Asia-Pacific

10,173

445

83

NA

Hilton Worldwide Holdings Inc

Hotels and Lodging

North America

11,272

6,723

236

643

Unicharm Corp

Household and Personal Products

Asia-Pacific

6,105

240

27

NA

L'Oreal SA

Household and Personal Products - Cosmetics

Europe

28,036

2,726

4

512

Omron Corp


Asia-Pacific

7,746

1,122

36

NA

T&D Holdings Inc

Insurance

Asia-Pacific

21,653

292

3

NA

Itau Unibanco Holding SA

Integrated Banks

BRICS

50,428

350

2

134

WEC Energy Group Inc


North America

5,926

13,436

5,231

713

Auto Trader Group PLC

Internet Media and Services

Europe

413

2,157

2

NA

Deutsche Bank AG

Investment Banking and Brokerage

Europe

52,274

332

4

97

Mitsui & Co Ltd


Asia-Pacific

49,413

60,386

15

791

Merlin Entertainments PLC

Leisure Facilities

Europe

1,955

6,559

72

NA

Humana Inc

Managed Care

North America

54,289

583

2

305

Babcock International Group PLC

Marine Transportation

Europe

6,446

4,983

27

NA


ET INDEX RESEARCH

42


TABLE 12: ET INDUSTRY CARBON LEADERS 2016 (CONTINUED)

Danone SA

Meat, Poultry and Dairy

Europe

24,878

583

60

306

Twenty-First Century Fox Inc

Media Production and Distribution

North America

28,987

5,998

6

607

Coloplast A/S

Medical Equipment and Supplies

Europe

2,144

222

20

23

Vale SA

Metals and Mining

BRICS

26,055

11,589

622

697

Aeon Co Ltd

Multiline and Specialty Retailers and Distributors

Asia-Pacific

57,458

124

20

NA

Coca-Cola European Partners PLC

Non-Alcoholic Beverages

Europe

7,011

881

18

NA

Royal Dutch Shell PLC


Europe

264,960

2,594

306

509

Snam SpA


Europe

4,280

8,093

451

661

DCC PLC

Oil and Gas – Refining and Marketing

Europe

17,106

7,710

8

NA

Baker Hughes Inc


North America

15,742

7,941

35

657

Astellas Pharma Inc

Pharmaceuticals

Asia-Pacific

11,403

75

22

6

Uni-President Enterprises Corp

Processed Foods

Asia-Pacific

13,109

534

11

NA

Dai Nippon Printing Co Ltd

Professional Services

Asia-Pacific

13,367

6,265

69

NA

MTR Corp Ltd

Rail Transportation

BRICS

5,379

471

244

252

Klepierre


Europe

1,453

9,631

88

NA

Daito Trust Construction Co Ltd

Real Estate Services

Asia-Pacific

12,371

14,765

4

NA

Starbucks Corp

Restaurants

North America

19,163

6,557

70

625

Hong Kong Exchanges & Clearing Ltd

Security and Commodity Exchanges

BRICS

1,578

328

13

96

QUALCOMM Inc

Semiconductors

North America

25,281

2,016

9

455

Oracle Corp

Software and IT Services

North America

38,226

34

10

1

Proximus SADP

Telecommunications

Europe

6,673

92

19

NA

Imperial Brands PLC

Tobacco

Europe

19,628

558

14

292

Republic Services Inc

Waste Management

North America

9,115

1,881

1,672

452

United Utilities Group PLC

Water Utilities

Europe

2,774

5,538

151

NA

Vestas Wind Systems A/S

Wind Energy

Europe

9,350

653

8

375

ET INDEX RESEARCH


43

ET CARBON RANKING METHODOLOGY: ET CARBON RANKING UNIVERSE

The ET Carbon Ranking Universe covers the largest 2,000 listed companies by market capitalisation in each jurisdiction. The ET Carbon Rankings are comprised of the following global, regional and national Rankings, with carbon data covering the reporting year ending in 2015.

THE ET CARBON RANKINGS: ET Global 800 Carbon Ranking ET North America 300 Carbon Ranking ET Asia-Pacific 300 Carbon Ranking ET Europe 300 Carbon Ranking ET BRICS 300 Carbon Ranking ET US 250 Carbon Ranking ET UK 100 Carbon Ranking ET Carbon Disclosure Leaders ET Sector Carbon Leaders ET Industry Carbon Leaders Please see the appendix for the full results.


ET INDEX RESEARCH

44

ET CARBON RANKING METHODOLOGY

METHODOLOGY

Companies are analysed using a strict quality control framework in order to ascertain a greenhouse gas emissionsintensity metric (tCO2e/$m revenue). The analysis framework for gathering this information is based on the Greenhouse Gas Protocol, the most widely used international accounting tool for greenhouse gas (GHG) emissions. The GHG Protocol classifies GHG emissions according to three Scopes. See Figure 19. Data sources include annual reports, sustainability reports and company websites. The completeness of the data and whether the information has been audited by an independent third party is also recorded. For each company, a Scope 1 and 2 intensity figure is calculated based on the total disclosed Scope 1 and 2 emissions divided by USD million of revenue (Scope 1 and 2/$m revenue). The same applies to Scope 3.

