19th December 2017 - Engaged Tracking to assess companies against SDGs as it launches latest 2017 carbon rankings
London-based data house and index provider ET Index has rebranded as part of a larger strategic overhaul, which will include a move into assessing companies’ alignment with the United Nations’ Sustainable Development Goals. The decision comes as the ESG-specialist – now named Engaged Tracking – released its annual Carbon Rankings, scoring 2,750 companies globally on their overall carbon emissions intensity (Scope I, II and III). The rankings are based on publicly disclosed information, and the methodology penalises firms that don’t disclose – giving them a ‘worst case’ score. Engaged Tracking plans to widen its coverage as part of its next step. Firstly, it will expand its carbon analysis next year, to reach 3,000 companies. It will also broaden the subject from carbon to the SDGs. Initially, this will focus on assessing the same universe of firms for their alignment with issues including the circular economy, green revenues, water and gender – on which there is already some disclosure. The plan, Gill told RI, was to develop this to cover more sustainability topics over coming years. The information would continue to be publicly disclosed and could form the basis of future index products, he said.
The rankings show the likely suspects at the bottom of the list: non-renewable resource businesses such as coal, steel and cement companies. At the top are nine tech companies. Notably, disclosure of Scope III emissions – those generated by supply chains – has seen a big leap, according to the findings. This is a crucial step forward for those investors interested in carbon risk, because supply chains account for a significant portion of many companies’ footprint. According to Engaged Tracking, 86% of firms’ total emissions come from Scope III emissions. Disclosure on these emissions in Europe has increased to 51% in 2016, from 39% the previous year; and in the US, this figure has risen to 39% from 24% over the same period, it claims. The rankings are publically available and are the basis for Engaged Tracking’s index products.
CEO Sam Gill said Engaged Tracking had “a number” of undisclosed investor clients in Europe and the US, and was discussing its services with stock exchanges. Engaged Tracking is co-chaired by James Cameron, co- founder of Climate Change Capital and Chairman of the Overseas Development Institute and GE’s Ecomagination. It is currently also chaired by Chris Huhne, former UK Secretary of State for Energy and Climate Change, who will be stepping down from his position at the end of the year.
Recently, the firm made a couple of big hires from HSBC: it took on Joaquim de Lima, former Global Head of Quantitative Research at HSBC Global Banking and Markets, and head of the Green Revenues division within HSBC’s climate change index offering, which no longer exists; and Vijay Sumon, former Global Head of Indexation Research in the same division. S&P Dow Jones Indices recently published a report on SDGs, stating that market players with $4trn of assets under management had made commitments to the goals so far, including APG and PGGM in the Netherlands and CalPERS and State Street in the US. However, it calls for “robust metrics” and the development of reporting frameworks in order to move the market forward, adding that many companies say they support SDGs, but on closer inspection this focuses often on single goals – particularly ones linked to providing employment and promoting well-being. “Furthermore, many of these initiatives are aimed at mapping existing programmes to the SDGs, with few companies publically setting targets,” the authors say.
As a result, Trucost – owned by S&P – proposes ‘best practice’ criteria for action on SDGs, including comparable metrics and frameworks focused on those goals that are material to the business, and proposing measurable outcomes so that investors can track performance. S&P acquired Trucost recently, in the first of a series of acquisitions in the ESG data provider space. South Pole was also bought by ISS, and Morningstar upped its stake in Sustainalytics. When asked if Engaged Tracking was in the market for a buyer, given the appetite from some of the larger players, Gill told RI: “At this stage of the company’s journey, a strategic investment from the right partner who can help us scale is more aligned with our ambitions than an acquisition.”
13th December 2017 - Annual global corporate carbon ranking goes live to the public
(London) 13th December 2017 - today marks the release of the 2017 Engaged Tracking (ET) Carbon Rankings.
The ET Carbon Rankings are the only public, fully transparent ranking to score the largest listed 1,000+ corporates globally according to the carbon emissions intensity of their activities.
The rankings represent $39 trillion in market value, $20 trillion in sales, and 5 billion tonnes of CO2 in direct and indirect electricity emissions. This exceeds the combined emissions of the European Union.
The ET Carbon Rankings score companies according to their direct (Scope 1), indirect electricity (Scope 2) and indirect supply chain emissions (Scope 3). The emissions data in the 2017 rankings covers the latest available reported emissions data from 2016.
The full dataset covering over 2,750 companies across the globe is available from Engaged Tracking (ET) Research on request. Further carbon rankings will be released in 2018.
Key findings 2015 to 2016
- Carbon regulation across major global markets either increased or remained static, reflecting the implementation of the 2015 Paris Climate Change Agreement.
- The average carbon emissions intensity of companies decreased in Brazil (-20%), United States (-7%), France (-5%) and the UK (-2%).
- The average carbon emissions intensity of companies increased in Switzerland, Germany, South Africa, Sweden, India, Japan, Canada and Australia. In Australia emissions increased by +5%, the most of any country.
- The average carbon emissions intensity of the Non-Renewable Resources sector decreased by -8.5%, the greatest decrease of any sector.
- The average carbon emissions intensity of the Health Care sector increased by +7.5%, the greatest increase of any sector.
- ET Research found the percentage of companies reporting complete direct and indirect electricity (Scope 1 and 2) emissions data in South Africa and Japan increased, by +9% and +2%, respectively. In Europe it remained static at 69%. In the United States it decreased by -9%.
