carbon ebitda strategy completed 100607 002

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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GIN 2010 Conference

SUSTINVEST Research & Consulting 2

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


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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GIN 2010 Conference


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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GIN 2010 Conference

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


Financial and

Segmental Analysis

Initial

Profile

Disclosure

and Public Registers

Company

Profile


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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GIN 2010 Conference


Financial andSegmental Analysis

InitialProfile


CompanyProfile


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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GIN 2010 Conference



InitialProfile


CompanyProfile


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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InitialProfile


CompanyProfile


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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GIN 2010 Conference

Carbon Ebitda Strategy


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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GIN 2010 Conference

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


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


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)


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)


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


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


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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GIN 2010 Conference

END OF PRESENTATION


carbon ebitda strategy completed 100607 002

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