Carbon reductions generate positive ROI - Carbon Disclosure Project

Carbon reductions
generate positive ROI
Carbon Action report 2012
On behalf of 92 investors
with assets of US$10 trillion
1
Carbon Disclosure Project
info@cdproject.net
+44 (0) 20 7970 5660
www.cdproject.net

2012 Carbon Disclosure Project
Carbon Action Signatories
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 Santander
Banesto
Banque Libano-Francaise
Bâtirente
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 of Japan Inc.
DEXUS Property Group
EEA Group Ltd
Erste Asset Management
Essex Investment Management
Ethos Foundation
F&C Investments
FAPERS- Fundação Assistencial e
Previdenciária da Extensão Rural do Rio
Grande do Sul
2
CDP works with investors globally to advance the investment opportunities and reduce
the risks posed by climate change by asking over 6,000 of the world’s largest companies
to report on their climate change strategies, GHG emissions and energy use in the
standardized Investor CDP format. Institutional investors including banks, pension funds,
asset managers and insurance companies who sign the CDP questionnaire are known as
CDP signatories.
Carbon Action is an investor led initiative from the Carbon Disclosure Project. The aim is
to ensure that portfolio companies undertake cost effective, value enhancing, carbon and
energy efficiency measures to help improve strategic risk management for investors and
companies. All CDP signatories can become Carbon Action Signatories to actively support
this initiative and benefit from the exclusive CDP Carbon Action Engagement Handbook.
For more information, please contact us or visit our website at www.cdproject.net.
FASERN - Fundação COSERN de
Previdência Complementar
Fédéris Gestion d’Actifs
First Affirmative Financial Network, LLC
Generation Investment Management
Global Forestry Capital SARL
GPT Group
Green Cay Asset Management
Henderson Global Investors
Hermes 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
Norfolk Pension Fund
Oppenheim & Co. Limited
Pax World Funds
Pensioenfonds Vervoer
Perpetual Investments
PhiTrust Active Investors
PKA
Portfolio 21 Investments
Q Capital Partners Co. Ltd
Rabobank
Rathbones / Rathbone Greenbank
Investments
Robeco
Rockefeller Financial, Sustainability &
Impact Investing Group
SAM Group
Sampension KP Livsforsikring A/S
Sarasin & 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
Superfund Asset Management GmbH
Swift Foundation
TD Asset Management (TD Asset
Management Inc. and TDAM USA Inc.)
The Children’s Investment Fund
Foundation
The Joseph Rowntree Charitable Trust
The Pension Plan For Employees of the
Public Service Alliance of Canada
The Sisters of St. Ann
The Wellcome Trust
Tri-State Coalition for Responsible
Investment
Union Investment Privatfonds GmbH
VicSuper
Walden Asset Management, a division of
Boston Trust & Investment Management
Company
Westpac Banking Corporation
Zevin Asset Management, LLC