- ET Research found that supply chain (Scope 3) emissions now typically account for 86% or more of a company’s total carbon footprint.
- ET Research found the percentage of companies reporting all 15 supply chain (Scope 3) emissions categories increased in South Africa (from 8% to 33%), Japan (from 45% to 66%), United States (from 24% to 39%) and Europe (from 39% to 51%).
The publication of the ET Carbon Rankings follows the COP23 Climate Change Conference in Bonn, where world governments further renewed their efforts to lower global greenhouse gas emissions.
Clearly corporates also have a key role to play in decarbonising the global economy. As today’s ranking release highlights, the largest 1,000+ global corporates represent more than the combined emissions of the European Union.
170 countries have now ratified the 2015 Paris Climate Change Agreement and 165 countries have submitted their Nationally Defined Contributions (NDCs) to cutting emissions.
Over 40 countries and more than 20 cities, states and provinces now have carbon pricing mechanisms in place. Significantly, China is poised to introduce the world’s largest emissions trading scheme. Once operational, 25% of global emissions will be subject to some form of carbon pricing.
Implication for investors
As regulation continues to increase to meet the goals of the Paris Agreement, corporates with higher-carbon emissions are expected to be at a competitive disadvantage relative to their more carbon-efficient peers.
The resulting devaluation of carbon-intensive assets represents a considerable carbon risk for investors. Leading investors are already switching to investment strategies that reduce their exposure to high carbon assets.
Investors representing $600bn in assets have commited to decarbonising their portfolios as part of the Portfolio Decarbonization Coalition. 150 investors representing over $10 trillion have made the Montreal Pledge, committing to measure and then reduce the carbon footprint of their portfolios. Over 800 institutions representing $5.5 trillion have committed to divesting from fossil fuels as part of the Fossil Free movement.
Against a backdrop of increasing global regulation and investor awareness of carbon risk, pressure is mounting on companies to disclose their carbon emissions. Yet, clearly there is still a long way to go. ET Research finds that 39% of the companies in the 2017 ET Carbon Rankings do not publicly disclose their direct and indirect electricity (Scope 1 and 2) carbon emissions data.
The urgent need for improved corporate carbon disclosure has been the focus of the G20 Financial Stability Board and its specially created Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations, published this summer, call on companies to publicly disclose their carbon emissions, risk management strategy and decarbonisation plans.
Notably, the TCFD calls on companies to disclose Scope 1 and 2 emissions data, as well as material Scope 3 data. ET Research finds Scope 3 emissions typically account for 86% or more of a company’s total carbon footprint, suggesting that Scope 3 is material for all companies.
The TCFD also provides clear guidance to institutional investors on how to measure and report on their carbon risk exposure. Notably, the TCFD advocates investors stress-test their portfolios to ensure they are correctly managing their carbon risk exposure. However, many asset owners and asset managers clearly still have a long way to go. The Asset Owners Disclosure Project highlighted in its 2017 Global Climate 500 Index that 201 investors are still ‘X-rated Laggards’, meaning they are completely ignoring climate risk.
Engaged Tracking - a toolkit for investors to track and manage carbon risk
The ET Carbon Rankings provide a public, transparent engagement tool for investors to track corporate carbon emissions over time. They also provide the basis of the Engaged Tracking Low Carbon Index Series, the only low carbon index series based on a public, transparent ranking of all constituent companies.
The ET Carbon Rankings reward carbon efficiency and penalise non-disclosure. They are designed to incentivise each company to continuously improve their disclosure standards and lower emissions relative to their peers. The Engaged Tracking approach to index investing is designed to create a clear and transparent link between a company’s carbon emissions and its weighting in the index.
Each company’s rank position in the ET Carbon Ranking Series informs its weighting in the investable ET Low Carbon Index Series. Every ET Low Carbon Index has outperformed its market capitalisation-weighted benchmark over the last 6 years - highlighting it is possible for investors to cut carbon and beat the market.
The ET Low Carbon Index Series includes Scope 3 emissions, which typically account for 86% or more of a company’s carbon risk exposure. Including Scope 3 emissions means the full extent of a company’s carbon risk exposure is not overlooked.
James Cameron, Chair, ET Research
“Following the Paris Climate Change Agreement, 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. 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.”
“Regulators, such as the Governor of the Bank of England & Chair of the Financial Stability Board, have called for greater disclosure from companies. Their primary concern is that without access to the necessary information, investors are unable to effectively manage their exposure to carbon risk. The Engaged Tracking Carbon Rankings provide a data-driven engagement tool for investors to encourage greater corporate carbon disclosure.”
Sam Gill, CEO, ET Research
“The largest 1,000+ global listed global companies account for more emissions than the European Union. With regulation increasingly penalising carbon intensive companies, investors are significantly exposed to the ‘carbon risk’ of high carbon assets losing value.”
“The purpose of the ET Carbon Ranking Series and corresponding ET Low Carbon & Fossil Free Index Series is to help investors reduce exposure to carbon-intensive assets without sacrificing returns. At the same time, the Engaged Tracking approach offers a clear means through which investors can accelerate the transition to a low carbon economy. This is achieved by reallocating capital from carbon-intensive companies to carbon-efficient companies, via a transparent rankings-linked indexing approach that is unique to the market.”