carbon footprint – Page 2

Study Finds that Lowering Levels of GHG Emissions can Increase a Company’s Stock Value

A recent study by researchers at the University of California (Davis and Berkeley) and the University of Otago in New Zealand entitled “The Relevance to Investors of Greenhouse Gas Emission Disclosure” has found that the amount of greenhouse gas (GHG) emissions a company produces and whether a company discloses their emission levels or not has a significant effect on the value of the company’s stock. In particular, the researchers found that the greater the GHG emissions, the lower the value of a company’s stock. Likewise, lower emission levels lead to higher stock values, all other factors being equal. Even if companies do not disclose this information, GHG emission levels are estimated by investors themselves, resulting in an even stronger risk discount to the stock value for high level emitters. This trend is particularly strong in energy intensive industry sectors. The study was led by Paul Griffin, a professor in the University of California, Davis Graduate School of Management.

Professor Griffin and his colleagues also discovered that markets respond almost immediately when a company releases information on their GHG emissions, with stock values responding the same day as the disclosure. “It really does appear to be a valuation factor,” Professor Griffin says. “Greenhouse gas emissions are important to investors in assessing companies.”

The findings bolster the arguments of investor groups, environmental advocates and watchdog organizations that have been seeking greater disclosure of company actions that affect climate change. The U.S. Securities and Exchange Commission (SEC) does not require all companies to report GHG emissions, but companies are required to disclose any information that is considered material to stock values. The findings of this study strongly suggest that GHG emissions data is relevant information to investors, therefore it could be argued that all public companies should disclose their GHG emissions to comply with SEC requirements. Approximately 50% of large U.S. firms report GHG emissions through the Carbon Disclosure Project.

The researchers analyzed four years of data (from 2006-2009) on firms listed in the Standard & Poor’s 500, and five years of data (2005-2009) for the top 200 publicly traded firms in Canada. While the researchers found the link between stock values and GHG emissions to hold true in most industries, the correlation was strongest for energy companies and utilities. According to Griffin, “after controlling for normal valuation factors like assets and earnings, we found the value of stocks to be a function of greenhouse gas emissions”.

Investors care about GHG emissions because markets are forward looking. Professor Griffin has indicated that in this case, investors are anticipating a time when companies will face increased costs for climate change mitigation, regulation and taxes.
The full study can be downloaded at Link.

Accounting for your Footprint / GHG Inventory

A fundamental key to effectively managing your business risk and cost in an increasingly carbon-constrained world is an understanding of your organization’s carbon footprint, which covers emissions generated by your products and supply chain. In order to calculate your carbon footprint, an analysis of your organization’s GHG inventory is essential. A “carbon footprint” represents a measure of the total amount of GHG emissions that are directly and indirectly caused by an activity, organisation or is accumulated over the lifecycle of a product. The carbon footprint captures activities of individuals, communities, companies, processes, or industry sectors and takes into account all direct and indirect emissions. A carbon footprint can be broken down into two parts, the primary footprint and the secondary footprint.
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What is considered “green” or not has always had, and will always have, different meanings depending on a particular point of view as well as the point in time. At the beginning of the green movement, issues such as forest conservation, protection of wildlife and recycling were the focal points. However this has evolved to encompass more comprehensive strategies which we now understand are required to enable meaningful change. These strategies include more holistic approaches to sustainability, biodiversity and climate change. One of the most interesting things in recent years has been the realisation that these strategies make good business sense and result in positive impacts. Examples of these positive impacts include better yields due to crop diversity, lower energy costs due to energy savings, and lower risks and costs associated with having a smaller carbon footprint.

A fundamental key to effectively managing your business risk and cost in an increasingly carbon-constrained world is an understanding of your organization’s carbon footprint, which covers all greenhouse gas (“GHG”) emissions generated by all human direct or indirect activities within the boundaries of direct (Scope 1) or indirect control (Scope 2) of your organisation. In order to calculate your carbon footprint, an analysis of your organization’s GHG inventory is essential.

What is a “Carbon Footprint”?

A “carbon footprint” represents a measure of the total amount of GHG emissions that are directly and indirectly caused by an activity, organisation or is accumulated over the lifecycle of a product (Product footprint). The carbon footprint captures activities of individuals, communities, companies, processes, or industry sectors and takes into account all direct and indirect GHG emissions. A carbon footprint can be broken down into two parts, the primary footprint and the secondary footprint.

The primary footprint is the sum of direct GHGemissions and includes activities such as energy consumption and transportation.

The secondary footprint is the sum of indirect GHG emissions from the entire lifecycle of products used by an individual or organization.

Although carbon footprints are reported in tons of carbon dioxide equivalent (CO₂e) emissions, they actually represent a measure of total GHG emissions. GHGs that are regulated include CO₂, nitrous oxide, methane, hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride. CO₂ is used as the reference gas against which the other GHGs are measured and the impact of all GHGs is measured in terms of equivalency to the impact of CO₂by way of global warming potentials. For example, methane is a far more potent GHG than CO₂, so one metric tonne of methane is measured as 21 metric tons of carbon dioxide equivalent, or CO₂e.

The accurate calculation of an organization’s carbon footprint is important in ensuring that GHG emissions are not under-counted or double-counted, particularly where emission reductions will be used in carbon trading and carbon off-setting transactions. A careful review of a organization’s methodology for calculating its carbon footprint will play a significant role in reducing the risks inherent in carbon trading and carbon off-setting, as well as ensure the credibility of carbon transactions.