ET INDEX RESEARCH


In cases where a company is not reporting complete information, an inference system is applied. The highest reported emissionsintensity figure from a disclosing company within the most appropriate peer group is applied to the non-disclosing company. This inference is carried out at the most granular industry level possible. For Scope 3, the inference system is applied to each category. This is not an estimate of the company’s emissions; rather it is a means of penalising non-disclosure in order to provide an incentive for disclosure. The ET Carbon Rankings integrate the Sustainable Industry Classification System™ (SICS®) from SASB®, the Sustainability Accounting Standards Board®. The SICS categorises 10 sectors and 80+ industries in accordance with their resource intensity, sustainability impact, and sustainability innovation potential.

45


KNOW YOUR ‘SCOPES’

Scope 1 Emissions – direct emissions from a company’s operational activities.

The Greenhouse Gas Protocol, developed by the World Resources Institute and the World Business Council on Sustainable Development, sets the global standard for how to measure, manage, and report greenhouse gas emissions. Figure 19 shows how greenhouse gases are broken down into three ‘Scopes’.

Scope 2 Emissions – indirect emissions generated from the purchase of electricity. Scope 3 Emissions – all other emissions over which the company has influence but not control, such as distribution of goods, transportation of purchased goods, transportation of waste, disposal of waste, employee commuting, business travel or investments.

FIGURE 19: GREENHOUSE GAS PROTOCOL SCOPE 1, 2 AND 3 EMISSIONS.

CH4

CO2 HFCs

N2O SF6

PFCs

NF3

SCOPE 2 INDIRECT

PURCHASED ELECTRICITY, STEAM, HEATING & COOLING FOR OWN USE

SCOPE 3 INDIRECT

1. PURCHASED GOODS AND SERVICES

4. UPSTREAM TRANSPORTATION AND DISTRIBUTION

DIRECT

SCOPE 3 9. DOWNSTREAM TRANSPORTATION AND DISTRIBUTION

2. CAPITAL GOODS 3. FUEL AND ENERGY RELATED ACTIVITIES

5. WASTE GENERATED IN OPERATIONS

SCOPE 1

7. EMPLOYEE COMMUTING

UPSTREAM ACTIVITIES

12. END-OF-LIFE TREATMENT OF SOLD PRODUCTS

10. PROCESSING OF SOLD PRODUCTS

COMPANY FACILITIES 8. UPSTREAM LEASED ASSETS

6. BUSINESS TRAVEL

INDIRECT

10. DOWNSTREAM LEASED ASSETS

COMPANY VEHICLES

REPORTING COMPANY

11.USE OF SOLD PRODUCTS 15. INVESTMENTS

14. FRANCHISES

DOWNSTREAM ACTIVITIES SOURCES: ET INDEX RESEARCH, GREENHOUSE GAS PROTOCOL


ET INDEX RESEARCH

46


Disclosure categories 1. Public, complete Scope 1 and 2 data, third-party assurance 2. Public, complete Scope 1 and 2 data, no third-party assurance 3. Incomplete Scope 1 and 2 data, no third-party assurance 4. No public data Definitions • Complete data is defined as data covering at least 95% of a company’s worldwide Scope 1 and 2 emissions within an appropriately chosen reporting boundary. Where there is only partial data available, the ET Carbon Ranking methodology accepts a company reporting extrapolated data to achieve 100% coverage for their operations, as this is permissible under the GHG Protocol Corporate Standard, providing the end result is a faithful reflection of a company’s emissions. • Incomplete data is defined as data which represents less than 95% of a company’s worldwide operations; data that is expressed as an intensity metric, such as the amount of CO2 emitted per product produced, rather than as an absolute figure; or data which is not reported clearly under the GHG Protocol definition of Scopes 1, 2 and 3.

• Assured data is defined as having a bona fide independent assurance statement without significant qualification. • Public data is defined as freely available information reported in a company’s sustainability report, annual report, or sustainability-related section of its website (or any other relevant section of the company’s website). • Third-party reporting on behalf of a company, which may involve restrictions or permissions (e.g. reporting to the CDP), is not defined as publicly and freely available.

Greenhouse Gas Emissions are expressed in terms of carbon dioxide equivalent (CO2e). To compare companies of different sizes within one ranking, a company’s total greenhouse gas emissions figure is divided by its revenue to provide an intensity metric for each company (CO2e/$ revenue). In other words, companies are ranked according to the carbon efficiency of their operations.

ET INDEX RESEARCH


47


SPOTLIGHT ON SCOPE 3

Scope 3 emissions can represent the majority of a company’s emissions. This is confirmed within the ET Carbon Rankings data set and is echoed by other groups, including the GHG Protocol.41 It is often among the most challenging areas of carbon accounting. Suppliers in the value chain may, for example, have data confidentiality concerns, and the complexity of a corporation’s value chain means it can be difficult and expensive to find accurate primary data.42 Yet, understanding Scope 3 emissions enables a corporation to pursue the most cost-effective carbon mitigation strategies.43 Accounting for and disclosing Scope 3 enables companies to understand their activities better.44 It also enables companies to benchmark themselves against their peers. Whilst the number of companies reporting some or all elements of Scope 3 is now increasing, it lags behind those reporting Scope 1 and 2, and few corporations calculate and disclose all 15 Scope 3 categories. However, this is likely to improve rapidly with the proliferation of the Science Based Targets initiative, which makes carrying out a complete assessment of each of the 15 Scope 3 categories a mandatory requirement.

