New report “Global 250 Greenhouse Gas Emitters: A New Business Logic”
Q&A with John Moorhead (JM) and Dr. David Lubin (DL) co-authors of “Global 250 Greenhouse Gas Emitters: A New Business Logic” on the occasion of its launch in Geneva on 31st October 2017Key Take-Aways
- Share of emissions: The Global 250 (G250) are essential partners to emission reduction and decarbonization, since G250 and G15 represent about 1/3 and 10% respectively of anthropogenic GHG (Greenhouse Gas) emissions (at a 60% rate of double counting).
- Leadership benchmark: The G250 needs to reduce GHGs by 3% per year linearly (absolutely and with positive decoupling) and achieve zero GHG emissions by 2050. This reduction rate is compatible with UNEP’s 1.5-degree C pathway and Millar et al., 2017 study on carbon budgets (but not CarbonBrief’s analysis of remaining carbon budgets). About a 1/3 of the G250 have achieved this benchmark from 2014 to 2016 and 12% are in the Science Based Targets initiative
- Sustainability premium There is no evidence of a financial penalty for decarbonization of the G250 and there is emerging evidence of a Sustainability Premium for those that decarbonize in the 2 sectors considered, in the report, Utilities and Automobiles (moderate correlation with Total Returns).
- Decarbonization platform: Due to the dynamic nature of GHG data & performance and as data quality, information and knowledge improves (particularly of Scope 3), this report serves as a starting point for a decarbonization platform.
BSD: How does the report help achieve the low and zero carbon economy? JM: This report quantifies GHG (Greenhouse Gases) emissions of the 250 largest listed emitters (and their value chains). G250 emissions correspond to about a 1/3 of global anthropogenic emissions and the Top 15 about 10%. States can use this information to further partner with these non-state actors to further reduce emissions. For example, a country with a national utility or the EU with an automobile manufacturer.
BSD: In addition to states and managers who else should be interested by this report? JM: Investors to decarbonize the economy and to better understand the carbon risk of their portfolios. The information provided on recent performance combined with companies’ decarbonization targets should be the basis on which companies are engaged with, not simple exclusion (except probably coal), as exclusion does not reduce emissions per se. Policy makers, stock exchanges, cities, NGOs, consumers and stakeholders of the G250 can use the report to better inform their decisions and engage with the G250.
BSD: Is there new evidence that decarbonisation either puts a drag on financial performance or on the contrary provides a sustainability premium? DL: First, we found no evidence that executing decarbonization strategies results in a financial penalty, including reductions in total shareholder returns, reductions in profitability, or other common measure of financial performance. Second, there is emerging evidence of companies driving business opportunity, competitive differentiation, and brand value through effective execution of climate impact management strategies. Keep in mind that for about half the G250, the primary GHG impacts are based on use of their very energy intensive products. Many firms are re-engineering their product offering to drive down energy and natural resource consumption, like Boeing’s new aircraft, or Ingersoll Rand’s newest GHG super-efficient refrigeration. They reduce life cycle costs for end user’s and GHG’s for the planet – and they are driving accelerated growth and profitability for the firms. Likewise, electric utility companies like Xcel who have years of experience integrating renewables, now report to shareholders that their efforts are delivering cost structure advantages to Xcel, in part from lower fuel and maintenance costs. Xcel states that increasing profit margins no longer requires price increases. The report attempts to develop new metrics to identify where companies are on a ‘Maturity Curve’ that depicts their ability to drive such strategic benefits.
BSD: How did the G250 perform? DL: Only 74 (about a 1/3) of the G250 reduced emissions by 3%/year and decoupled growth from emissions (not controlled for inflation). The G250 average decrease was 4% over 2 years (GHG Index = 96) but on average decoupling was negative -2% revenues versus emissions over 2 years (Decoupling Index = 98). Utilities are leading the way in decarbonization (with an average Decoupling Index of 116) whereas Energy is last (Decoupling Index = 77, not controlled for price of fossil fuels) of five sectors. Only 30 (12%) have a Science Based Target (comparable to CDP’s finding of 14% for their sample of high-impact companies) and none are Energy companies; Energy accounted for nearly half of G250 emissions (47%).
BSD: The report mentions a 3% per year emissions reduction rate to stay within 2 degrees, whereas the first report in December 2014 mentioned 1.4% why the difference? JM: As the world puts off cuts in emissions the slope gets steeper to stay within the 2 degrees C carbon budget. There is academic controversy over the remaining Carbon budget with one recent study’s author Professor Myles Allen stating: "For a two in three chance of keeping temperatures within 1.5 C, we'd have to reduce emissions in a straight line to zero from where we are now over the next 40 years”. This would correspond to a 2.5%/year reduction rate (only refers to CO2, ¾ of GHG emissions) from 2017. However, for UNEP, “criticism of this study points to the fact that using different global average temperature data sets in the calculations would not lead to the higher budgets the study uses”. For CarbonBrief there were only 5.2 years left to stay within 1.5 degrees C of the Carbon budget and 20.7 years for 2.0 degrees C from 2015 (4.8 %/year linear reduction rate). According to UNEP 2017 Gap report to stay within 1.5 degrees C the world needs to go from emitting 51.9 GtCO2e/year in 2016 to 8 GtCO2e/year (median) in 2050 which corresponds to a close to 3%/year reduction rate on a linear basis. Given the academic controversy around carbon budgets, the importance of carbon dioxide emissions for the G250 and the uncertainty around particularly non-carbon dioxide GHGs’ performance the report recommends a 3% linear reduction rate so that the G250 reach zero GHG emissions by 2050 at the latest. This rate may change with better information on GHG emissions and carbon budgets.
BSD: So, what next? JM: Our knowledge, information and data about GHG emissions is constantly improving. Reports every few months are helpful but are too static and don’t enable true engagement between corporations and stakeholders. This is the idea of developing a decarbonization platform for the G250 and its stakeholders. Data and analyses can be updated much more dynamically and comprehensively. The idea is to create a “one-stop-shop” on GHG emissions for the G250 and its stakeholders, to promote engagement and partnership to decarbonize the economy and stay well within 2 degrees warming, even 1.5 degrees C. A decarbonization platform would also more easily enable integration of SDG (Sustainable Development Goals) performance for the G250 as well.