CDP Carbon Action 2012

7/29/2019 CDP Carbon Action 2012

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Carbon reductionsgenerate positive ROI

Carbon Action report 2012

On behal o 92 investorswith assets o US$10 trillion

Carbon Disclosure [email protected]+44 (0) 20 7970 5660www.cdproject.net


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AEGON N.V.

APG

ATI Asset Management

Australian Ethical Investment

Aviva Investors

Aviva plc

AXA Investment Managers

Banca Monte dei Paschi di Siena Group

Banco SantanderBanesto

Banque Libano-Francaise

Btirente

BBVA

Blumenthal Foundation

Boston Common Asset Management,

LLC

BT Financial Group

Calvert Investment Management, Inc

Catholic Super

CCLA Investment Management Ltd

Ceres

Clean Yield Asset Management

ClearBridge Advisors

Commonwealth Superannuation

Corporation

Connecticut Retirement Plans and Trust

Funds

Dalton Nicol Reid

Development Bank o Japan Inc.

DEXUS Property Group

EEA Group Ltd

Erste Asset Management

Essex Investment Management

Ethos FoundationF&C Investments

FAPERS- Fundao Assistencial e

Previdenciria da Extenso Rural do Rio

Grande do Sul

FASERN - Fundao COSERN de

Previdncia Complementar

Fdris Gestion dActis

First Airmative Financial Network, LLC

Generation Investment Management

Global Forestry Capital SARL

GPT Group

Green Cay Asset Management

Henderson Global InvestorsHermes Fund Managers

Holden & Partners

Ilmarinen Mutual Pension Insurance

Company

Insight Investment Management (Global)

Ltd

Investec Asset Management

Jupiter Asset Management

Kaiser Ritter Partner Privatbank AG

Keva

KLP

Legal & General Investment Management

Lloyds Banking Group

London Pensions Fund Authority

Mercy Investment Services, Inc.

Mergence Investment Managers

Mn Services

Mongeral Aegon

MTAA Superannuation Fund

Nathan Cummings Foundation, The

Neuberger Berman

Norolk Pension Fund

Oppenheim & Co. Limited

Pax World Funds

Pensioenonds VervoerPerpetual Investments

PhiTrust Active Investors

PKA

Portolio 21 Investments

Q Capital Partners Co. Ltd

Rabobank

Rathbones / Rathbone Greenbank

Investments

Robeco

Rockeeller Financial, Sustainability &

Impact Investing Group

SAM Group

Sampension KP Livsorsikring A/SSarasin & Cie AG

Schroders

Scottish Widows Investment Partnership

Shinhan BNP Paribas Investment Trust

Management Co., Ltd

Signet Capital Management Ltd

Sompo Japan Insurance Inc.

Strathclyde Pension Fund

Superund Asset Management GmbH

Swit Foundation

TD Asset Management (TD Asset

Management Inc. and TDAM USA Inc.)

The Childrens Investment Fund

Foundation

The Joseph Rowntree Charitable Trust

The Pension Plan For Employees o the

Public Service Alliance o Canada

The Sisters o St. Ann

The Wellcome Trust

Tri-State Coalition or Responsible

Investment

Union Investment Privatonds GmbH

VicSuper

Walden Asset Management, a division o

Boston Trust & Investment ManagementCompany

Westpac Banking Corporation

Zevin Asset Management, LLC

2012 Carbon Disclosure ProjectCarbon Action Signatories

CDP works with investors globally to advance the investment opportunities and reducethe risks posed by climate change by asking over 6,000 o the worlds largest companies

to report on their climate change strategies, GHG emissions and energy use in thestandardized Investor CDP ormat. Institutional investors including banks, pension unds,asset managers and insurance companies who sign the CDP questionnaire are known asCDP signatories.

Carbon Action is an investor led initiative rom the Carbon Disclosure Project. The aim isto ensure that portolio companies undertake cost eective, value enhancing, carbon andenergy efciency measures to help improve strategic risk management or investors andcompanies. All CDP signatories can become Carbon Action Signatories to actively supportthis initiative and beneft rom the exclusive CDP Carbon Action Engagement Handbook.

For more inormation, please contact us or visit our website at www.cdproject.net.


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CARBON ACTION 2012

In this report, we oer investors key insights rom the

second CDP Carbon Action request and highlighthow to use CDP data contained in the Carbon Action

Engagement Handbook 2012 to improve analysis, support

strategic risk management and acilitate shareholderengagement.

We fnd that company investments in reduction projects

are generating attractive returns well in excess o cost

o capital, however, companies need to set moreambitious targets and reduce emissions to meet theIPCC target o 1.7% annual reductions in CO

2e by 2020.1

We invite investors to sign on to Carbon Action 2013to engage companies on emissions reductions and toutilize the extensive company analysis presented in theCarbon Action Engagement Handbook 2012.

