Lower emitting companies have, on average, higher valuations and outperform high emitting companies over the long term, according to a Carbon Report released today by Forsyth Barr.

The 2019 Carbon Report produced by the research team at Forsyth Barr found that institutional investors are increasingly focused on environmental issues in response to changing investment mandates. The report says more capital is likely to flow into low emitting companies in the future compared to higher emitters.

High emitting companies are underperforming lower emitters for three reasons:

• Higher emitters are subject to stranded asset risk, such as coal-fired power generators in Europe;
• Regulatory and financial risk for higher emitters will likely impact future earnings and valuations; and
• Institutional investor mandates are increasingly focused on sustainability issues.

Looking at individual New Zealand companies, the Forsyth Barr Carbon Report says Fonterra is the most exposed NZX company to Greenhouse Gas Emissions (GHG) over the longer term due to the risk to its farmer suppliers.

While there is some short-term margin pressure on Genesis Energy and Contact Energy, in the long-term Forsyth Barr expects them to benefit along with other electricity generators from increased electricity demand by transport and industrial processes. Z Energy and aviation-exposed companies Air New Zealand and Auckland Airport face risks to longer term volume growth.

Other findings in the report:

• The cost of carbon will have little financial impact for NZX companies for the foreseeable future given (1) carbon emissions are generally low, (2) the price of carbon is low, and (3) offset commitments/regulatory requirements continue to protect heavy emitters.
• While several NZX companies provide excellent emissions disclosure, the general standard is mixed. Many companies do not appear to currently measure their emissions; but plenty are planning to. In addition, reporting is not consistent making comparisons difficult.
• New Zealand’s CO₂ emissions are largely irrelevant globally, accounting for less than 0.2% of global emissions. However, per capita emissions are high. With the exception of a small number of companies, the NZX is a carbon light market.

Read the report