Reducing energy costs could increase companies’ profits by up to 10 per cent a year
The first global energy productivity benchmark for listed industrial companies reveals that 70 per cent of companies analysed could have significant room for improvement around energy use.
The new Energy Productivity Index analyses the energy productivity of 70 global listed industrial companies across six sectors – airlines, automobile manufacturing, chemicals, construction materials, paper and steel.
Presented in a guide for institutional investors, analysis was undertaken as part of a joint project between ClimateWorks Australia, US-based ClimateWorks Foundation and the California State Teachers’ Retirement System (CalSTRS).
ClimateWorks Australia Head of Research, Amandine Denis, said the top performing companies had been making steady improvements in their energy management for a number of years and were making the most of energy efficiency opportunities.
“For example, leaders in some sectors are producing up to five times more units for the same amount of energy use than the least productive companies in the same sector,” she said.
“The benchmark shows that a third of the companies analysed could boost their profit margins by over 5% by matching the performance of leaders in their sectors.
“Even accounting for upfront capital costs needed to achieve best practice energy efficiency, companies can still achieve a 2 to 10 per cent profit improvement each year, with most opportunities offering a payback period of less than three years.
“Importantly, similar volumes of savings can be achieved with every year of implementation, which means that after 5 years, profit margins could be improved by 50 percent.”
However, Ms Denis said the key issue highlighted by the analysis was the need to improve availability and quality of company data on energy use.
“Of the 181 companies that reported in the six sectors, 73 had incomplete or insufficient data for benchmarking,” she said.
“In addition, among the top 100 steel-producing companies, less than a third report their energy data voluntarily through the Carbon Disclosure Project.”
In a field that has not traditionally been well understood, institutional investors will now be able to use the Index to help them prioritise and shortlist sectors or companies based on the potential financial benefits they could gain from improved energy performance.
CalSTRS Portfolio Manager, Corporate Governance, Brian Rice said he has already used the benchmark to seek energy efficiency improvements from seven companies reported as underperforming in energy productivity and energy efficiency, relative to their sector peers.
“With the Index revealing that 70 per cent of the companies analysed could have significant room for improvement around energy productivity or energy efficiency, this type of analysis is proving a very useful tool for our engagement with companies,” he said.
ClimateWorks Foundation Program Director, Dan Hamza-Goodacre said the new benchmark would also provide investors with the knowledge they need to measurably ‘decarbonise’ their share portfolios.
“Improving energy productivity is a low cost, tried and tested strategy that companies and their investors can adopt to reduce climate change risk while increasing profits,” he said.
“With the Index revealing that 70 per cent of the companies analysed could have significant room for improvement around energy productivity or energy efficiency, this type of analysis is proving a very useful tool for our engagement with companies"
CalSTRS Portfolio Manager, Corporate Governance, Brian Rice
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Key findings of the report regarding each company analysed across the six sectors