performing an assessment of all categories it is difficult to identify which categories are material for any given sector. As Carbon Clear highlighted in their September 2016 report ‘Sustainability Reporting Performance of the FTSE 100’, the highest number of companies to date (66) are now reporting some Scope 3 emissions (with over 70% of these reporting beyond business travel alone) and yet: “Only a quarter of companies in the FTSE 100 are performing materiality assessments of their Scope 3 emissions, suggesting that in many cases the reported Scope 3 categories may be the ones that are the most readily available, rather those which are most significant within the businesses.” 45 Calculating Scope 3 emissions in a cost-effective manner The Scope 3 Evaluator is a free, web-based tool from Greenhouse Gas Protocol and Quantis that makes it easy for companies to measure, report, and reduce emissions throughout their value chain. www.ghgprotocol.org

The notion of materiality is central to Scope 3 accounting. Guidance from the GHG Protocol states that companies may exclude categories if their calculation is not feasible, relevant, or material. Currently, most corporations that report Scope 3 only report a few categories as evidenced by the Scope 3 data highlighted in this report. The objective of the full assessment for the purposes of Science Based Targets and for the purposes of the ET Carbon Rankings is to enable a data-driven assessment of which Scope 3 categories are material to a particular business. Without 2016 CARBON RANKINGS REPORT

ET INDEX RESEARCH

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TREATMENT OF SCOPE 3 IN THE ET CARBON RANKING METHODOLOGY

Since Scope 3 is material from a carbon risk exposure point of view, and typically represents the greatest component of a company’s carbon footprint, the objectives of the ET Carbon Rankings in this regard are:

1. To include Scope 3 emissions in the assessment of a company’s total GHG emissions; rather than ignore them altogether. 2. To encourage complete Scope 3 disclosure across all 15 GHG Protocol categories with a view to having a data driven assessment of which Scope 3 categories are material for any given sector.

OVERCOMING THE LACK OF DATA In the case where a company is reporting a carbon emissions figure for a Scope 3 category, e.g. business travel, this number is accepted. In the case where a company is reporting each of the 15 Scope 3 emissions disclosure categories, each of these emissions figure totals are accepted. In the case where a company is not reporting a carbon emissions number for any given Scope 3 emissions category, the ET Index Research inference system is applied. The highest reported Scope 3 emissions-intensity figure for that Scope 3 category, within the most granular industry level possible, is applied to the non-disclosing company. This is the same logic that is applied across the universe for Scope 1 and 2 emissions and is designed to make use of as much reported Scope 3 data as possible. It also enables Scope 3 data to be included in the overall calculation of a company’s carbon footprint, even though the data disclosed is not yet perfect across the board. The only Scope 3 category where no data was available was in the Financials sector where ET INDEX RESEARCH


there was no meaningful data disclosed for Scope 3 category 15: Investments. Several companies completed a partial inventory for this category but acknowledged that it was far from complete. Where no data is available for a given Scope 3 category at the sector level, the highest reported emissions intensity for that category, from any company in the Rankings Universe, is used. This is irrespective of the sector. In the case of Financials, a Scope 3 Investment category emissions-intensity of 285.8 tCO2e/$m Revenue was applied, which was the highest reported Investment category emissions-intensity in the ET Carbon Ranking Universe (disclosed by a company in the Resource Transformation sector). By way of comparison, the average Scope 1 and 2 emissions intensity across the entire universe, which is a realistic representation of the global economy in which financial firms invest, was 173.9 tCO2e/$m Revenue.


49

DISCLOSURE REQUIREMENTS, CURRENT EMISSIONS AND INTENSITY

From a technical point of view, the ultimate metric for investors to consider when incorporating carbon risk into their valuations of companies would be the net present value of emissions over time. That is, the expected discounted value of the change in cash flows, relative to business as usual, of a company due to its GHG emissions exposure. The current emissions-intensity of a company is a key input into the equation for this net present value of emissions, just as an estimate of a company’s current dividend amount is a core parameter in the dividend discount model of stock prices.46 While analysts may debate the right dividend growth rate number or the right emissions cost growth rate, the current dividend amount and the current emissions-intensity of a company are observable. These observable quantities set the starting point for forecasts of future dividends and future emissions amounts, respectively.

ET Index Research asserts that the process of calculating and publishing Scope 1, 2 and 3 emissions-intensities is consistent with the seven fundamental principles identified by the FSB Task Force on Climate-related Financial Disclosures to:47 • present relevant information; • be specific and complete; • be clear, balanced, and understandable; • be consistent over time; • be comparable among companies within a sector, industry, or portfolio; • be reliable, verifiable, and objective; and • be provided on a timely basis. The ET Carbon Rankings seek to enhance the disclosure of accurate Scope 1, 2 and 3 emissions data to an ever-higher standard each year across all public companies.

To assess the current emissions-intensity of a company, information on the current emissions of that company is required. This must include all relevant Scope 1, 2 and 3 emissions, so that both direct and indirect costs can be estimated.


