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What are we looking for?

Energy companies positioned to thrive in a green economy.

The screen

A recent report produced by the International Labour Organization, a specialized agency of the United Nations, suggests that 24 million jobs will be created globally by 2030 as a result of moves toward a greener economy. At the moment a lot of attention is paid to an energy company’s carbon footprint is as it stands today. However, to figure out whether such a company is positioned to survive – and then thrive – in the greener economy of the future, we should pay more attention to how its reliance on fossil fuels is trending and how it is investing for the future.

First, we look at carbon emissions in tonnes, and scale this to per dollar of revenue in order to make a fair comparison between companies. We look for companies that have, over the past year, reduced their CO2-equivalent emissions-to-revenue ratio by at least 5 per cent. A complication to this type of analysis is that companies are not required to disclose carbon emissions. Many do voluntarily, but an estimation has to be made in cases in which a company does not. An asterisk denotes that an estimated figure has had to be used because a company hasn’t disclosed on emissions for the latest fiscal year.

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Next, we consider how a company is investing for the future and the shift toward a greener economy. We look at environmental R&D expenditures and screen for companies that spend at least $100 on environment-specific research and development for every million dollars of revenue generated. We also screen out any company that does not have explicit policies in place to improve emission reduction.

More about Thomson Reuters

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What we found

Canada is very well represented in the results – three of the eight companies shown – with the remaining five spread across the world. Enbridge Inc. did not disclose CO2 emissions for last year, but has for every prior year since 2007, so the latest figure was estimated based on these past disclosures. China Petroleum & Chemical Corp., on the other hand, has never disclosed on emissions. In the absence of carbon disclosures, an estimate is made based on energy consumed, which is a more readily available number. Not even this is available for China Petroleum, so the figure used is simply the median of the industry, making the data significantly less reliable than for all the other companies.

Of the Canadian companies, Imperial Oil Ltd. is the most promising. It scores a 97 and a 100 (out of 100) on the Thomson Reuters StarMine Analyst Revisions model and Smart Holdings model, respectively, suggesting sentiment is very strong among both sell-side analysts and buy-side institutional investors. All of the foreign companies can be bought as American depositary receipts (ADRs) in United States, and the depositary receipt symbol is the one listed.

Select energy firms preparing for shift to greener economy

CompanySymbolCountryBusiness ActivityMkt. Cap. (Mil. $)Carbon Emissions/Rev. (YoY Chg.)Environ. R&D/$Mil. Rev. ($)Forward Div. Yield1Y Rtn.
China Petroleum & Chem.*SNP-NChinaOil & Gas Refining165,454.6-6%2,3586.8%18%
Petroleo Brasileiro SA PBR-NBrazilIntegrated Oil & Gas86,091.8-14%1044.3%25%
Enbridge Inc. *ENB-TCanadaOil & Gas Transportation68,797.8-30%3866.9%-18%
Imperial Oil Ltd.IMO-TCanadaOil & Gas Refining34,144.8-18%6,2471.8%9%
Coal India Ltd.CLNDY-OTCIndiaCoal33,779.0-40%2867.5%13%
Neste OyjNTOIY-OTCFinlandOil & Gas Refining26,220.7-31%3,3293.0%87%
OMV AGOMVKY-OTCAustriaOil & Gas Refining24,900.4-24%1,2313.3%7%
Cenovus Energy Inc.CVE-TCanadaOil & Gas Refining16,218.8-35%3,7911.6%5%

Source: Thomson Reuters Eikon

* Carbon emissions-to-revenue ratio figure based on estimate.

Investors are advised to conduct their own research before purchasing any of the securities shown here.

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Hugh Smith, CFA, MBA, works in the financial and risk unit of Thomson Reuters and specializes in wealth and asset management.

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