We hear a lot these days about the push to become carbon-neutral. What does it mean, in practical terms, for companies that are rising to the challenge? And what’s our perspective on it, as investors?
The answer to the second question is easy because we at AllianceBernstein have recently launched an investment strategy that seeks to achieve complete carbon neutrality.
This new strategy has been an important milestone for our firm and our industry, and not the least interesting thing about it, from our point of view, is the opportunity it gives us to engage with companies that are developing their own carbon-neutral products.
Generally, this typically involves three steps: measuring each product’s underlying emissions, reducing those emissions, and offsetting the emissions that remain.
But the real interest lies in how each firm applies these principles according to its own situation. In many cases the solutions are creative, if not ingenious, and can be revealing in terms of the investment implications – and potential – of the move to a cleaner global environment.
Here are a few things we have learned:
1. Consumers want carbon-neutral products
Qantas Airways offers passengers the opportunity to offset the emissions from their travel during the booking process. As many as 10 per cent of travellers booking with Qantas online choose to take up this option. The company began incentivising frequent flyers to fly carbon-neutral with an offer of 10 Qantas points for every dollar they spent reducing their carbon footprint. Since then, the company has seen a 15 per cent increase in frequent flyers choosing to offset their flights.
Shell, a global petrol marketer, has launched programs in Europe to offset the emissions from its V-Power range of petrol and diesel. This appears to be turning into a win-win for the company: not only does it demonstrate its commitment to reduce emissions, but there is also anecdotal evidence that increased uptake of these high margin fuels is making up for the additional costs of the offsets.
And carbon-neutral products are making their way into the grocery aisle. Woolworths currently sells carbon-neutral coffee through its macro organic range, and the North Australian Pastoral Company has begun marketing carbon-neutral beef under its Five Founders brand. Our discussions with these companies suggest that all these products are exhibiting higher growth rates and higher margins, pointing to solid consumer demand for carbon-neutral products.
2. Being green is cheaper than you think
One of the biggest objections we hear to carbon-neutral products is that price-sensitive consumers will not be willing to pay a premium. While this may be true up to a point, we believe that most people’s perceptions dramatically overstate the true costs.
For example, fully offsetting a flight from Sydney to Melbourne on Qantas costs around a dollar. Fully offsetting a litre of Shell V-Power petrol costs between 1 cents and 2 cents per litre. And, in our investment product, fully offsetting the emissions of the portfolio with high-quality, Australian government-certified offsets, costs less than 10 cents for every $100 invested.
Even carbon-neutral meat is cheaper than you might think. Producing lamb or beef is one of the most emissions-intensive activities in our food supply chain. At around 20 tonnes of greenhouse gas emissions per tonne of meat produced, giving up red meat can be one of the most effective ways of reducing your personal carbon footprint. However, if that juicy burger is calling your name, rest assured! Carbon-neutral meat is within reach. While $500 of carbon costs per tonne of beef may seem rich, it’s only 10 cents for a 200-gram burger.
3. These products have other benefits
While consumers need to pay slightly more for carbon-neutral products, it’s possible to argue that the broad economic benefits compensate for this. it’s worth noting, for example, that every dollar that goes into the purchase of offsets is going to the individuals who are working to address this important problem. And increasingly this will be focused on activities like tree planting and land care which are most helpful to rural and Indigenous communities, who will be some of the communities hardest hit by the effects of climate change.
Gates Moss, senior research analyst and portfolio manager - Australian equities, AllianceBernstein
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