Visualized: The Power of a Sustainable Investment Dollar
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Visualized: The Power of a Sustainable Investment Dollar

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Sustainable Investment

Visualizing the Power of a Sustainable Investment Dollar

Sustainable investments are booming.

Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.

But how do we know if sustainable investments have made a difference?

To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.

A Sustainable vs. Unsustainable Dollar

To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.

In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.

Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.

1. Clean Energy vs. Fossil Fuel

Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?

First, here is a brief explainer of ESG laggards and leaders:

  • ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
  • ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.
Industry laggard: U.S. oil & gas companyIndustry leader: U.S. utilities company
Scale of carbon-intensive business lines equal to 73% of its operation47% lower CO2 emissions than the industry average
This is the equivalent of adding 26 million cars on the road annuallyThis is the equivalent of removing 9.9 million cars off the road annually
1 of 20 oil and gas companies are responsible for contributing to one third of GHG emissions since 1965Uses 3X as many renewable sources than industry average
3X fewer jobs are created vs. energy efficient sector, resulting in lower productivityThis is roughly the same as saving over 9 million pounds of coal burned
MSCI ESG Rating: CCCMSCI ESG Rating: AAA

Source: MSCI ESG Research

Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.

2. Safe vs. Unsafe Working Conditions

Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:

Industry laggard: South African mining companyIndustry leader: U.S. mining company
11 fatalities in 2019Zero fatalities in 2019
Faced lawsuits from miners surrounding lung diseases contracted from dust exposure in gold mines
Settlement cost: $350 million
Board-level oversight monitors health and safety performance
Lags behind peers in high incident ratesLeads peers in low incident rates
Lags behind peers in setting incident reduction targetsLeads industry in lost time incident rate & total recordable injury rate
MSCI ESG Rating: CCCMSCI ESG Rating: A

Source: MSCI ESG Research

Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.

3. Building Trust vs. Losing Trust

Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:

Industry laggard: U.S. bankIndustry leader: Dutch bank
$3 billion settlement in creating fictitious accounts to meet aggressive sales targetsSustainable finance portfolio valued at over $20 billion
Drop in top-tier bank ratings13% annual increase in climate finance
Board effectiveness questionedIncludes over 60 green loans, mobilizing environmentally friendly projects
Resignation of board membersOver 55% of board is female
MSCI ESG Rating: CCCMSCI ESG Rating: A

Source: MSCI ESG Research

From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.

Sustainable Investment: The Time to Act

Recently, investor dollars and shareholder activism have been closely linked.

Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.

Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.

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Environment

Animation: Visualizing 140 Years of Global Surface Temperatures

Here’s a look at 140 years of global surface temperatures, highlighting the ten coldest and warmest years since 1880.

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Average surface temperature since 1800

Average surface temperatures since 1800

Animated: 140 Years of Global Surface Temperatures

For hundreds of years, Earth’s average surface temperature has been steadily increasing. And over the last decade, this global heating appears to have intensified.

Since 1880, the global average temperature has risen by an average of 0.08°C (0.14°F) every 10 years, according to the National Oceanic and Atmospheric Administration (NOAA).

But since 1981, warming has been occurring at more than twice that rate, by about 0.18°C (0.32°F) per decade.

This graphic by Pablo Alvarez shows 140 years of global surface temperatures, highlighting the 10 coldest and warmest years from 1880-2021 using data from NOAA.

Global Surface Temperatures Over Time

Over the last century and a half, there have been fluctuations in global surface temperatures, with some of the coolest years on record occurring in the late 19th century and early 20th century.

Average surface temperature since 1800

However, the last two decades have seen unprecedented warming, with the 10 warmest years on record all occurring within the last 20 years. Here’s a look at the 10 hottest years since 1800, and how they compared to the 20th century average:

The 10 Warmest Years

RankYearDeviation from 20th Century Avg. (°C)
#12016+0.99
#22020+0.97
#32019+0.94
#42015+0.93
#52017+0.9
#62018+0.82
#72014+0.74
#82010+0.72
#92013+0.67
#102005+0.66

As of this article’s publication, the warmest year on record was 2016, when temperatures were +0.99°C (1.78°F) above the 20th century average. After 2016, the second warmest year was 2020, when surface temperatures reached +0.97°C (1.75°F) higher than the previous century’s average.