CARBON ACTION 2012
In this report, we offer investors key insights from the
second CDP Carbon Action request and highlight
how to use CDP data contained in the Carbon Action
Engagement Handbook 2012 to improve analysis, support
strategic risk management and facilitate shareholder
engagement.
We find that company investments in reduction projects
are generating attractive returns well in excess of cost
Key achievements:
• Carbon Action has grown from 35 to 92 signatories
representing $10 trillion in assets;
• 61 companies have set new emissions reduction
targets (from the original group of 205); and
3
WHAT IS CDP CARBON ACTION?
1
2
3
Letters sent to 256 companies in 17 high emitting industries, requesting:
- emissions reductions (y-o-y); with
- targets publicly disclosed; and
- ROI-positive investments in projects.
of capital, however, companies need to set more
ambitious targets and reduce emissions to meet the
IPCC target of 1.7% annual reductions in CO 2 e by 2020. 1
We invite investors to sign on to Carbon Action 2013
to engage companies on emissions reductions and to
utilize the extensive company analysis presented in the
Carbon Action Engagement Handbook 2012.
• companies reported reductions of 497 million
tonnes 2 of CO 2 e as a result of emission reduction
activities totaling US$ 11 billion in 2012.
Letters sent to 159 companies in 14 industries with potentially significant supply chain emissions, requesting:
- demonstrate your actions with regard to managing the emissions in your supply chain
Collaborative investor engagement coordinated by the Principles for Responsible Investment (PRI) using
the Carbon Action Engagement Handbook 2012
The development of CDP Carbon Action has been supported by Aviva Investors, Vestas and through advice from
AXA Investment Managers, Catholic Super, CCLA, Hermes Fund Managers, Robeco and Scottish Widows Investment
Partnership. It is backed by a growing group of leading investors including pension funds, asset managers, insurers and
banks, who recognize the importance of climate / energy related strategic risk management and expect to see company
activities resulting in cost-effective management and reductions of 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 CO2 e
reduction) and, as of 2009, Annex 1 emissions were approximately 10% below 1990 levels. Therefore an annual reduction of
1.7% for the remaining period to 2020 is required for Annex 1 countries to achieve the lower IPCC target of a 25% reduction by
1990 levels, and 3.6% for the higher 40% target.
2 Note: 497 million metric tonnes CO2 e represents the sum total of 860 emissions reduction activities reported in question 3.3b of
the 2012 Investor CDP climate change questionnaire by 256 companies in heavy emitting industries. The 238 reported projects
with complete financial information analyzed in this report total 110 million metric tonnes CO 2 e.

What’s new in year two
The Carbon Action 2012 request was expanded to 415
companies, twice the number of 2011 (205), targeting two
discrete samples of global equities:
1) 256 companies in 17 high emitting industries
including Energy, Utilities, Materials, Industrials and
Autos, up from 205 companies in 2011; and
2) 159 companies in 14 industries with the potential
for high supply chain emissions principally in the
Consumer and Technology sectors.
FIGURE 1: SUMMARY OF COMPANY ACTIVITIES
4
Our analysis of the data provided by companies that
responded to the 2012 Investor CDP climate change
questionnaire demonstrates the following:
• carbon reduction activities are generating
satisfactory positive return on investment with
average IRRs of 33% delivering a payback in 3 years;
• high emitting companies that set absolute emissions
reduction targets achieved reductions double the
rate of those without targets with 10% higher
profitability; and
• companies need to set more ambitious emissions
reduction targets and follow through by investing
in projects – nearly half of companies (36 of 87) that
set targets did not report emissions reductions due to
emissions reduction activities (ERA’s) in 2012.
� Automobiles � Energy � Industrials � Materials � Utilities
No. Companies
100
90
80
70
60
50
40
30
20
10
0
8
21
13
30
15
Set a target Intensisty reductions
(y-o-y)
4
20
13
28
13
4
14
7
17
9
Emmision reductions
due to ERA’s

FIGURE 2: COVERAGE UNIVERSE
5
CARBON ACTION GICS 4 SECTOR GICS INDUSTRY
Industries with the
highest emissions
Industries with potentially
high supply chain emissions
Energy Oil, Gas & Consumable Fuels
Utilities
Materials
Industrials
Consumer Discretionary
Consumer Staples
Information Technology
Electric Utilities
Gas Utilities
Independent Power Producers &
Energy Traders
Multi-Utilities
Chemicals
Construction Materials
Metals & Mining
Paper & Forest Products
Air Freight & Logistics
Airlines
Building Products
Commercial Services & Supplies
Industrial Conglomerates
Marine
Road & Rail
Automobiles
Household Durables
Internet & catalogue Retail
Multiline Retail
Specialty Retail
Beverages
Food & Staples Retailing
Food Products
Household Products
Personal Products
Communications Equipment
Computers & Peripherals
Electronic Equipment, Instruments
& Components
Office Electronics
Semiconductors & Semiconductor
Equipment