ET INDEX RESEARCH

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APPENDIX: REGIONAL RESULTS TABLE 13: ET ASIA-PACIFIC 300 CARBON LEADERS

TABLE 14: ET BRICS 300 CARBON LEADERS

ET INDEX RESEARCH

ET AsiaPacific 300 Carbon Rank

Company name

1



SICS sector

Astellas Pharma Inc

75

22

Health Care

2

CSL Ltd

99

43

Health Care

3

Nomura Research Institute Ltd

107

26


4

Aeon Co Ltd

124

20

Consumption II

5

Mitsubishi Corp

141

48

Consumption II

6

Woolworths Ltd

151

61

Consumption II

7

Ricoh Co Ltd

154

25


8

Wesfarmers Ltd

154

77

Consumption II

9

Seven & i Holdings Co Ltd

172

78

Consumption II

10

Olympus Corp

207

149

Health Care



SICS sector

ET BRICS 300 Carbon Rank

Company name

1

Dairy Farm International Holdings Ltd

229

135

Consumption II

2

Magnit PJSC

229

135

Consumption II

3

Jardine Strategic Holdings Ltd

229

135

Consumption II

4

China Grand Automotive Services Co

294

118

Consumption II

5

Suning Commerce Group Co Ltd

294

118

Consumption II

6

Jardine Matheson Holdings Ltd

294

118

Consumption II

7

Sanlam Ltd

306

6

Financials

8

Cielo SA

317

1

Financials

9

Housing Development Finance Corp Ltd

324

5

Financials

10

China Taiping Insurance Holdings Co

328

28

Financials


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APPENDIX

ET Europe 300 Carbon Rank

Company name

1

TABLE 15:



SICS sector

UCB SA

73

15

Health Care

2

Proximus SADP

92

19


3

Telefonica SA

110

32


4

METRO AG

129

35

Consumption II

5

Carrefour SA

131

37

Consumption II

6

Kingfisher PLC

132

25

Consumption II

7

Koninklijke KPN NV

133

5


8

Jeronimo Martins SGPS SA

133

72

Consumption II

9

Tesco PLC

142

48

Consumption II

10

Deutsche Telekom AG

176

57




ET EUROPE 300 CARBON LEADERS

ET North America 300 Carbon Rank

Company name

1

Oracle Corp

34

10


2

Biogen Inc

40

5

Health Care

3

Adobe Systems Inc

41

9


4

Amgen Inc

74

17

Health Care

5

Kroger Co/The

153

59

Consumption II

6

Wal-Mart de Mexico SAB de CV

186

41

Consumption II

7

Home Depot Inc/The

208

32

Consumption II

8

Wal-Mart Stores Inc

219

43

Consumption II

9

Loblaw Cos Ltd

224

135

Consumption II

10

Sysco Corp

229

135

Consumption II

TABLE 16: SICS sector


ET NORTH AMERICA 300 CARBON LEADERS

ET INDEX RESEARCH

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TABLE 17: ET US 250 CARBON LEADERS

TABLE 18: ET UK 100 CARBON LEADERS

ET INDEX RESEARCH

APPENDIX

ET US 250 Carbon Rank



Company name

1

Oracle Corp

34

10


2

Biogen Inc

40

5

Health Care

3

Adobe Systems Inc

41

9


4

Amgen Inc

74

17

Health Care

5

Kroger Co/The

153

59

Consumption II

6

Home Depot Inc/The

208

32

Consumption II

7

Wal-Mart Stores Inc

219

43

Consumption II

8

Sysco Corp

229

135

Consumption II

9

Target Corp

229

53

Consumption II

10

Lowe's Cos Inc

294

118

Consumption II

ET UK 100 Carbon Rank

Company name



1

J Sainsbury PLC

129

36

Consumption II

2

Kingfisher PLC

132

25

Consumption II

3

Tesco PLC

142

48

Consumption II

4

Marks & Spencer Group PLC

188

12

Consumption II

5

Bunzl PLC

189

13

Consumption II

6

Prudential PLC

294

2

Financials

7

Legal & General Group PLC

294

1

Financials

8

St James's Place PLC

295

1

Financials

9

Aviva PLC

296

2

Financials

10

Direct Line Insurance Group PLC

305

4

Financials


SICS sector

SICS sector

APPENDIX

53

INFORMATION FOR REPORTING COMPANIES

In order to enhance a company’s position in the Carbon Ranking, ET Index recommends the following: • Companies publish emissions data for Scope 1, 2 and 3 in a clear and accessible manner, either on the company website, in the sustainability report, integrated report, annual report or across all of the sources mentioned. • Companies should ensure this information has been externally verified to a reasonable standard of assurance, ideally against a specific GHG standard such as ISO 14064-3, but at least against a general assurance standard such as ISAE 3000.

• Companies should calculate and publish comprehensive Scope 3 emissions data according to the GHG protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. This includes explaining and justifying any Scope 3 categories which have not been included. The latest information on verification of Scope 3 can be found at the GHG Protocol and ISO websites. • Make sure that any verification statement is publicly available and is included in the company sustainability report, integrated report or annual report or can be found easily on the company’s website.

ET Index Research offers a service for companies wishing to improve their public reporting and to showcase the actions they are taking on climate change to their stakeholders, including benchmarking against competitors. Please email [email protected] for further information about this service.