What Factors Impact Earth’s Climate?

There are a number of natural factors that influence global surface temperatures, including phenomena such as:

  • Volcanic activity
  • Changes in the Earth’s orbit
  • Shifts in ocean currents

However, scientists believe that our current rate of warming has been undoubtedly caused by human influence, especially because of our carbon and other greenhouse gas (GHG) emissions.

According to the most recent report by the Intergovernmental Panel on Climate Change (IPCC), “observed increases in well-mixed greenhouse gas (GHG) concentrations since around 1750 are unequivocally caused by human activities.”

In other words, while Earth’s surface temperature naturally fluctuates over the years, our actions have undoubtedly contributed to recent changes in Earth’s climate.

What Are The Consequences?

We’re already seeing the impact of this warming, as the world struggles with extreme climate events like droughts, heatwaves, floods, and an influx of wildfires in places like Europe, the United States, and Australia.

These extreme weather patterns could become the new normal if left unchecked, which is why companies and policymakers around the world are embarking on different solutions—from targeting net zero goals to implementing technological innovations that could reduce emissions.

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Energy

The U.S. Utilities Decarbonization Index

This graphic quantifies and compares the state of decarbonization among the 30 largest investor-owned utilities in the United States.

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decarbonization index
The NPUC Annual Utility Decarbonization Report

Introducing the NPUC Annual Utility Decarbonization Report 2022
Created in partnership by Visual Capitalist and Motive Power.

Download the Free Report
decarbonization index

The U.S. Utilities Decarbonization Index

With the Biden administration targeting a zero-emissions power sector for the U.S. by 2035, how are the nation’s largest electric power providers faring in terms of decarbonization? 

Together, Visual Capitalist and our sponsor National Public Utilities Council have developed the Annual Utility Decarbonization Index. The index quantifies and compares the status of decarbonization among the 30 largest investor-owned utilities in the United States.

Decarbonization is quantified by scoring companies on six emissions-related metrics based on publicly available data from 2020 (the latest available).

Why the 30 Largest IOUs?

Why does the Decarbonization Index specifically look at the 30 largest IOUs by electricity generation? 

Well, these 30 utilities collectively generated around 2.3 billion megawatt hours (MWh) of electricity (including purchased power), making up over half of U.S. net electricity generation in 2020. Moreover, they also served over 90 million customers, accounting for roughly 56% of all electric customers in the country.

30 largest utilities in the U.S.

Therefore, it’s safe to say that the 30 largest IOUs have an important role in decarbonizing both the power sector and the U.S. economy. Since the residential, commercial, industrial, and agricultural sectors all use electricity, the decarbonization of utilities—the providers of electric power—can enable emissions reduction throughout the economy.

Decarbonization Index Methodology

For each of the six metrics used in the Decarbonization Index, utilities are scored on a scale of 1 (lowest) to 5 (highest), indicating whether they are trailing or leading, respectively. Scores for each metric are based on the range of figures for each metric divided into five equal buckets that the utilities fall into. 

For simplicity, let’s suppose that the lowest reported total emissions figure is zero metric tons of carbon dioxide (CO2) and the highest is 100 metric tons. In that case, companies that emit fewer than 20 metric tons of CO2 will receive the highest score of 5. Those that emit between 20 and 40 metric tons of CO2 will receive a 4, and so on.

A utility’s overall decarbonization score is an average of their scores across the six metrics, summarized below:

  1. Fuel Mix:
    The share of low-carbon sources (renewables, nuclear, and fuel cells) in the utility’s owned net electricity generation. We’ve assumed that the share of low-carbon sources can range from 0% to 100%, and scores are assigned based on that range.
  2. CO2 Emissions Intensity:
    The amount of CO2 emitted per megawatt-hour of owned and purchased electricity generation.
  3. Total CO2 Emissions:
    The sum of absolute CO2 emissions from owned and purchased electricity generation. While this overlooks the differing sizes of utilities, the rationale is that smaller unconsolidated utilities may find it easier to decarbonize than larger peers.
  4. CO2 Emissions per Capita:
    The amount of CO2 emitted from owned and purchased electricity generation per retail customer served in 2020.
  5. Decarbonization Goals:
    An evaluation of the utility’s interim greenhouse gas (GHG) emissions reduction goals and net-zero targets. The baseline for this is 50% GHG emissions reduction by 2030 and net-zero emissions by 2050 (utilities with baseline targets get a score of 2.5/5).
  6. Low-Carbon Investment:
    The share of planned capital expenditure (CAPEX) for electricity generation that is allocated to low-carbon sources. We’ve assumed that the share of CAPEX for low-carbon sources can range from 0% to 100%, and scores are assigned based on that range.

