carbon ebitda strategy completed 100607 002
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8/9/2019 Carbon Ebitda Strategy Completed 100607 002
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GIN 2010 Conference
Carbon Ebitda Strategy
Generating Performance with Lower than Averaged GHG Emissions
Presented byYoungjae Ryu(CEO, Sustinvest Research & Consultancy)
SUSTINVEST Research & Consulting
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US $ 2.2Trillion
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UN report tells us
According to the UN Report conducted by Trucost, Worlds top firms
cause $2.2tn of environmental damage in 2008 The figure accounts for one-third of profit firms made in 2008
More than half of$2.2tn was caused by GHG emission
What if firms were forced to pay for use, loss and damage ofenvironment ? One-third of their profit would be lost
How does investor integrate the risk into investment process ? Quantitative data on environment impact is severely needed
(Source : The Guardian Newspaper, 18th Feb. 2010)
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TRUCOST METHODOLOGY OVERVIEW
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Measuring Company Environmental Impacts
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Financial andSegmentalAnalysis
InitialProfile
Disclosureand PublicRegisters
CompanyProfile
464Environmental
Activity Profiles
Identify company
activities and assignrevenue to sectors
Produce company
profile withquantities of 700
resources and
emissions
Analyze company
disclosures foractual impact data
Calculate direct
and indirectenvironmental
impacts
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Financial and
Segmental Analysis
Initial
Profile
Disclosure
and Public Registers
Company
Profile
464 EnvironmentalActivity Profiles
Modeling env.impacts Developed unique methodology based on an input-output
model to calculate companys env. impact Extensive studies of industries to identify the quantities of
over 700 env. Indicators
Trucost calculates env. Impact of 464 industries, based on
the North American Industrial Classification System(NAICS)
Trucost produces environmental profiles All companies have impact on environment through their
operations and supply chain Trucosts profile provides quantitative data on companys
environmental impact
Many companies do not disclose their env. impacts in
quantitative terms
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Identify company activities and assign revenue to sectors
Break down and assign company activities into 464 sectors
Use data from FactSet and company accounts to identify segmental
revenue data and map each company to a set of sectors
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Financial and
Segmental Analysis
Initial
Profile
Disclosure
and Public Registers
Company
Profile
464 EnvironmentalActivity Profiles
Oil and Gas Utilities: Power GenerationCrude petroleum and natural gas extraction Hydroelectric
Natural gas liquid extraction Coal
Drilling activities for oil and gas operation Natural Gas
Support activities for oil and gas operations Petroleum
Tar sands extraction Nuclear
Petroleum refineries Solar
Industrial gas manufacturing Wind
Petrochemical manufacturing Geothermal
Petroleum lubricat ing oil and grease manufacturing Wave & Tidal
Gas stations Biomass
Natural gas distribution Landfill gas
Pipeline transportation Other
All other petroleum and coal products manufacturingpipeline transportation of natural gas
Power distribution
Power transmission
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Financial andSegmental Analysis
InitialProfile
Disclosureand PublicRegisters
CompanyProfile
464 EnvironmentalActivity Profiles
Produce company profile with quantities of 700 resources and emissions
Includes the resources such as water, as well as waste production and pollutants such as
mercury and GHG emissions.
The system is consistent with the United Nations Millennium Ecosystem Assessment
Initial profile includes data from the US Toxic Release Inventory, Federal Statistics Office
of Germany(Destatis), The UK Environmental Accounts, Japanese Pollution Release and
Inventory and Canadas National Pollutant Release Inventory
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Financial andSegmental Analysis
InitialProfile
Disclosureand PublicRegisters
CompanyProfile
464 EnvironmentalActivity Profiles
Analyze company disclosures for actual impact data
Review and incorporate publicly disclosed data into the profile
Standardize the quantities of resources used or pollutants emitted using metric tones
or cubic meters to allow for direct comparison across companies, industrial sectors and
geographies
Companies are given the opportunity to review and verify their data
Companies can easily verify their data through Trucosts on-line system
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Financial andSegmental Analysis
InitialProfile
Disclosureand PublicRegisters
CompanyProfile
464 EnvironmentalActivity Profiles
Calculate direct and indirect environmental impacts
The quantity of profile of a company is calculated and a damage cost is applied to
each resource and emission to generate an external environmental cost profile.
The costs represent the quantities of natural resources used or pollutants emitted
multiplied by their environmental damage costs to society
External costs are incurred whenever a natural resource is used or emissions are made to
air, land or water
Valuing environmental impacts
Price the damage that is done to society and human capital by pollutants and natural
resource use, including quantifying associated with health costs
By applying a price to each environmental resource, based on the environmental impact of
that resource, the model is able to analyze, in financial terms, the productivity and
environmental performance of each sector
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CARBON PORTFOLIO STRATEGY
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Sustinvest applied T/C into Korean company
Sustinvest made partnership with Trucost in 2009
Established DB of Env. impact on 250 Korean companies, using the Trucosts
input-output model
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Carbon Ebitda Strategy
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No NegativeScreening!