Key achievements:

CarbonActionhasgrownfrom35to92 signatoriesrepresenting $10 trillion in assets;

61 companies have set new emissions reductiontargets (rom the original group o 205); and

companies reported reductions o 497 milliontonnes2 o CO

2e as a result o emission reduction

activities totaling US$ 11 billion in 2012.

WHAT IS CDP CARBON ACTION?

1

Letters sent to 256 companies in 17 high emitting industries, requesting:

- emissions reductions (y-o-y); with- targets publicly disclosed; and

- ROI-positive investments in projects.

2Letters sent to 159 companies in 14 industries with potentially signiicant supply chain emissions, requesting:

- demonstrate your actions with regard to managing the emissions in your supply chain

3Collaborative investor engagement coordinated by the Principles or Responsible Investment (PRI) usingthe Carbon Action Engagement Handbook 2012

The development o CDP Carbon Action has been supported by Aviva Investors, Vestas and through advice romAXA Investment Managers, Catholic Super, CCLA, Hermes Fund Managers, Robeco and Scottish Widows InvestmentPartnership. It is backed by a growing group o leading investors including pension unds, asset managers, insurers and

banks, who recognize the importance o climate / energy related strategic risk management and expect to see companyactivities resulting in cost-eective management and reductions o companies carbon emissions and energy usage.

1 Progress in reducing emissions at the national level has not kept pace with the 2020 IPCC target (25-40% global CO2e

reduction) and, as o 2009, Annex 1 emissions were approximately 10% below 1990 levels. Thereore an annual reduction o1.7% or the remaining period to 2020 is required or Annex 1 countries to achieve the lower IPCC target o a 25% reduction by

1990 levels, and 3.6% or the higher 40% target.

2 Note: 497 million metric tonnes CO2e represents the sum total o 860 emissions reduction activities reported in question 3.3b o

the 2012 Investor CDP climate change questionnaire by 256 companies in heavy emitting industries. The 238 reported projects

with complete fnancial inormation analyzed in this report total 110 million metric tonnes CO2e.


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Whats new in year two

The Carbon Action 2012 request was expanded to 415

companies, twice the number o 2011 (205), targeting twodiscrete samples o global equities:

1) 256 companies in 17 high emitting industriesincluding Energy, Utilities, Materials, Industrials and

Autos, up rom 205 companies in 2011; and

2) 159 companies in 14 industries with the potentialor high supply chain emissions principally in theConsumer and Technology sectors.

Our analysis o the data provided by companies that

responded to the 2012 Investor CDP climate changequestionnaire demonstrates the ollowing:

carbon reduction activities are generatingsatisactory positive return on investment withaverage IRRs o 33% delivering a payback in 3 years;

highemittingcompaniesthatsetabsoluteemissions

reduction targets achieved reductions double therate o those without targets with 10% higherproftability; and

companies need to set more ambitious emissionsreduction targets and ollow through by investingin projects nearly hal o companies (36 o 87) thatset targets did not report emissions reductions due to

emissions reduction activities (ERAs) in 2012.

FIGURE 1: SUMMARY OF COMPANY ACTIVITIES

Automobiles Energy Industrials Materials Utilities

100

90

80

70

60

50

40

30

20

10

0Set a target Intensisty reductions

(y-o-y)Emmision reductions

due to ERAs

30

13

21

8

15

28

13

20

4

13

17

7

14

4

9

No.

Companies


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CARBON ACTION GICS4 SECTOR GICS INDUSTRY

Industries with thehighest emissions

Energy Oil, Gas & Consumable Fuels

Utilities

Electric UtilitiesGas UtilitiesIndependent Power Producers &Energy TradersMulti-Utilities

Materials

ChemicalsConstruction MaterialsMetals & MiningPaper & Forest Products

Industrials

Air Freight & LogisticsAirlinesBuilding ProductsCommercial Services & SuppliesIndustrial ConglomeratesMarineRoad & Rail

Industries with potentiallyhigh supply chain emissions

Consumer Discretionary

AutomobilesHousehold DurablesInternet & catalogue RetailMultiline Retail

Specialty Retail

Consumer Staples

BeveragesFood & Staples RetailingFood ProductsHousehold ProductsPersonal Products

Inormation Technology

Communications EquipmentComputers & PeripheralsElectronic Equipment, Instruments& ComponentsOfce Electronics

Semiconductors & SemiconductorEquipment

FIGURE 2: COVERAGE UNIVERSE


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Energy efciency delivers ROI

Our analysis o reported investments in energy efciency

and carbon reduction projects demonstrates that carbon

reduction activities are generating positive return oninvestment (ROI).

