Utilities, energy and mining companies such as AGL Energy, Origin Energy and South32 aren’t the only bad boys of the ASX200 when it comes to carbon risk.
MSCI’s list of the ASX200 companies that are least aligned to Australia’s official carbon reduction goals also includes travel retailer Webjet, veterinary services firm Greencross, fleet manager Smartgroup and patent attorneys group IPH Holdings.
The global index maker found that 40 per cent of its ASX top 200 companies are falling short of the carbon emissions reductions required to meet Australia’s modest 26 per cent to 28 per cent emissions reduction target by 2030 (scenario 1).
If utilities are given an easy ride (scenario 2) or Australia adopts a tougher emissions goal consistent with limiting global temperature increases to 2 degrees (scenario 3), the share of top 200 companies failing the test rises to 52 per cent, MSCI says.
The companies listed above would have to be excluded from MSCI’s AU200 index – along with construction group CIMIC, property trusts DEXUS and GPT Group, laboratory testing group ALS and fleet manager Smartgroup – for the index to meet scenario 1.
To meet scenarios 2 or 3, a larger list of companies would have be cut, among them mining giant Rio Tinto, port operator Qube Holdings, Wesfarmers, pharmaceuticals group Mayne Pharma, health insurance group Medibank Private, fertiliser maker Incitec Pivot, condom maker Ansell, data centre group NEXTDC, oil and gas groups Woodside Petroleum and Santos and engineering group Downer EDI.
The findings highlight that “a large portion of the Australian listed equities are currently unable to meet these requirements and could face increased carbon related penalties,” write Brendan Baker and Morgan Ellis in their Alignment to Climate Regulatory Scenarios Australian case study.
The companies that are surprise inclusions are there because their emissions exceed those of similar companies in their sector – not because they are as high in absolute terms as the companies considered to have the highest carbon exposures.
An important caveat is that MSCI has had to estimate the emissions of about half the companies in its AU200 index – which differs from the official S&P/ASX 200 – because their disclosure of carbon related risks is inadequate. Regulators are ratcheting up pressure on companies to improve their carbon disclosures.
Even so, the study paints a picture of an economy in which many listed companies are struggling to bring their businesses into line with even the least challenging of the Paris climate goals.
Not for want of trying
This may not be for want of trying. For example, AGL, Origin, coal carrier Aurizon, Ansell, DEXUS, GPT Group and CIMIC all have strong carbon management but are still heavily misaligned with carbon goals.
But Webjet, Greencross, IPH, South32, Downer EDI, Smartgroup, Mayne Pharma and Medibank Private are misaligned with carbon goals and have weak to middling carbon management.
At the other end of the spectrum, financial services group AMP, building products group CSR, retailer Metcash, metals recycler Sims Metal management and engineering firm Worley Parsons have strong carbon management and are meeting carbon goals. Domain Holdings, Dulux Group, James Hardie, Challenger, Nufarm and Tabcorp are also meeting carbon goals despite weak or middling carbon management.
The study covers scope 1 and scope 2 emissions – or those from direct combustion or use of energy, and electricity usage within Australia – and deals with the 10 top and 10 bottom 10 per cent of top 200 companies.
Pure coal companies such as Whitehaven Coal, Yancoal and New Hope Group escape censure – even though they are betes noires of climate activists – because most of the coal they dig up is consumed overseas.
Mr Baker said including scope 3 emissions – emissions generated when a company’s products are consumed – would show up coal exporters as more badly misaligned. But it required a much more detailed study to capture all the emissions from burning exported fuels.