ET INDEX RESEARCH

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APPENDIX

SUSTAINABLE INDUSTRY CLASSIFICATION SYSTEM (SICS) TAXONOMY

Level 1 Thematic Sectors

Level 2 Sub-Sectors

Level 3 Industries

Oil & Gas

Oil & Gas – Exploration & Production Oil & Gas – Midstream Oil & Gas – Refining & Marketing Oil & Gas – Services


Coal

Coal Operations

Metals & Mining

Iron & Steel Producers Metals & Mining



Alternative Energy

Biofuels Solar Energy

Renewable Resources & Alternative Energy

Wind Energy Fuel Cells & Industrial Batteries Forestry & Paper

Forestry & Logging Pulp & Paper Products


Chemicals

Chemicals

Industrials

Aerospace & Defense Electrical & Electronic Equipment Industrial Machinery & Goods Containers & Packaging

Food

Agricultural Products Meat, Poultry, & Dairy Processed Foods

Beverages

Non-Alcoholic Beverages Alcoholic Beverages

Tobacco

Tobacco

Retailers

Food Retailers & Distributors Drug Retailers & Convenience Stores

Consumption

Multiline and Specialty Retailers & Distributors E-commerce Apparel & Textiles

Apparel, Accessories & Footwear

Consumer Discretionary Products

Appliance Manufacturing Household & Personal Products Building Products & Furnishings Toys & Sporting Goods

Technology

Electronic Manufacturing Services & Original Design Manufacturing Software & IT Services Hardware


ET INDEX RESEARCH


Semiconductors

Semiconductors

Telecommunications

Telecommunications

Internet Media & Services

Internet Media & Services

APPENDIX

Level 1 Thematic Sectors

Level 2 Sub-Sectors

Level 3 Industries

Consumer Services

Education

55

Professional Services Hospitality & Recreation

Hotels & Lodging Casinos & Gaming Restaurants

Services

Leisure Facilities Cruise Lines Media

Advertising & Marketing Media Production & Distribution Cable & Satellite

Utilities

Electric Utilities Gas Utilities Water Utilities

Infrastructure

Waste Management

Waste Management

Infrastructure

Engineering & Construction Services

Real Estate

Home Builders Real Estate Owners, Developers and Investment Trusts Real Estate Services

Automobiles

Automobiles Auto Parts Car Rental & Leasing

Transportation

Air Transportation

Airlines Air Freight & Logistics



Land Transportation

Rail Transportation Road Transportation

Banking & Investment Banking

Commercial Banks Investment Banking & Brokerage Asset Management & Custody Activities

Financials

Specialty Finance

Consumer Finance Mortgage Finance Security & Commodity Exchanges

Insurance

Insurance

Biotechnology & Pharmaceuticals

Biotechnology Pharmaceuticals

Health Care

Medical Technology

Medical Equipment & Supplies

Health Care Providers

Health Care Delivery Health Care Distributors Managed Care


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APPENDIX

THE ET CARBON RANKING QUALITY ASSURANCE PANEL

The Quality Assurance Panel consists of professionals from different disciplines and backgrounds who review the ET Carbon Ranking methodology, assisting the process of integrating new rules as and when they become feasible and appropriate. The Panel meets at least once a year to discuss, review and vote on any changes made to the methodology. The Panel also has a responsibility to deal with submissions under the ET Carbon Ranking Appeal Procedure. ET Index Research distinguishes between issues of methodology and issues of data accuracy. In the case of a methodology submission, such as comments on disclosure categories or the inference methodology employed, these will be presented to the Panel for review and determination. In the case of a Data Appeal where a company feels its publicly reported information has been inaccurately represented in the Carbon Rankings (e.g. a decimal place is in the wrong place) the Chairman of the Panel will act as the arbiter in any case where ET Index Research and the company in question cannot resolve the issue under the existing Appeal Procedure.

ET INDEX RESEARCH


Michael Mainelli, Panel Chair Alderman Professor Michael Mainelli is Emeritus Mercers’ School Memorial Professor of Commerce at Gresham College, having held the chair from 2005 to 2009. His first degree was in Government from Harvard, followed by mathematics and engineering studies at Trinity College Dublin and a PhD from the London School of Economics in chaotic systems, where he was also a Visiting Professor. Professor Mainelli is Executive Chairman of Z/Yen, the City of London’s leading commercial think-tank and venture firm, which he co-founded in 1994 to promote societal advance through better finance and technology. A qualified accountant (FCCA), securities professional (FCSI), computer specialist (FBCS) and management consultant (FIC), Michael began his career as a research scientist in aerospace (rockets) and computing (architecture & mapping). He later became a senior partner with accountants BDO Binder Hamlyn directing global consulting projects. During the 1990s he worked for the UK Ministry of Defence as Corporate Development Director for Europe’s then largest R&D firm, the Defence Evaluation & Research Agency leading to two privatisations. Career highlights include directing Z/Yen’s Long Finance initiative with Gresham College and the City of London Corporation asking “when would we know our financial system is working?” as well as creating the Global Financial Centres Index, Global Intellectual Property Index, London Accord and Farsight Award. Michael also conceived and produced the first complete digital map of the world in 1983, Mundocart (a 1980’s Google Earth), and the $20 million Geodat consortium cartography project.