The average ROI is 33%, equivalent to a paybackperiod o 3 years. With 63% o projects exceeding 30%ROI and 88% o projects exceeding frm level return on

invested capital (ROIC)3, companies that have yet toinvest in carbon reductions are missing high returnopportunities to create fnancial value or theirinvestors irrespective o the environmental benefts.

We analyzed 860 emissions reduction activitiesreported by our sample o 256 companies in high emitting

industries. Companies disclosed data on investment andannual savings in question 3.3b o the 2012 Investor CDP

Climate change questionnaire in 2012.4 Based on reported

fnancial data to CDP, we calculated the average expected

lietime and the internal rate o return (IRR) or each o the

emissions reduction activities specifed in question 3.3b

(see Fig. 3).

We observed a broad range o projects spanning low

hanging ruit such as behavioral change with high IRRs

exceeding 100% with limited CO2e reduction, to low

carbon energy installation with moderate IRRs at 12%

but signifcant CO2

e reduction.

FIGURE 3: RETURN ON INVESTMENT FOR EMISSIONS REDUCTION ACTIVITIES

>72

60

48

36

24

12

0

0 20 40 60 80 100 120 140 >160

Product design

Low carbon energy purchase

Energy eiciency:building services

Energy eiciency: building abric

Transportation: use

Process emissions reductions

Other

Energyeiciency:Processes

Behavioral change

Fugitive emissions reductions

Transportation: leet

Low carbon energy installation

Eiciency o emissions reductions(kg CO

2e / US$ mn)

3 Return on Invested Capital (ROIC) = Net operating proft ater tax divided by fxed assets + non-cash working capital4 Question 3.3b o the 2012 Investor CDP Climate Change questionnaire:

For those initiatives implemented in the reporting year, please provide details in the table below:Emission Reduction Activity type, Description o activity, Estimated annual CO

2e savings, Annual monetary savings (unit currency),

Investment required (unit currency) or Payback period

Source: Carbon Disclosure Project, Company data. Note: the fgures in the exhibit above are based on 238 emissions reduction

activities reported by sample o 256 companies in heavy emitting industries. Median IRR and efciency o CO2e reductions are

calculated based on fgures reported to Investor CDP in 2012.


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Targets are a clear frst step

57% o the 256 companies in high emitting industries set

absolute and/or intensity targets or emissions reductions

in 2012. Companies with targets invested 1.1% ocapital expenditure on emissions reduction activities more than ten times that o companies without targets(0.08%) and achieved year-over-year absolutereductions in CO

2e o more than double the rate o

companies without targets (see Fig. 4).

Moreover, at the frm level, companies with publishedabsolute emissions reductions targets were 10% moreproftable (ROIC=10.2%) than those with intensity targetsor no target at all (ROIC=9.3%) over the trailing twelve

month period.

Companies disclosing targets or emissions reductions

generated return on invested capital (ROIC) above industry

median in 14 o 17 high emitting industries.

We encourage investors to ocus companyengagement on setting targets as a frst step towardsboth emissions reductions and return on investmentabove industry average.

FIGURE 4: TARGETS, INVESTMENT, REDUCTIONS AND RETURN ON INVESTED CAPITAL

No Target Target

12%

10%

8%

6%

4%

2%

0

CO2e investment

as %capexAbsolutereduction

Return onInvested Capital

Intensityreduction

1.1 1.6

6.9

9.3

3.3

8.8

10.2

Source: Carbon Disclosure Project, Bloomberg.


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Supply chain emissions also requiremanagement and reductions

In 2012, Carbon Action signatories identifed 14 consumer

and technology industries with the potential or signifcant

risk exposure to carbon and energy usage in their supplychains to receive the 2012 Carbon Action letter. Investors

asked the largest 159 Global 500 and FTSE All-World 800

companies in these industries to manage emissions in their

supply chains by working with suppliers to encourageaction to deliver cost-eective emissions reductions.

While 63% o companies report management o supplychain Scope 3 emissions and 58% report understandinglong-term climate and energy risks and opportunities in

supply chains, we observe that only 32% measure andjust 8% have set reduction targets or supply chain

emissions (see Fig. 5) mainly consumer companies inthe ood, beverage and retail industries (see Fig. 6).

We recommend that investors ocus engagement with

companies in industries with potentially signifcant supply

chain emissions on measurement and setting reduction

targets or supply emissions.The Carbon Action Engagement

Handbook 2012 contains industry-by-industry analysisto assess company management o supply chainemissions to acilitate investor engagement.

