Companies are already deploying emission-reduction measures.
AS THE next round of the United Nations Climate Change Conference prepares to open in Durban, South Africa, tomorrow, the world has been warned that the cost of not moving now to reduce carbon emissions will be a significant increase in cost in the future.
Australia has been both lauded and criticised for being a first mover with the introduction of our carbon tax from July 1 next year. Whether or not you think it's a good or bad thing, it's something we have to prepare for now.
If you're an investor you might be wondering about the effects of the tax on the stocks that you're looking to invest in.
Only 4 per cent of companies in the ASX 200 and NZ50 - the largest companies listed on the stock exchange here and in New Zealand - reported the risks associated with carbon pricing were high.
These findings come from a report by the Carbon Disclosure Project, an international initiative that sends information requests to ASX 200 and NZ50 companies each year and close to 6000 companies on a global basis.
The director of the CDP in Australia, James Day, says that while the findings may appear inconsistent with media reports, they are consistent with the information that companies have been disclosing to the Australian Stock Exchange.
A large proportion of the top 100 companies replied to the survey - 73 per cent - but when the next 100 largest companies are included that percentage drops to 50 per cent.
One of the more interesting findings from the survey is that more than half reported opportunities identified with the tax.
Only 500 companies of the 2227 listed on the Australian Stock Exchange will be affected by the carbon tax but many companies are trying to get their carbon emissions down. Even if they don't have explicit targets, more than 86 per cent said they had in place some kind of emissions reductions initiatives this year.
And once a cost is imposed on carbon emissions and a market is eventually created, it is likely that any company that has anything to do with emissions will become savvier. If something you had been doing for free suddenly had a cost, you'd become more cognisant of it, wouldn't you?
Many carbon reduction technologies or initiatives actually have a fairly fast payback period. Energy efficiency initiatives in building fabric, services and operational process report a median payback period of one to three years (see chart) according to the CDP report and annual savings across a raft of energy initiatives were estimated at $75 million by the companies that reported.
So all is not lost. If you're looking for less risky investment opportunities you might be better off looking at companies with tried and true technologies or products in carbon reduction, rather than untested alternative-energy sources. But there are definitely prospects worth examining before the carbon price comes into place.
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Frequently Asked Questions about this Article…
When will Australia’s carbon tax take effect and what does that mean for investors?
The article says Australia’s carbon tax is scheduled to start from July 1 next year. For investors that means some businesses will begin factoring a carbon price into costs and planning now, so it’s a good time to review how companies you own or watch may be exposed to future carbon costs.
How many large companies view carbon pricing as a high risk?
According to the Carbon Disclosure Project (CDP) report cited in the article, only about 4% of companies in the ASX200 and NZ50 described the risks associated with carbon pricing as high, based on the disclosures those companies provided.
How many ASX-listed companies will be affected by the carbon tax?
The article notes that only around 500 of the 2,227 companies listed on the Australian Stock Exchange are expected to be directly affected by the carbon tax.
Are companies already taking action to reduce emissions?
Yes. The article reports that more than 86% of responding companies said they had some kind of emissions-reduction initiatives in place this year, even if they don’t all have formal emissions targets.
Do companies see opportunities from a carbon tax or just risks?
More than half of the companies surveyed by the CDP reported that they identified opportunities associated with the carbon tax, so many businesses see potential upside as well as risk from carbon pricing.
What sort of payback periods and savings can investors expect from carbon-reduction investments?
The CDP report cited in the article found that many energy-efficiency initiatives in building fabric, services and operational processes have a median payback period of one to three years. Companies that reported estimated annual savings across energy initiatives of about $75 million.
How consistent and reliable are corporate disclosures about carbon risk?
Disclosure varies by company size: the article says 73% of the top 100 companies responded to the CDP survey, but response fell to 50% when the next 100 largest companies were included. CDP’s Australian director James Day said the findings align with what companies have been disclosing on the ASX.
What investment approach does the article recommend for everyday investors facing a coming carbon price?
The article suggests everyday investors who want lower-risk exposure should consider companies with proven, established carbon-reduction technologies or products rather than speculative or untested alternative-energy ventures, and examine these prospects before the carbon price is implemented.
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