SAM Sustainable Asset
Management
SAM Sustainable Asset Management
Seefeldstrasse 215 CH-8008 Zürich Tel. +41 44 397 10 10 Fax +41 44 397 10 80 info@sam-group.com www.sam-group.com
The importance of CDP3 in investment analysis
Dr. Christian Werner
CIO, SAM Sustainable Asset Management
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
• SAM, founded in 1995, is the world's largest Asset Manager purely focusing on sustainability investments
• Highly research driven investment process with strong thematic approach
• Asset Manager totally dedicated to demonstrating that Sustainability Investing can yield outperformance
• Based in Zurich, 60 employees
• World`s leading “Clean-Tech” Private Equity Manager
• SAM has together with Dow Jones developed the Dow Jones’
Family of Sustainability Indexes
SAM Sustainable Asset Management
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
Content
• The importance and impact of CDP
• A carbon case study – the automotive industry
• Including CO2 and climate change in equity valuation
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
The importance of the CDP
• Convince companies to report on CO2
• Advocating the need for structured reporting
• CDP drives data quality
• Further development welcomed
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
The importance of the CDP – observed trends 1
Disclosed carbon data in annual DJSI assessment
Numbers of companies where trend in CO2 was analysed
0 50 100 150 200 250 300 350 400 450
2002 2003 2004 2005
DJSI assessment
nu m be r of c om pa ni es
Source: SAM
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
The importance of the CDP – observed trends 2
Disclosed carbon data in annual DJSI assessment
Source: SAM
% of companies where CO2 data was not used in trend analysis
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2002 2003 2004 2005
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
The importance of the CDP – observed trends 3
Disclosed carbon data in annual DJSI assessment
Percentage of companies with trends in CO2 emission Intensity
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2005
Deteriorating emission intensity constant emission intensity Improving emission intensity
Source: SAM
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
-15%
-10%
-5%
0%
5%
10%
15%
Toyota Renault Nissan Honda DC VW PSA BMW GM Ford
Implications of carbon stategy on Company Value
Findings based on SAM’s Changing Drivers study, Oct 2003
Source: SAM
8
August 2005The importance of CDP3 in investment analysis
60 80 10 0 12 0 14 0 16 0 18 0
31.10.2003 30.11.2003 31.12.2003 31.01.2004 29.02.2004 31.03.2004 30.04.2004 31.05.2004 30.06.2004 31.07.2004 31.08.2004 30.09.2004 31.10.2004 30.11.2004 31.12.2004 31.01.2005 28.02.2005 31.03.2005 30.04.2005 31.05.2005 30.06.2005 31.07.2005 31.08.2005 30.09.2005
To yo ta Fo rd To yo ta v s. Fo rd S to ck p er fo rm an ce O ct. 2 00 3 Y TD , U S D (in de xie rt)
Source: Bloomberg
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
Understanding carbon impact in investment analysis
• Differentiate between two aspects of Carbon
• CO2 is a commodity whose supply is getting scarce, and market price will likely increase
• Consequences of climate change related events will impact business operations and markets
• Capturing and assessing risk & opportunities are part of doing good analyst homework.
• Identify carbon impact entry levels on companies and sectors, and assess the relevant risk and opportunities.
• The right equity analysis framework is a DCF valuation given the mid- to long- term nature of carbon impacts.
• Assess carbon impact directly on cash-flow analysis
• Reflect carbon impact on company specific risk premium in discount factor (WACC)
T he im po rta nc e of C D P 3 in in ve st m en ta na ly si s
Determining carbon impact entry level for companies
For companies exposed to the European GHG emission trading system, companies might have a direct cost/revenue exposure depending on being long/short emission right.
X X
GHG ETS exposure
As with Asbestos, the potential for liabilities to be realised at a future date us a real issue, especially for potential acquirers.
X Litigation
Companies that are incorporating carbon strategy as part of overall corporate strategy will have a competitive advantage over those that will not.
X X
Competitiveness
Direct carbon leveraged business models like technologies, renewable energy etc. will be able to capitalise on a growth sector.
Carbon leveraged X business model
Companies in exposed industries can be seen as environmental friendly, enhancing its reputation.
X X
Reputation
Uncertainty surrounding potential future regulations at the local government or state level introduces uncertainty for heavily GHG emitting companies, especially in the US.
X Regulation
The unpredictable element in planning – like shifts in weather patterns due to climate change can impact any business i.e.
insurance, travel, tourism, construction etc.
Impact on business X operations
Comments Opportunity
Risk Topic
Source: GS, SAM