GHG Inventories

A GHG inventory is a breakdown of emissions by activity for an organization, expressed in terms of CO₂e. GHG inventories provide the basis for (i) identifying organizational, geographic, temporal and operational GHG inventory boundaries, (ii) identifying all direct and indirect emissions sources, and (iii) determining appropriate methods to calculate emissions through protocols.

The effective accounting and management of carbon requires unambiguous, verifiable specifications. This will ensure that a tonne of carbon can be consistently calculated. To that end, an internationally agreed upon standard for measuring, reporting and verifying GHG emissions was introduced in 2006 by the International Organization for Standardization (ISO) and is referred to as ISO 14064.

ISO 14064 Standard

ISO 14064 consists of three standards, which provide guidance at the organizational and project levels, as well as for validation and verification:

ISO 14064-1 specifies the requirements for designing and developing GHG inventories.
ISO 14064-2 sets out requirements for quantifying, monitoring and reporting emission reductions and removal enhancements from GHG projects.
ISO 14064-3 sets out guidance for conducting GHG information validation and verification.

What GHG Accounting Can Do For You

GHG Accounting Services Ltd. (GHG Accounting) provides specialized GHG consulting and accounting services, including (i) emissions reporting and footprint inventory quantification, (ii) emissions reduction project planning, and (iii) quantification, documentation and carbon offset credit registration.

GHG Audit

Beyond the requirements of current and pending GHG reporting regulations, due diligence and financial evaluations of your business will increasingly need to consider the costs and risks associated with GHG emissions. As part of the process for preparing your risk management strategy or carbon neutrality strategy, GHG Accounting Services offers a comprehensive and cost effective GHG audit service that will help you develop and manage these strategies. The audit report prepared by our team of experts will identify the GHG emission characteristics of different branches or products and services of your business, evaluate potential costs and regulatory risks as well as identify cost and emissions reduction opportunities.

GHG Inventory

Whether you are required to reduce emissions by regulation or if you choose to reduce emissions voluntarily (for purposes such as marketing, brand management or corporate social responsibility), GHG Accounting Services can assist you in quantifying your total GHG emissions based on the requirements and relevant protocols of ISO 14064-1. This will enable you to comply with required reporting standards or it could be the first step in becoming carbon neutral.

Offset Credits

Whether you are purchasing offset credits on a mandatory or voluntary basis to reduce your carbon footprint, GHG Accounting Services can assist you in evaluating the costs and impacts of such purchases on your bottom line and GHG inventory.

GWP

GWP is the acronym widely used to refer to “Global Warming Potential“.

The Global Warming Potential of a greenhouse gas indicates to what extent functionally, in regards to their green house gas effect on a 100 year time line, it is functionally equivalent to a certain amount of carbon dioxide in the atmosphere.

In colloquial terms, it describes the heat trapping ability of a greenhouse gas in the atmospheric cover of a planet. And it does that in relation to the heat trapping ability of CO₂ by assigning a factor. The global warming potential, for example, of CO₂ is 1 and the global warming potential of methane is 21. So methane has a 21 times higher heat trapping ability than CO₂ on a 100 year time line/ time horizon.

For the purpose of GHG accounting, the global warming potential of a certain greenhouse gas provides the conversion factor to convert a specific amount of greenhouse gas emissions into CO₂e (CO₂ equivalent) emissions.

Global warming potentials for greenhouse gases

(Source: Environment Canada)

IPCC Global Warming Potentials – 100-Year Time Horizon
Greenhouse Gas	Formula	Second Assessment Report	Fourth Assessment Report
Carbon dioxide	CO₂	1	1
Methane	CH₄	21	25
Nitrous oxide	N₂O	310	298
Sulphur hexafluoride	SF₆	23 900	22 800
Hydrofluorocarbons (HFCs)
HFC-23	CHF₃	11 700	14 800
HFC-32	CH₂F₂	650	675
HFC-41	CH₃F	150
HFC-43-10mee	C₅H₂F₁₀	1 300	1 640
HFC-125	C₂HF₅	2 800	3 500
HFC-134	C₂H₂F₄ (Structure: CHF₂CHF₂)	1 000
HFC-134a	C₂H₂F₄ (Structure: CH₂FCF₃)	1 300	1 430
HFC-143	C₂H₃F₃ (Structure: CHF₂CH₂F)	300
HFC-143a	C₂H₃F₃ (Structure: CF₃CH₃)	3 800	4 470
HFC-152a	C₂H₄F₂ (Structure: CH₃CHF₂)	140	124
HFC-227ea	C₃HF₇	2 900	3 220
HFC-236fa	C₃H₂F₆	6 300	9 810
HFC-245ca	C₃H₃F₅	560
Perfluorocarbons (PFCs)
Perfluoromethane	CF₄	6 500	7 390
Perfluoroethane	C₂F₆	9 200	12 200
Perfluoropropane	C₃F₈	7 000
Perfluorobutane	C₄F₁₀	7 000	8 860
Perfluorocyclobutane	c-C₄F₈	8 700
Perfluoropentane	C₅F₁₂	7 500
Perfluorohexane	C₆F₁₄	7 400	9 300

¹ IPCC Second Assessment Report (1996)
² IPCC Fourth Assessment Report (2007)