IRR %
Energy efficiency delivers ROI
Our analysis of reported investments in energy efficiency
and carbon reduction projects demonstrates that carbon
reduction activities are generating positive return on
investment (ROI).
The average ROI is 33%, equivalent to a payback
period of 3 years. With 63% of projects exceeding 30%
ROI and 88% of projects exceeding firm level return on
invested capital (ROIC) 3 , companies that have yet to
invest in carbon reductions are missing high return
opportunities to create financial value for their
investors – irrespective of the environmental benefits.
6
We analyzed 860 emissions reduction activities
reported by our sample of 256 companies in high emitting
industries. Companies disclosed data on investment and
annual savings in question 3.3b of the 2012 Investor CDP
Climate change questionnaire in 2012. 4 Based on reported
financial data to CDP, we calculated the average expected
lifetime and the internal rate of return (IRR) for each of the
emissions reduction activities specified in question 3.3b
(see Fig. 3).
We observed a broad range of projects spanning low
hanging fruit such as behavioral change with high IRRs
exceeding 100% with limited CO 2 e reduction, to low
carbon energy installation with moderate IRRs at 12%
but significant CO 2 e reduction.
FIGURE 3: RETURN ON INVESTMENT FOR EMISSIONS REDUCTION ACTIVITIES
>72
60
48
36
24
12
0
• Product design
• Transportation: use
• Low carbon energy purchase
Other •
• Energy
efficiency:
Processes
• Energy efficiency: building fabric
• Energy efficiency: • Process emissions reductions
building services
• Behavioral change
•
Fugitive emissions reductions
Transportation: fleet •
•
Low carbon energy installation
0 20 40 60 80 100 120 140 >160
Efficiency of emissions reductions
(kg CO 2 e / US$ mn)
3 Return on Invested Capital (ROIC) = Net operating profit after tax divided by fixed assets + non-cash working capital
4 Question 3.3b of 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 of activity, Estimated annual CO 2 e savings, Annual monetary savings (unit currency),
Investment required (unit currency) or Payback period
Source: Carbon Disclosure Project, Company data. Note: the figures in the exhibit above are based on 238 emissions reduction
activities reported by sample of 256 companies in heavy emitting industries. Median IRR and efficiency of CO 2 e reductions are
calculated based on figures reported to Investor CDP in 2012.

Targets are a clear first step
57% of the 256 companies in high emitting industries set
absolute and/or intensity targets for emissions reductions
in 2012. Companies with targets invested 1.1% of
capital expenditure on emissions reduction activities
– more than ten times that of companies without targets
(0.08%) – and achieved year-over-year absolute
reductions in CO 2 e of more than double the rate of
companies without targets (see Fig. 4).
Moreover, at the firm level, companies with published
absolute emissions reductions targets were 10% more
profitable (ROIC=10.2%) than those with intensity targets
or no target at all (ROIC=9.3%) over the trailing twelve
month period.
7
Companies disclosing targets for emissions reductions
generated return on invested capital (ROIC) above industry
median in 14 of 17 high emitting industries.
We encourage investors to focus company
engagement on setting targets as a first step towards
both emissions reductions and return on investment
above industry average.
FIGURE 4: TARGETS, INVESTMENT, REDUCTIONS AND RETURN ON INVESTED CAPITAL
� No Target � Target
12%
10%
8%
6%
4%
2%
0
CO 2 e investment
as %capex
1.1 1.6
Absolute
reduction
Source: Carbon Disclosure Project, Bloomberg.
3.3
6.9
8.8
Intensity
reduction
9.3
10.2
Return on
Invested Capital