FIGURE 5: FEW CONSUMER AND TECHNOLOGY COMPANIES ARE SETTING TARGETS TO REDUCESUPPLY CHAIN EMISSIONS

FIGURE 6: % OF RESPONDING COMPANIES WITH REDUCTIONS FOR SUPPLY CHAIN EMISSIONS

70

60

50

40

30

20

10

0

Management o supplychain emissions

Awareness o supply chainrisks and opportunities

Reduction target orsupply chain emissions

Measurement o supplychain emissions

Food Products

Beverages

Speciality Retail

Food & Staples Retailing

Electronic Equipment, instruments

Communications Equipment

Computers & Peripherals

Ofce Electronics

Semiconductors & semiconductor

Household Products

Personal Products

Household Durables

Internet and Catalogue Retail

Multiline Retail

0 5% 10% 15% 20%

Source: Carbon Disclosure Project, Company data.


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How to use the Carbon ActionEngagement Handbook 2012

Sign on to Carbon Action 2013

CDP produced the Carbon Action

Engagement Handbook 2012 or signatories

to CDP Carbon Action to acilitate company

engagement (in coordination with the UN

Principles or Responsible Investment).

The handbook includes detailed, company

specifc analysis on a range o carbon

reduction and energy efciency activities,

including high emitting industries and those

with potential or high supply chain emissions.

A trafc light table providing detailed company

level inormation is color-coded to highlight

leaders and laggards by industry and is also

available in Excel to support urther analysis.

We invite investors to sign up in 2013 toaccelerate cost eective company action on

energy efciency and carbon reduction.

Signatories will beneft rom:

corporate climate / energy

management data

analysis

engagement acilitation

Carbon Action is designed to advanceunderstanding o portolio company carbon

management and energy efciency initiatives

and to improve risk management in areas

including regulation, operations, fduciary duty

and reputation.


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Notes


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CDP Carbon Action has been generously supported by:

CDP would like to acknowledge the ollowing Carbon Action catalyst group membersor their input to this report:

Matt ChristensenAXA Investment Managers

Emma HerdWestpac

Helen WildsmithCCLA

Thomas DeserUnion Investment

Craig MackenzieSWIP

Freddie WooleHermes Fund Managers

Danielle Essink-ZuiderwijkRobeco

Stephanie MaierAviva Investors

Danyelle GuyattCatholic Super

Olivia WatsonUNPRI

Design and production

Production Studios is a Creative, Design and Production Company based in London.

We specialise in the creation o Communication, Marketing and Advertising materials

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For more inormation on Production Studios visit: www.productionstudios.co.uk

Or email: [email protected]


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CDP Contacts

Emanuele FanelliSenior Vice President, Investor

Initiatives

+ 44 (0) 20 7415 7030

[email protected]

Marc FoxDirector, Investor Initiatives

- North America

+1 212 378 2088

[email protected]

Michelle OKeeeDirector, Technical Reporting

+44 (0) 20 7415 7048

[email protected]

Esben MadsenTechnical Ofcer

+44 (0)20 7970 5685

[email protected]

Kora Cora KrauseSenior Relationship Manager

+49 (0) 30 311 777161

[email protected]

Marcus NortonHead o Investor Initiatives and Water

Frances WayCo-Chie Operating Ofcer

Programs

Carbon Disclosure Project40 Bowling Green LaneLondon, EC1R 0NEUnited KingdomTel: + 44 (0) 20 7970 5660Fax: + 44 (0) 20 7691 [email protected]

Important Notice

The contents of this report may be used by anyone providing acknowledgement is given to Carbon Disclosure Project (CDP). T his does not represent

a license to repackage or resell any of the data reported to CDP or the contributing authors and presented in this report. If you intend to repackage orresell any of the contents of this report, you need to obtain express permission from CDP before doing so.

CDP has prepared the data and analysis in this report based on responses to the CDP 2012 information request. No representation or warranty

(express or implied) is given by CD P or any of its contributors as to the accuracy or completeness of the information and o pinions contained in this

report. You should not act upon the information contained in this publication without obtaining specific professional advice. To the extent permitted

by law, CDP and its contributors d o not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else

acting, or refraining to act, in reliance on the information contained in this report or for any decision based o n it. All information and views expressed

herein by CDP and any of its contributors is based on their judgment at the time of this report and are subject to change without notice d ue to

economic, political, industry and firm-specific factors. Guest commentaries where included in this repo rt reflect the views of their respective authors;

their inclusion is not an endorsement of them.

CDP and its contributors, their affiliated member firms or comp anies, or their respective shareholders, members, partners, principals, directors,

officers and/or employees, may have a position in the securities of the companies discussed herein. The securities of the companies mentioned in

this document may not be eligible for sale in some states or countries, nor suitable for all types of investors; their value and the income they produce

may fluctuate and/or be adversely affected by exchange rates.

Carbon Disclosure Project and CDP refers to Carbon Disclosure Project, a United Kingdom company limited by guarantee, registered as a United

Kingdom charity number 1122330.

2012 Carbon Disclosure Project. All rights reserved.

CDP Carbon Action 2012

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