The Business Case for Low Carbon Companies

The Business Case for Low

Carbon Companies in Asia SASIN CENTRE FOR SUSTAINABILITY MANAGEMENT Liam Salter, CEO, RESET Carbon

September 2016

Agenda

Climate change update and introduction to a Low Carbon Company.

Cost savings

Customers

Regulation

Case study and conclusions

© 2016 RESET Carbon Ltd.

2

RESET – Your One-Stop Service Provider 3

2 offices and 20 staff in Hong Kong

and Bangkok. We

have customers

from 14 countries in Asia

and trusted

partners across

the region.

Conducted

environmental

strategy and

carbon

footprinting

projects for over

20 international

corporations

Implemented 10

energy and

environmental

assessment or

improvement

projects in 11

Asian countries in

commercial

property, retail

and light industrial

facilities.

Conducted

implementation

projects saving

clients between

125,000

and

1,000,000

USD/year.

Current and Previous Clients

4

Climate change and low carbon companies

5


We can already see impacts from climate

change today 6


Sources: IPCC, NASA/GISS, EM-DAT International Disaster Database, UN, WWF

Global warming 2015: warmest year on record

10 warmest years occurred since 1998 April 2016: 12th consecutive warmest

month on record

Rising sea level Average annual rise roughly

doubled from 1993 to 2010

vs. 1901 to 2010

Natural disasters Occurrences tripled from

2000 to 2009 vs. 1980 to 1989

Water scarcity More than 1.2 billion people lack

access to clean drinking water ~20% of world population

Coral reef damage ~25% of coral reefs worldwide considered damaged beyond repair

66% under serious threat

Climate change is

happening now

http://climate.nasa.gov/system/internal_resources/details/original/647_Global_Temperature_Data_File.txt

http://wwf.panda.org/about_our_earth/blue_planet/coasts/coral_reefs/coral_threats/

Four potential global warming scenarios 7


Source: Intergovernmental Panel on Climate Change (IPCC)

Note: The four Representative Concentration Pathways (RCPs) are named after a possible range of radiative forcing values in the year 2100 relative to pre-industrial values (+2.6, +4.5, +6.0, and +8.5 W/m2, respectively).

RPC 8.5 RPC 6.0 RPC 4.5 RPC 2.6

Goal of science-based targets

Estimated 2.7-3.7 °C with INDCs

Countries who submitted INDCs during COP21

account for 98.8% of global carbon emissions 8


Source: World Resource Institute

No INDC submitted

INDC submitted

NDC submitted

China Peak CO2 emissions by 2030 60-65% intensity reduction by 2030 vs. 2005

United States 26-28% GHG emissions reduction by 2020 vs. 2005

European Union At least 40% GHG emissions reduction by 2030 vs. 1990

India 33-35% intensity reduction by 2030 vs. 2005

Japan 26% GHG emissions reduction by 2030 vs. 2013

Hong Kong 50-60% intensity reduction by 2020 vs. 2005 Upcoming carbon target

Vietnam 20% intensity reduction by 2030 vs. 2010

Cambodia 27% GHG emissions reduction by 2030 vs. BAU

Bangladesh 5% GHG emissions reduction by 2030 vs. BAU

Thailand 20% GHG emissions reduction by 2030 vs. BAU

What is a low carbon company?

For the purpose of our analysis and discussion today:

Low carbon companies aim to contribute to societal carbon goals by measuring and reducing carbon emissions

Annual carbon emissions footprint report

Carbon reduction target

Often integrated into a broader environmental/social sustainability program

9


Low Carbon Companies

The Business Case 10

Cost savings

Customers and reputation

Regulation

Cost savings

11


Cost savings – energy efficiency

Business Annual spend (USD) Savings Typical ROI

Hypermarket 1m 20% 4 – 5 years

Hotel 500 000 to 1.2m 20% 3 – 5 years

Dye mill 3m to 10m 15% 1 – 2 years

Electrical products 2m 15% 2 – 4 years

Food and beverage 10m 10% 3 – 5 years

Large airport 30m+ 15% 4 – 6 years

Large university 20m+ 20% 4 – 7 years

Commercial building 1m 15% 3 – 5 years

Large Office 20 000 15% 2 – 3 years

12


Turning savings into cashflow Large city hotel – energy savings cashflow model

• Energy efficiency projects in 3 sub-systems

• Net savings of nearly 10m THB over 5 years in single site

• Break even < 3 years

Consider impact at portfolio level Hotel portfolio – energy saving program projection

14


-1500000

-1000000

-500000

0

500000

1000000

1500000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

Ca

shflo

w (

USD

)

Months

Hotel 1 Hotel 2 Hotel 3 Hotel 4 Hotel 5 Hotel 6 Hotel 7

• Projections based on results of single site extrapolated to portfolio of 7 hotels (mixed portfolio)

• Net savings of over 1m USD in 5 years

Renewable energy: PV Rooftop 15

-

0.05

0.10

0.15

0.20

0.25

0.30

0 5 10 15

Ele

ctric

ity P

rice

(US

$/kW

h)

Payback Period (years)

Thailand

Cambodia

Customers

16


Supply chain carbon targets 17

Company Supply Chain Carbon Reduction Targets

Wal-Mart Stores, Inc Supply Chain reduction target of 20 MMT CO2e

Hewlett-Packard Supply chain reduction target of 20% by 2020

Kellogg Company Engage with suppliers to reduce emissions 20% by 2030 and 50% by 2050 from 2015.