The data for these metrics comes from various sources including company sustainability reports, quantitative reporting templates from the Edison Electric Institute, and the Climate Disclosure Project’s Climate Change Questionnaire filings.

Explore all six metrics of the U.S. Utility Decarbonization Index

NPUC Annual Utility Decarbonization Report

Download The NPUC Annual Utility Decarbonization Report for free.

The Annual Utility Decarbonization Index 2022

Before looking at numbers, it’s important to note that the Decarbonization Index is relative and compares the 30 largest IOUs to each other. Therefore, a score of 5 does not indicate full decarbonization or net-zero emissions. Instead, it suggests that the utility is doing particularly well relative to its peers. 

With that in mind, here’s a look at the Annual Utility Decarbonization Index 2022: 

Rank
CompanyDecarbonization Score
#1Public Service Enterprise Group4.7
#2NextEra Energy Resources4.7
#3Pacific Gas and Electric4.5
#4Avangrid4.2
#5Exelon4.1
#6Portland General Electric3.7
#7Dominion Energy3.6
#8Florida Power and Light3.6
#9PNM Resources3.5
#10Alliant Energy3.4
#11Consolidated Edison3.4
#12Fortis Inc.3.4
#13American Electric Power3.3
#14Consumers Energy3.3
#15Evergy3.0
#16NRG Energy3.0
#17AES Corporation2.9
#18Xcel Energy2.9
#19WEC Energy2.9
#20DTE Energy2.8
#21Duke Energy2.8
#22Entergy2.8
#23TransAlta2.8
#24Emera2.7
#25Ameren2.6
#26Berkshire Hathaway Energy2.5
#27Oklahoma Gas & Electric Company2.4
#28Southern Company2.3
#29PPL Corporation2.2
#30Vistra Corp.2.0

A small number of companies did not report data on certain metrics and have been excluded from scoring for those metrics (denoted as N/A). In such cases, the decarbonization score is an average of five metrics instead of six.

Public Service Enterprise Group (PSEG), headquartered in New Jersey, tops this year’s rankings thanks to its low-emissions profile and ambitious climate goals. The company is aiming to achieve net-zero emissions from operations by 2030—five years ahead of the Biden Administration’s target and faster than any other utility on the list.

Tied with PSEG is NextEra Energy Resources, the clean energy-focused subsidiary of NextEra Energy. The company is the world’s largest producer of solar and wind power and generated 97% of its net electricity from low-carbon sources in 2020.

In third place is California’s largest utility, the Pacific Gas and Electric Company (PG&E). PG&E had the lowest emissions per capita of the 30 largest IOUs at 0.5 metric tons of CO2 per retail customer in 2020. That figure is significantly lower than the average of 11.5 metric tons across the 30 IOUs. 

Rounding out the top five are Avangrid, a renewables-focused U.S. subsidiary of the Spanish Iberdrola Group, and Exelon, the nation’s largest utility by number of retail customers. Avangrid had one of the cleanest fuel mixes with 87% of its owned net electricity coming from low-carbon sources. Exelon is the nation’s largest provider of emissions-free electricity, generating around 157 million MWh or 86% of its owned net electricity from nuclear power.

Download the Full Utility Decarbonization Report

While the Decarbonization Index provides a look at the current status of utility decarbonization, there’s much more to uncover in the full report, including:

  • The obstacles that utilities face on the path to decarbonization
  • The detailed data behind the six individual metrics
  • The U.S. utilities ESG report card
  • The solutions and strategies that can help accelerate decarbonization

>> Click here to download the full report and find out everything you need to know about utility decarbonization.

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