APPENDIX

Michael is non-executive Director of the United Kingdom Accreditation Service (UK’s national body for standards and laboratories) and AIM-listed Wishbone Gold Plc. Adam Rose, Panel Secretary An LSE (London School of Economics and Political Science) economic geography graduate, with postgraduate qualifications in management, marketing and corporate governance. Adam is an experienced provider of research services for government, corporate bodies and the investment sectors and has specialized in Risk Management and Socially Responsible Investment research techniques for over 10 years. He has built up several research teams, has been a freelance consultant and research advisor for the SERM Rating Agency, and is now currently corporate governance executive and ratings officer at Pensions Investment Research Consultants Ltd (PIRC). He is co-author of The Handbook of Business Risk Management: A sustainable approach (CIMA/Elsevier), and is contributor to The Due Diligence Handbook (CIMA/ Elsevier). He is currently writing on the subject of corporate governance risk and developing training material for a Sustainable Enterprise Risk Management framework. Adam is also an Affiliate Member of the Institute of Chartered Secretaries and Administrators. Cary Krosinsky, panel member Cary Krosinsky is Executive Officer of the Network for Sustainable Financial Markets. He is lead editor of Evolutions in Sustainable Investing, (along with NSFM participants Nick Robins & Stephen Viederman), a recent book (Wiley, 2012) on the positive strands of SRI, including 15 case studies, regional perspectives and thought leadership from Dan Esty, Paul Hawken, Rory Sullivan, Roger Urwin and a host of others. Cary is also co-editor of a previous book on this subject – Sustainable Investing: the Art of Long Term Performance, also with Nick Robins (Earthscan, 2008).

57

Until October 2012, Cary was Senior Vice President & member of the Management team for Trucost. He also teaches sustainability & investing at Columbia University’s Earth Institute, and an MBA course on the same subject at the University of Maryland’s Robert H. Smith School of Business, and is a frequent speaker on the intersection of sustainability & ownership. He was a member of the Expert Group that helped create the United Nations Principles for Responsible Investment. Cynthia Cummis, panel member Cynthia Cummis is the Deputy Director of GHG Protocol within WRI’s Climate and Energy Program. In this role she manages GHG Protocol’s corporate work which includes activities related to the Corporate, Scope 3 and Product Life Cycle Standards. Cynthia is a well-known expert in GHG accounting and brings more than 15 years of experience working on the issue of global climate change. Prior to WRI, Cynthia was the Director of Carbon Management at Clear Carbon Consulting where she managed carbon quantification and management projects for multiple Fortune 500 clients as well as large public institutions. Ms. Cummis was the Founding Director of U.S. EPA’s Climate Leaders Program, a voluntary program that partnered with businesses to develop corporate-wide greenhouse gas inventories and reduction goals. For more than 5 years, she led the design and implementation of the program and oversaw the growth of the program to more than 90 corporate Partners. Cynthia holds a MPA in environmental policy from Columbia University in New York City and a B.S. from Cornell University in Ithaca N.Y.


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APPENDIX

Stanislas Dupré, panel member Stanislas Dupré initiated the 2° Investing Initiative and now serves as Director. Previously Stanislas Dupré was Executive Director of Utopies (a CSR consultancy) after a career as CSR consultant and R&D manager. Stanislas has been working on 2° investing topics since 2007 when he developed the first assessment methodology for ’financed emissions’ of banks and diversified portfolios (for Caisse d’Epargne/Natixis, the ADEME, WWF and Friends of the Earth). In 2010, he wrote a book about the role of financial institutions in financing the energy transition. Stanislas is also Non-Executive Director of a green private equity fund (NEF-CEM), lecturer at Paris-Dauphine University and member on the expert committees of the NYSE-Euronext Low-Carbon Index and Novethic. He holds stakes in several specialized consultancy firms. Julie Raynaud, panel member Julie Raynaud is a senior sustainability analyst in Kepler cheuvreux’s ESG team, specialising in environmental research. Prior to this, she was a research analyst for Trucost helping organisations measure and manage the environmental impacts associated with their own operations, supply chains and investment portfolios. Julie is an expert in greenhouse gas emissions accounting, assurance and Life Cycle Assessments. She has worked with Puma to produce an environmental profit and loss account, quantifying and valuing in financial terms the cradle-to-gate environmental damages of 19 products and the cradle-to-grave environmental damages of 6 products. She has regularly performed limited assurances (AA1000) of GHG emissions for reporting to the Carbon Disclosure Project, and has screened Life Cycle Assessments in partnership with NSF and the Carbon Fund for GHG compensation and offsetting. Julie was responsible for the data analysis, quality control and communication with 65+ largest companies by market capitalization within the consumer good ET INDEX RESEARCH


sectors for the Newsweek Green Ranking which had 1.5 million hits on its webpage. Matthew Brander, panel member Matthew is a Senior Research Fellow at the Centre for Business and Climate Change at the University of Edinburgh’s Business School. He has moved to academia from a career in consultancy, with over seven years’ experience in greenhouse gas accounting and climate change policy appraisal. He has worked on projects for the UK’s Department for Energy and Climate Change (DECC), the Department for Transport, the Scottish Government, and the Government of Norway, as well as for numerous corporate clients. He is on the peer-review panel for Defra’s conversion factors for company reporting. Matthew is a member of two GHG Protocol technical working groups, one for the forthcoming Policy and Actions Standard, and the second on green power accounting. He has a MSc in Environmental Sustainability from the University of Edinburgh, an MSc by research in philosophy, and an MA in philosophy. He is currently undertaking his doctoral research on the application of consequential methods to corporate greenhouse gas accounting. Julian Poulter, panel member Julian Poulter is the Founder and Executive Director of the Asset Owners Disclosure Project. He is also Business Director of research and advocacy group The Climate Institute, based in Australia. Julian is an experienced business executive with his primary experience in strategy and change consulting combined with several CEO and director roles. He has managed companies and projects in many diverse industries including investment, finance, manufacturing, energy, oil and gas, distribution, retail, telecoms, IT, tourism, transportation, commercial property, and media. He is a stakeholder council member of the Global Reporting Initiative and Chair of the GRI Investor Working Group.

