2016 ET CARBON RANKINGS REPORT

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8 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 ET INDEX RESEARCH 2016 CARBON RANKINGS REPORT
EXECUTIVE SUMMARY 9 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. 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 2016 CARBON RANKINGS REPORT ET INDEX RESEARCH
Page 1 and 2: FOREWORD 1 2016 ET CARBON RANKINGS
Page 3 and 4: 3 ABOUT ET INDEX RESEARCH ET Index
Page 5 and 6: FOREWORD 5 The international Financ
Page 7: 7 EXECUTIVE SUMMARY The 2016 ET Car
Page 11 and 12: ENGAGED INDEXES, CARBON RISK AND PE
Page 13 and 14: ENGAGED INDEXES, CARBON RISK AND PE
Page 15 and 16: UNDERSTANDING THE ET CARBON RANKING
Page 25 and 26: CARBON REDUCTION POTENTIAL 25 CARBO
Page 27 and 28: CARBON REDUCTION POTENTIAL 27 Infra
Page 29 and 30: CARBON REDUCTION POTENTIAL 29 TABLE
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Page 35 and 36: ET GLOBAL CARBON RANKINGS 2016 35 C
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Page 43 and 44: 43 ET CARBON RANKING METHODOLOGY: E
Page 45 and 46: ET CARBON RANKING METHODOLOGY 45 KN
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Page 51 and 52: APPENDIX 51 ET Europe 300 Carbon Ra
Page 53 and 54: APPENDIX 53 INFORMATION FOR REPORTI
Page 55 and 56: APPENDIX 55 Level 1 Thematic Sector
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APPENDIX 59 References 1 Carbon Tra
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FOREWORD 61 2016 CARBON RANKINGS RE
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2016 ET CARBON RANKINGS REPORT

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