The report, "Carbon Risks and Opportunities in the S&P 500," was put together by the not-for-profit Investor Responsibility Research Center Institute and Trucost, a global provider of environmental data and analysis. The groups analyzed the potential impacts of applying a price for carbon to the global emissions of the companies on the S&P 500, comparing companies and sectors on absolute emissions and carbon intensity, as well the potential carbon costs relative to revenue and earnings before interest, tax, depreciation and amortization.
The analysis found out that direct greenhouse gas emissions from companies in the S&P 500 in 2007 added up to about 2,173 million tons of carbon dioxide equivalents, more than all the emissions from cars, trucks, buses and aircraft in the United States. Total emissions, including emissions from first-level suppliers, totaled 4,307 million tons of carbon dioxide equivalents.
If a market price of $28.24 were applied to each metric ton of emissions, Trucost's estimate of the carbon market price in 2012, that would bring carbon costs to more than $92.8 billion, more than 1 percent of revenue from the companies.
The sector facing the biggest financial risk is utilities, which emits almost 60 percent of all operation greenhouse gases from the S&P 500. If the 34 utilities in the S&P 500 had to pay for their emissions, their earnings would slide 45 percent. But in looking at risks to individual companies, the financial implications vary widely, from causing earnings to fall anywhere from less than 1 percent to 117 percent. For 203 companies, carbon costs would amount to less than 1 percent, and 71 companies' earnings would fall 10 percent or more.
The Investor Responsibility Research Center Institute and Trucost conducted their analysis keeping in mind the proposed cap-and-trade legislation under consideration by the U.S. Congress, which would set explicit carbon costs.
"The report suggests that some companies and investors could be caught off guard," said Jon Lukomnik, program director of the IRRC Institute, which commissioned the study. "Two-thirds of S&P 500 companies have inadequate greenhouse gas emissions disclosures. Investors would be wise to watch closely as the Congress continues its consideration of the American Clean Energy and Security Act of 2009. The legislation is considered highly complex, and could have profound, long-lasting impacts on company balance sheets."
Utility pole - CC license by strollers