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APPENDIX

References Carbon Tracker (2015) Coal: Caught in the EU Utility Death Spiral. Available at: http://www.carbontracker.org/report/eu_utilities/; Randall, T. (2015) The Latest Sign That Coal Is Getting Killed. Bloomberg July 13, 2015. Available at: http://www.bloomberg. com/news/articles/2015-07-13/the-latest-sign-that-coal-isgetting-killed; HSBC (2015) Stranded Assets, what next? Available at: http://www.businessgreen.com/digital_assets/8779/hsbc_ Stranded_assets_what_next.pdf. 1

The Law Commission (2014) ‘Fiduciary Duties of Investment Intermediaries:’ http://www.lawcom.gov.uk/wp-content/ uploads/2015/03/lc350_fiduciary_duties.pdf; Six Pump Court Chambers (2016) ‘Ignoring climate risk risks liability for pension fund trustees and fund managers:’ http://www.6pumpcourt. co.uk/2016/07/ignoring-climate-risk-risks-liability-for-pensionfund-trustees-and-fund-managers-3/; Center for International Environmental Law (2016) ‘Fiduciary Duty, Divestment and Fossil Fuels in an Era of Climate Risk:’ http://www.ciel.org/wp-content/ uploads/2016/09/Pensions-4Pagerv4.pdf 2

ET Index Research (2015) Special Report 01: The Emerging Importance of Carbon Emission-Intensities and Scope 3 (Supply Chain) Emissions in Equity Returns. Available at: http://etindex. com/images/assets/ET_Index_Special_Report_01_Emerging_ Importance_of_Carbon_and_Scope_3_in_Equity_Returns.pdf 3

4

ACCA (2011) The carbon we’re not counting. Available at: http:// www.accaglobal.com/content/dam/acca/global/PDF-technical/ climate-change/not_counting.pdf 12

https://www.fsb-tcfd.org/publications/#

The fines exceeding $15 billion that Volkswagen has agreed to pay for falsifying emissions related to use of their product are also an example of the importance of value chain. Note though that emissions Volkswagen falsely reported were not GHG emissions. Nevertheless, the scale of the response to their falsification of NOx emissions, indicates the potential future scale of the response to false GHG emissions information.

CO2e is an abbreviation of ‘carbon dioxide equivalent’ and is the internationally recognised measure of greenhouse emissions. There are many types of greenhouse gases, but 6 such gases are controlled by the Kyoto Protocol and the Paris Agreement. This report refers to “carbon” and “greenhouse gas” interchangeably, both referring to CO2e. 13

SASB (2016) Technical Bulletin on Climate Risk. Available at: http://using.sasb.org/sasb-climate-risk-framework/ 14

Clark, P (2015) Mark Carney warns investors face ‘huge’ climate change losses. Financial Times September 30, 2015. Available at: https://www.ft.com/content/622de3da-66e6-11e5-97d01456a776a4f5 15

16

sciencebasedtargets.org/companies-taking-action/

Wigglesworth, R & Foley, S (2016) Active asset managers knocked by shift to passive strategies FTfm April 16, 2016. Available at: https://www.ft.com/content/2e975946-fdbf-11e5b5f5-070dca6d0a0d; Mooney, A (2016) Passive funds grow 230% to $6trn FTfm May 29 2016 Available at https://www.ft.com/ content/2552ce62-2400-11e6-aa98-db1e01fabc0c 17

Marriage, M (2016) 86% of active equity funds underperform. FTfm March 20, 2016. Available at: https://www.ft.com/content/ e555d83a-ed28-11e5-888e-2eadd5fbc4a4 18

5

Special Report 04: The Carbon Risk Factor (EMI – ‘Efficient Minus Intensive’). Available at: http://etindex.com/images/assets/ ET_Index_Special_Report_04_The_Carbon_Risk_Factor.pdf 6

For a detailed list of disclosure rules by jurisdiction, see Phase I Report of the Task Force on Cimate-Related Financial Disclosures: https://www.fsb-tcfd.org/wp-content/uploads/2016/03/Phase_I_ Report_v15.pdf, at 42-43. 7

http://www.wri.org/blog/2015/12/cop21-qa-what-ghgemissions-neutrality-context-paris-agreement 8

Current levels of global carbon dioxide emissions are decreasing annual market returns by an estimated 0.1% per year. This is a very conservative estimate as it does not account for the effect of greenhouse gases other than carbon dioxide. This drag on returns is set to increase due to the increasingly nonlinear link between emissions and an increasing global temperature (Bansal et al, 2016; Matthews et al, 2009; Myles et al, 2009; MacDougall et al, 2016; Leduc et al, 2016; Quéré et al, 2015; PBL NEAA, 2015). 9

Dietz et al. (2016) ‘Climate value at risk’ of global financial assets:’ http://www.nature.com/nclimate/journal/vaop/ncurrent/ full/nclimate2972.html 10

Based on industry averages, the ET Carbon Rankings Universe is estimated to emit roughly 9.5 billion tonnes of CO2e. The European Commission estimates that total 2014 fossil fuel and industrial emissions for the United States, European Union and Canada to be 5.3, 3.4 and 0.6 billion tonnes CO2, respectively. Olivier JGJ, Janssens-Maenhout G, Muntean, M & Peters JAHW (2015) Trends in global CO2 emissions 2015 Report. The Hague: PBL Netherlands Environmental Assessment Agency; Brussels: Joint Research Centre. Available at: http://edgar.jrc.ec.europa. eu/news_docs/jrc-2015-trends-in-global-co2-emissions-2015report-98184.pdf 11

Fernyhough, J (2016) Vanguard and BlackRock branded ‘hypocritical’ FTAdvisor 6 September 2016. Available at: https:// www.ftadviser.com/2016/09/06/investments/vanguard-andblackrock-branded-hypocritical-uIBVgC0QmE2gNpc5jwF90M/ article.html 19

20

Bloomberg, ET Index Research calculations.