GlaxoSmithKline 25% reduction in value chain footprint by 2020, compared to 2010, carbon neutral value chain by 2050.

Coca Cola Enterprises Reduce the GHG emissions from drinks by 33% by 2020. This will deliver carbon reductions throughout their value chain (upstream supply chain ingredients and packaging as well as core business operations).

Tesco Reduce the emissions of products in their supply chain by 30% by 2020 compared to 2008.

SABMiller Achieve a 25% reduction in packaging CO2e by 2020 from a 2010 baseline.

Sodexo Reduce carbon emissions by 34% from operations and supply chain between 2011 and 2020.

Diageo Reduce its own carbon emissions by 50 per cent and those from across its supply chain by 30 per cent by 2020.

Toyota Completely eliminating all CO2 emissions, including materials, parts and manufacturing, from the vehicle lifecycle by 2050.

Regulation

18


Asian governments have made commitments

that must inevitably result in regulation 19


Source: World Resource Institute

No INDC submitted

INDC submitted

NDC submitted

China Peak CO2 emissions by 2030 60-65% intensity reduction by 2030 vs. 2005

United States 26-28% GHG emissions reduction by 2020 vs. 2005

European Union At least 40% GHG emissions reduction by 2030 vs. 1990

India 33-35% intensity reduction by 2030 vs. 2005

Japan 26% GHG emissions reduction by 2030 vs. 2013

Hong Kong 50-60% intensity reduction by 2020 vs. 2005 Upcoming carbon target

Vietnam 20% intensity reduction by 2030 vs. 2010

Cambodia 27% GHG emissions reduction by 2030 vs. BAU

Bangladesh 5% GHG emissions reduction by 2030 vs. BAU

Thailand 20% GHG emissions reduction by 2030 vs. BAU

Markets are already moving 20

https://www.iea.org/newsroomandevents/pressreleases/2016/march/decoupling-of-global-emissions-and-economic-growth-confirmed.html

Conclusions: The Business Case for Low

Carbon Companies

21


Worked case study Tale of two supermarkets

Note this case study is derived from publically available information only using RESET’s assumed energy spend of USD 1m per hypermarket per year

22

Tesco Lotus Big C

#hypermarkets 87 105

Estimated hypermarket energy spend @ US1m per store

$87m/yr $105m/yr

Carbon reductions - 40% 0

Annual energy savings Assume 50% of target = 20% x $87m

= $17m

±570m THB per year

0

Missed savings opportunity - THB 690m per year

Savings as % of annual pre-tax profit - 690m/9b THB = 7.5%

Customer engagement First carbon neutral store in Asia -

https://en.wikipedia.org/wiki/Big_C http://bigc.listedcompany.com/financials.html "At the end of 2014/15, our emissions per sq. ft. of our stores and distribution centres were 40.9% lower than in our 2006/7 baseline.” TESCO, CDP report.

https://en.wikipedia.org/wiki/Big_C

https://en.wikipedia.org/wiki/Big_C

http://bigc.listedcompany.com/financials.html

http://bigc.listedcompany.com/financials.html

Conclusions

Business case is stronger for some companies than others – particularly in Asia.

Carbon targets drive reductions in energy spend which can make a material difference to profitability and cashflow

Reducing carbon emissions provide tangible ‘green’ credentials and is becoming a customer requirement in some supply chains

Low carbon regulation will increase for example increased costs due to introduction of carbon pricing

Therefore a low carbon strategy makes sense for companies with:

Valuable brands

High energy costs

High brand-value B2B customers

Planned investments in long lived energy consuming capital stock such buildings or manufacturing facilities

23


And finally ….. 24


https://www.msci.com/msci-low-carbon-indexes

For more information:

Liam Salter CEO e: [email protected]

RESET Carbon Ltd. www.resetcarbon.com

25

http://www.resetcarbon.com/

Turning savings potential to cashflow Dye mill - generic energy savings model

26

-600000

-400000

-200000

0

200000

400000

600000

800000

1000000

1200000

1400000

1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960

C

a

s

h

f

l

o

w

(

U

S

D)

Months

Phase II

Phase I

Program

Outcomes: Savings per year USD 375 000 Capex of approx. USD 590 000 Real world payback = 26 months 5 year simple NPV = 1.2m USD

We Mean Business Coalition Focused on driving and rewarding corporate leadership

27


28


Leading low carbon companies

Regulation – carbon pricing in China 29


Carbon pricing in China (2/2) 30


Environment

The Business Case for Low Carbon Companies