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Significant Risk Seen with Majority of Carbon Emissions Embedded in Supply Chain
New CO2 report from NSF International, Trucost highlights importance of measuring and managing emissions to help prepare for future carbon trading and to reduce costs
Ann Arbor, MI — August 21, 2009 — More than 70 percent of the average industrial service company's carbon emissions are embedded in the company's supply chain, representing a significant financial risk, according to a new report that examines the greenhouse gas (GHG) emissions of S&P 500 companies across sectors.
In "Carbon Emissions — Measuring the Risks," NSF International, a public health and safety organization, and Trucost Plc, a provider of environmental data and analysis, note that many U.S. companies will soon have to pay for greenhouse gas (GHG) emissions under the planned cap-and-trade program. Cap-and-trade is an approach used to control pollution by providing economic incentives to companies achieving reductions in pollutant emissions.
This report looks at the GHGs emitted by S&P 500 companies in several sectors that NSF works with, including chemicals, food and beverage, healthcare, industrial goods and services, personal and household goods, automobiles and parts, and retail.
According to the report, the average major U.S. industrial good/services company emits 1.2 million metric tons of GHGs annually. Over 70 percent of emissions originate from supply chains, representing a serious financial exposure as costs are passed on to manufacturers, according to the report.
Indeed, the cost of carbon may reach as high as 18 percent of earnings for some firms, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA). In addition, companies that compete with more carbon-efficient peers could lose market share, the report asserts.
The report is based on findings from Trucost's study "Carbon Risks and Opportunities in the S&P 500," which assessed GHG emissions, carbon intensity and exposure to carbon costs of S&P companies internationally using publicly disclosed information.
Using Trucost's methodology to provide an overview of each industry's impact on the environment, the key components of the report, Carbon Emissions — Measuring the Risks include:
"Climate change represents serious challenges to the environment, as well as risks and opportunities to U.S. corporations," said Malcolm Fox, vice president for corporate services at Trucost. "The first step in mitigating those risks is to calculate carbon emissions and their potential costs from direct operations and supply chains."
Fox said that the new report presents those impacts industry by industry and identifies critical strategies to prepare for upcoming legislation and turns risks into a competitive advantage. "The average industrial service firm needs to prepare for the fact that over 70 percent of their carbon emissions are embedded in their supply chain, representing a significant financial risk," he said.
The report also highlights other significant environmental challenges facing these industries, looking at which companies are measuring and reporting GHG emissions, which sectors are emitting the most direct operational GHGs, which sectors are most exposed to carbon costs under regulations to control GHG emissions, and, beyond carbon, what the other significant environmental impacts will be for each sector.
"Carbon-intensive companies will be most exposed to carbon costs under the cap-and-trade program to be introduced in 2012 under the draft American Clean Energy and Security Act of 2009 (Waxman-Markey Bill)," said Koen Bontinck, vice president of NSF Sustainability Services. "The goal of this report is to not only provide companies with an affordable analysis of their current operations and exposure to carbon costs, but also to help them implement sustainable business practices and verify their GHG emissions data in preparation for the new regulations."
The report is available (registration required) at www.nsf.org/info/sandpcarbonemissionsreport/.
In "Carbon Emissions — Measuring the Risks," NSF International, a public health and safety organization, and Trucost Plc, a provider of environmental data and analysis, note that many U.S. companies will soon have to pay for greenhouse gas (GHG) emissions under the planned cap-and-trade program. Cap-and-trade is an approach used to control pollution by providing economic incentives to companies achieving reductions in pollutant emissions.
This report looks at the GHGs emitted by S&P 500 companies in several sectors that NSF works with, including chemicals, food and beverage, healthcare, industrial goods and services, personal and household goods, automobiles and parts, and retail.According to the report, the average major U.S. industrial good/services company emits 1.2 million metric tons of GHGs annually. Over 70 percent of emissions originate from supply chains, representing a serious financial exposure as costs are passed on to manufacturers, according to the report.
Indeed, the cost of carbon may reach as high as 18 percent of earnings for some firms, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA). In addition, companies that compete with more carbon-efficient peers could lose market share, the report asserts.
The report is based on findings from Trucost's study "Carbon Risks and Opportunities in the S&P 500," which assessed GHG emissions, carbon intensity and exposure to carbon costs of S&P companies internationally using publicly disclosed information.
Using Trucost's methodology to provide an overview of each industry's impact on the environment, the key components of the report, Carbon Emissions — Measuring the Risks include:
- Carbon benchmarking — Carbon intensity can be used to assess a company's carbon emissions relative to its sector peers. Companies that are more carbon-efficient than their competitors can gain a competitive advantage under carbon constraints, such as carbon pricing.
- Financial risk — The report reveals calculated carbon costs relative to earnings to identify potential profit risk.
- Other environmental impacts — To compare the importance of other environmental impacts for each sector, such as impacts on natural resources, Trucost calculated environmental costs based on the financial value of damages caused by each impact.
- Strategic implications — Companies with more energy efficient operations and supply chains will be well-positioned during the shift to a low-carbon economy to attract investors and increase market share.
"Climate change represents serious challenges to the environment, as well as risks and opportunities to U.S. corporations," said Malcolm Fox, vice president for corporate services at Trucost. "The first step in mitigating those risks is to calculate carbon emissions and their potential costs from direct operations and supply chains."
Fox said that the new report presents those impacts industry by industry and identifies critical strategies to prepare for upcoming legislation and turns risks into a competitive advantage. "The average industrial service firm needs to prepare for the fact that over 70 percent of their carbon emissions are embedded in their supply chain, representing a significant financial risk," he said.The report also highlights other significant environmental challenges facing these industries, looking at which companies are measuring and reporting GHG emissions, which sectors are emitting the most direct operational GHGs, which sectors are most exposed to carbon costs under regulations to control GHG emissions, and, beyond carbon, what the other significant environmental impacts will be for each sector.
"Carbon-intensive companies will be most exposed to carbon costs under the cap-and-trade program to be introduced in 2012 under the draft American Clean Energy and Security Act of 2009 (Waxman-Markey Bill)," said Koen Bontinck, vice president of NSF Sustainability Services. "The goal of this report is to not only provide companies with an affordable analysis of their current operations and exposure to carbon costs, but also to help them implement sustainable business practices and verify their GHG emissions data in preparation for the new regulations."
The report is available (registration required) at www.nsf.org/info/sandpcarbonemissionsreport/.
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