PwC (2016) Low Carbon Economy Index 2016. Avaialble at: http://www.pwc.co.uk/services/sustainability-climate-change/ insights/low-carbon-economy-index.html 21

Moody’s (2016) Auto sector faces rising credit risks due to carbon transition. Available at: https://www.moodys.com/ research/Moodys-Auto-sector-faces-rising-credit-risks-dueto-carbon--PR_354984; IIGCC (2016) Investor Expectations of Automotive Companies. Available at: http://www.iigcc.org/ files/publication-files/IIGCC_2016_Auto_report_v13_Web.pdf; Taylor, E (2016) German push to ban combustion-engine cars by 2030 wins support Reuters October 8, 2016. Available at: http://www.reuters.com/article/us-autos-emissions-germanyidUSKCN1280G7 22

Department of Justice ‘Volkswagen to Spend Up to $14.7 Billion to Settle Allegations of Cheating Emissions Tests and Deceiving Customers on 2.0 Liter Diesel Vehicles’ (28 06 2016): https://www.justice.gov/opa/pr/volkswagen-spend-147-billionsettle-allegations-cheating-emissions-tests-and-deceiving; ‘VW Engineer Pleads Guilty in Emissions-Cheating Scandal’ (09 09 2016): http://www.wsj.com/articles/former-vw-engineer-to-pleadguilty-in-emissions-cheating-scandal-1473433341. 23

IEA (2016) IEA releases Oil Market Report for September. Available at: https://www.iea.org/newsroom/news/2016/ september/iea-releases-oil-market-report-for-september.htm; Carbon Tracker (2015) Fossil fuel sector in denial over demand destruction. Available at: http://www.carbontracker.org/in-themedia/fossil-fuel-sector-in-denial-over-demand-destruction/ 24

ACCA (2011) The carbon we’re not counting. Available at: http:// www.accaglobal.com/content/dam/acca/global/PDF-technical/ climate-change/not_counting.pdf 25


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http://uk.reuters.com/article/us-japan-carbonidUKKCN0PR0A220150717 26

27

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2015 Avivation emissions = 781 million tonnes of CO2e. http:// www.atag.org/facts-and-figures.html 28

29

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IBID Reference 15.

(Schaltegger, S. and Csutora, M. (2012) Carbon accounting for sustainability and management. Status quo and challenges. Journal of Cleaner Production. 36: 1-16 42

Schaltegger, S. and Csutora, M. (2012) Carbon accounting for sustainability and management. Status quo and challenges. Journal of Cleaner Production. 36: 1-16 43

Lesourd, J. & Schilizzi, S. (2001) The Environment in Corporate Management. New Directions and Economic Insights. Edward Elgar: London. 44

Carbon Clear (2016) Sustainability Performance of the FTSE 100. Available at: https://carbon-clear.com/files/FTSE_100_ Report_2015.pdf 45

The net present value of emissions can be calculated as the discounted sum of the product of emissions-intensity, revenue and the cost of emissions at each future date. Cost of emissions scenarios play out on a global or regional scale – they are not company specific. Investors may form a view on likely emissions cost scenarios and apply this same view to calculations for all companies. The risk-adjusted discount rate and revenue numbers are very company specific, but this is a part of traditional financial disclosure and analysis, not climate-related disclosure. Thus, the only climate-related element of this equation that a company can inform is its current level of emissions-intensity and the expected changes in this level. While future changes in emissions intensities may be more forecastable than profits, they can only ever be estimates. Thus, the core climate-related disclosure information that a company can produce for these purposes are its current emissions and emissions intensities. 46

SASB SICS Consumption II includes: Food Retailers & Distributors, Apparel, Accessories & Footwear, Drug Retailers & Convenience Stores, Appliance Manufacturing, Multiline and Specialty Retailers & Distributors, Building, Products & Furnishings, E-Commerce, Toys & Sporting Goods. 39

SASB SICS Consumption I includes: Agricultural Products, Alcoholic Beverages, Meat, Poultry & Dairy, Tobacco, Processed Food, Household & Personal Products, Non-Alcoholic Beverages. 40

47

The Greenhouse Gas (GHG) Protocol (2011) Corporate Value Chain (Scope 3) Accounting and Reporting Standard. Available at: http://www.ghgprotocol.org/standards/scope-3-standard; Downie, J. & Stubbs, W. (2011) Evaluation of Australian companies’ scope 3 greenhouse gas emissions assessments. Journal of Cleaner Production. 56(1): 156–163; Stechemesser, K. & Guenther, E. (2012) Carbon accounting: a systematic literature review Journal of Cleaner Production. 36:17-38 41

https://www.fsb-tcfd.org/publication/phase-i/#

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