It pays to be efficient.

31/10/2011

A recent report from the Carbon Disclosure Project (CDP) has shown that global companies with the greatest focus on low carbon growth have rewarded their investors with approximately double the average total returns of the Global 500. This article looks at whether this represents an opportunity for investors.

THE FIGURES

The CDP’s Global 500 Report 2011 shows the results of a survey of the 500 largest companies by market capitalisation in the FTSE Global Equity Index Series between January 2005 and May 2011.

Over 400 of the companies surveyed responded, of which 29 were identified as ‘carbon performance leaders’, leading the way in addressing the opportunities and risks of climate change. It was found that these companies generated over double the returns, in percentage terms, compared to the average results of all the companies surveyed. However, this trend isn’t guaranteed to continue in the future.

IT’S NOT CHEAP

It’s often argued that although greater resource efficiency saves money, the savings are perhaps not enough for firms to devote management time looking for them, especially in challenging economic conditions.

The technologies and business models needed to deliver clean energy, cut emissions and drive down inefficient resource use can often involve higher upfront capital costs. They are also generally viewed as longer-term projects – a perceived disadvantage when growth is poor and companies tend to be more driven by shorter-term profits or cash flow requirements.

However, these initiatives do not necessarily have to be long-term commitments. The report highlighted that 59% of emissions reduction activities reported by the CDP Global 500 respondents have a payback period of three years or less.

CAN IT WORK?

Marks & Spencer's (M&S) ‘Plan A’ is an excellent example of a multi-faceted and ambitious sustainability agenda. The retailer believes it has proved that sustainability makes good business sense – Plan A has delivered a £70 million benefit after taking into account the costs of implementation. All of this has been invested back into the business.

M&S achieved a 23% reduction in energy use in stores against its baseline in 2006/7. Some of these reductions were achieved through ongoing investments in being more energy efficient in stores and distribution centres, using less fuel, hanger recycling and reuse and packaging reductions.

OPPORTUNITY

Regardless of the economic background, the results of the CDP’s Global 500 Report show there are clear returns from seeking these efficiencies, which in turn could benefit investors.

To find out more about our fund that looks to invest in companies that produce goods or provide services relating to: energy efficiency; low carbon energy production or water; waste and pollution control, visit our Global Environmental Enterprises page.

This fund invests in companies in a specialist area. In addition, some of these investments will be smaller companies or companies from emerging markets. This means the fund is higher risk than other more general equity funds. The fund invests overseas and changes in exchange rates between currencies may cause the value of your investment and the level of income to fall as well as rise.

This fund is available as an ISA or a unit trust. Remember you should always consider ISAs and unit trusts as medium to long-term investments, ideally of five years or more. The value of your investment, and any income from it, may fall as well as rise and is not guaranteed. You may get back less than you invest.