Supply chain emissions also require
management and reductions
In 2012, Carbon Action signatories identified 14 consumer
and technology industries with the potential for significant
risk exposure to carbon and energy usage in their supply
chains 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 encourage
action to deliver cost-effective emissions reductions.
While 63% of companies report management of supply
chain Scope 3 emissions and 58% report understanding
long-term climate and energy risks and opportunities in
8
supply chains, we observe that only 32% measure and
just 8% have set reduction targets for supply chain
emissions (see Fig. 5) – mainly consumer companies in
the food, beverage and retail industries (see Fig. 6).
We recommend that investors focus engagement with
companies in industries with potentially significant supply
chain emissions on measurement and setting reduction
targets for supply emissions. The Carbon Action Engagement
Handbook 2012 contains industry-by-industry analysis
to assess company management of supply chain
emissions to facilitate investor engagement.
FIGURE 5: FEW CONSUMER AND TECHNOLOGY COMPANIES ARE SETTING TARGETS TO REDUCE
SUPPLY CHAIN EMISSIONS
70
60
50
40
30
20
10
0
Management of supply
chain emissions
Awareness of supply chain
risks and opportunities
Measurement of supply
chain emissions
Reduction target for
supply chain emissions
FIGURE 6: % OF RESPONDING COMPANIES WITH REDUCTIONS FOR SUPPLY CHAIN EMISSIONS
Food Products
Beverages
Speciality Retail
Food & Staples Retailing
Electronic Equipment, instruments
Communications Equipment
Computers & Peripherals
Office Electronics
Semiconductors & semiconductor
Household Products
Personal Products
Household Durables
Internet and Catalogue Retail
Multiline Retail
Source: Carbon Disclosure Project, Company data.
0 5% 10% 15% 20%

How to use the Carbon Action
Engagement Handbook 2012
CDP produced the Carbon Action
Engagement Handbook 2012 for signatories
to CDP Carbon Action to facilitate company
engagement (in coordination with the UN
Principles for Responsible Investment).
The handbook includes detailed, company
specific analysis on a range of carbon
reduction and energy efficiency activities,
including high emitting industries and those
with potential for high supply chain emissions.
Sign on to Carbon Action 2013
We invite investors to sign up in 2013 to
accelerate cost effective company action on
energy efficiency and carbon reduction.
Signatories will benefit from:
• corporate climate / energy
management data
• analysis
• engagement facilitation
9
A traffic light table providing detailed company
level information is color-coded to highlight
leaders and laggards by industry and is also
available in Excel to support further analysis.
Carbon Action is designed to advance
understanding of portfolio company carbon
management and energy efficiency initiatives
and to improve risk management in areas
including regulation, operations, fiduciary duty
and reputation.

Notes
10

CDP Carbon Action has been generously supported by:
CDP would like to acknowledge the following Carbon Action catalyst group members
for their input to this report:
Matt Christensen
AXA Investment Managers
Emma Herd
Westpac
Helen Wildsmith
CCLA
11
Thomas Deser
Union Investment
Craig Mackenzie
SWIP
Freddie Woolfe
Hermes Fund Managers
Design and production
Danielle Essink-
Zuiderwijk
Robeco
Stephanie Maier
Aviva Investors
Danyelle Guyatt
Catholic Super
Olivia Watson
UNPRI
Production Studios is a Creative, Design and Production Company based in London.
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CDP Contacts
Emanuele Fanelli
Senior Vice President, Investor
Initiatives
+ 44 (0) 20 7415 7030
Emanuele.Fanelli@cdproject.net
Marc Fox
Director, Investor Initiatives
- North America
+1 212 378 2088
Marc.Fox@cdproject.net
Michelle O’Keefe
Director, Technical Reporting
+44 (0) 20 7415 7048
Michelle.O’Keeffe@cdproject.net
Important Notice
12
Esben Madsen
Technical Officer
+44 (0)20 7970 5685
Esben.Madsen@cdproject.net
Kora Cora Krause
Senior Relationship Manager
+49 (0) 30 311 777161
kora.cora.krause@cdproject.net
Marcus Norton
Head of Investor Initiatives and Water
Frances Way
Co-Chief Operating Officer –
Programs
Carbon Disclosure Project
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London, EC1R 0NE
United Kingdom
Tel: + 44 (0) 20 7970 5660
Fax: + 44 (0) 20 7691 7316
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