Carbon Ebitda Strategy uses screening process based on GHGemissions of a company relative to other companies in the same
sector
Carbon Ebitda Strategy applies the Ebitda selection
factors to companies that have been pre-filtered for
lower carbon emissions
The bulk of CO2 emission is concentrated in a few
sectors, such as power companies, material manufacture
etc. Excluding the sectors from the portfolio(negative
screening) would cause significant tracking error
relative to the benchmark
The Carbon Ebitda Strategy adopts a best of the class
approach by allowing only the stocks with lower CO2Emission stocks in each sector to be eligible for selection
by the Ebitda performance
Carbon Ebitda Strategy was developed, referring to CROCI Carbon Strategy conducted
by Deutsche Bank
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Objectives
Selection of companies with lower greenhouse gas emissions in each sector,
reducing the intensity of the greenhouse gas emissions
Apply Ebitda/Total Asset selection process within the lower CO2 emitting stocks
to generate performance
Historically, the Ebitda/Total Asset process has outperformed the benchmark
Although the emissions screening has had a modest effect on performance,
it has significantly reduced greenhouse gas emissions of the porffolio
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Objective: Lower emissions and outperformance relative to the benchmark
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Selection Process
200 stocks selected from KOSPI200
Stocks filtered according to carbon
emission(CO2 Equivalents/Revenue),
with only those with below sector
median emissions
Top 50 selected on Ebitda/TA ratio
Portfolio weighted according to market
capitalization
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KOSPI200
100 stocks with below sectorMedian emissions
50 stocks with highestEbitda/TA
Stocks weighted byMarket Capitalization
* Ebitda=Earning before Interest, Taxes, Depreciation, and
Amortization
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Historical Performance Analysis(I)
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0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2007/04/30
2007/05/29
2007/06/26
2007/07/24
2007/08/21
2007/09/17
2007/10/18
2007/11/14
2007/12/11
2008/01/11
2008/02/12
2008/03/10
2008/04/04
2008/05/06
2008/06/03
2008/07/01
2008/07/28
2008/08/25
2008/09/22
2008/10/20
2008/11/14
2008/12/11
2009/01/12
2009/02/10
2009/03/09
2009/04/03
2009/04/30
2009/05/29
2009/06/25
2009/07/22
2009/08/18
2009/09/14
2009/10/12
2009/11/06
2009/12/03
2010/01/04
2010/01/29
2010/02/26
2010/03/26
2010/04/22
KOSPI200
Carbon50
56.8%
14.3%
Time period: 30-April-07 ~ 30-April-10
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Historical Performance Analysis(II)
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0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2007/04/30
2007/05/31
2007/07/02
2007/08/01
2007/08/31
2007/10/05
2007/11/05
2007/12/04
2008/01/08
2008/02/11
2008/03/11
2008/04/10
2008/05/14
2008/06/13
2008/07/14
2008/08/12
2008/09/11
2008/10/14
2008/11/12
2008/12/11
2009/01/14
2009/02/16
2009/03/17
2009/04/15
2009/05/18
2009/06/16
2009/07/15
2009/08/13
2009/09/11
2009/10/13
2009/11/11
2009/12/10
2010/01/13
2010/02/11
2010/03/16
2010/04/14
Ebitda 55
KOSPI200
Carbon50
Time period: 30-April-07 ~ 30-April-10
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Comparison of Risk Profile
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0.0886
0.1567
0.1999
0.0000
0.0800
0.1600
0.2400
Sharpe ratio
1.0000
0.8567
0.9770
0.7200
0.8000
0.8800
0.9600
1.0400
Beta
0.0068
0.0106
0.0155
0.0000
0.0080
0.0160
0.0240
Treynor
KOSPI200 Ebitda55 Carbon50
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Comparison of Carbon Intensity
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0.00043
0.00034
0.00010
0.00000
0.00010
0.00020
0.00030
0.00040
0.00050
Carbon intensity
KOSPI200
Ebitda55
Carbon50
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Implications
Carbon50 Portfolio outperformed respectively KOSPI200 by 42% and Ebitda55 by 20%
On the other hand, the carbon intensity of carbon50 portfolio lowered that of
KOSPI200 by 76%
In terms of risk profile, carbon50 portfolio is less volatile as well as less risky
Carbon Ebitda Strategy represents excellence in terms of performance, risk profile and
greenhouse gas emissions
So, Carbon Ebitda Strategy is strongly recommendable
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END OF PRESENTATION
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