After being postponed due to Covid-19, the 26th United Nations Climate Change Conference, also known as COP26, is now being held in Glasgow, Scotland. In alignment with the conference, many corporations have committed to reducing their greenhouse gas emissions usage by adding long-term net zero goals on their ESG (environmental, social, governance) websites and claiming they are less environmentally damaging. To analyze the claims of consumer-product companies, we’ve pulled ESG data from Eikon.
Methodology
ESG scores from Refinitiv are designed to measure transparently and objectively a company’s relative ESG performance, commitment and effectiveness across 10 main themes (emissions, environmental product innovation, human rights, shareholders, etc.) based on publicly-reported data, including annual reports.
We pulled 259 companies within various consumer sectors and identified only 72 companies which report their carbon dioxide (CO2) emissions. Through Eikon, CO2 emissions data was pulled from their latest fiscal year (FY0) and compared with its CO2 emissions three years prior (FY-3). Refinitiv follows greenhouse gas (GHG) protocol for all its emission classifications by type. Therefore, please note: Total CO2 emission = direct (scope1) + indirect (scope 2).
This helps determine whether the change in CO2 emissions shows a commitment in reducing greenhouse gas emission, or not. This is critical since “CO2 accounted for about 80 percent of all U.S. greenhouse gas emissions from human activities” in 2019, according to the U.S. Environmental Protection Agency.
For these 72 companies, we also look at the current Emissions Score which measures the company’s commitment and effectiveness towards reducing environmental emissions in the production and operational processes. It’s important to note that this is different from a company’s overall ESG combined score, which includes information in the environmental, social and corporate governance pillars with ESG Controversies overlay.
Textiles, apparel and luxury goods
When looking at the Textiles, Apparel and Luxury Goods sector, French luxury group Kering is on top with an Emissions Score of 99.67 (Exhibit 1). Two years ago, the luxury retailer committed to full carbon neutrality across the group.
Exhibit 1: Total CO2 & Equivalent Emission in Tonnes: Textiles, Apparel & Luxury Goods
Source: Refinitiv ESG
*Please note: Total CO2 emission = direct (scope1) + indirect (scope 2). Refinitiv follows greenhouse gas (GHG) protocol for all its emission classifications by type.
In 2020, the carbon footprint of Kering amounted to 25,527 tonnes of CO2 (Exhibit 1). The most significant components of the footprint relating to reduction reflects “significant efforts made by the Group to purchase green electricity (with a certificate guaranteeing its source) and to increase the use of renewable energies at its industrial sites and warehouses” according to Kering’s latest sustainability report (Source: Kering 2020 Universal Registration Document).
This translates into an impressive 79.3% decrease in its CO2 emissions since 2017. Additionally, the company has taken serious measures to lower the impact of CO2 emissions by switching to alternate means of transportation and optimizing its logistics by its proximity to its supply chain. Since 2018, the luxury retailer has increased its use of sea freight as a substitution of air freight travel. Its Balenciaga namesake has also opened a warehouse in close vicinity of its production and delivery areas. Kering also encourages its houses to use means of public transportation to reduce CO2 emissions.
Other notable fashion brands that have reduced their CO2 emission by 58.6%, 42.4% and 34.4% are Tapestry, PVH, and Burberry Group, respectively. Likewise, French luxury retailer LVMH has pushed efforts to reduce its CO2 emission by 16.8%.
As part of “Move to Zero,” Nike has also committed to reduce its carbon footprint by 2030 through science-based targets, with an absolute reduction of Scope 1 and 2 emissions by 65%. So far, Nike has reduced its Scope 1 and 2 emissions by 3.1%. It has become more proactive in incorporating recycled materials into its production of athletic gear. Moreover, it remains committed to working with suppliers in reducing energy and carbon emissions.
However, not all French luxury retailers have been successful in reducing their carbon footprint. Kering and LVMH’s competitor, Hermès, has seen a rise of CO2 emissions of 7.1%. Ralph Lauren Corp. has seen the biggest rise of 79.2% since 2017. Earlier in June 2021, the company announced its goals to achieve net zero greenhouse gas emissions by 2040.
Discounters, health and multiline retailing
All nine retailers in this group have seen double-digit declines in their CO2 footprint, especially large-cap retailers. Walmart, Kroger and Target have shown the biggest reduction in CO2 in tonnes (Exhibit 2). Likewise, department stores Macy’s and Kohl’s have seen a 44.6% and 23.1% decline over the previous three fiscal years. Sysco Corp. also discloses its emissions policy and targets, and has seen the smallest decline in this group of 8.4% over its previous three fiscal years. The company holds an Emissions Score of 68.02 out of a possible 100.
Exhibit 2: Total CO2 & Equivalent Emission in Tonnes: Discounters, Health and Multiline Retailing
Source: Refinitiv ESG
Specialty, leisure and internet retail
Etsy and Ebay give consumers an interesting marketplace platform to buy and sell merchandise. Health and wellness have been of top priority for consumers during the pandemic. As a result, many have made the commitment to change the way they shop by buying vintage as opposed to new items, which is better for the environment. This also helps move the industry from linear to a circular fashion economy.
Etsy doesn’t only want consumers to be happy with their purchase but also wants them to feel good about their purchase and its impact on the planet. During the pandemic, Etsy rolled out a green shipping initiative. Every time a consumer purchases an item, Etsy automatically purchases verified emissions reductions, commonly known as “offsets,” at no additional cost to the buyer.
Only two of the 17 retailers in this group have seen a positive percentage rise in CO2 over the past three years. Fast fashion’s operating model is based on the acceleration of fashion design and manufacturing, thus intensifying fashion’s CO2 emissions footprint and supporting consumers’ increasing scrutiny of fast fashion’s impact on the environment. Fast fashion retailer H&M has seen a 14% CO2 rise from 2017 to 2020.
Exhibit 3: Total CO2 & Equivalent Emission in Tonnes: Specialty, Leisure and Internet Retail
Source: Refinitiv ESG
Household durables and household product sectors
CO2 usage within this group is much higher compared to traditional consumer company names. This is mainly because of their use of raw materials to produce things like hygiene products. Since the establishment of the FSC (Forest Stewardship Council) in 1993, some of the companies within this industry have been following regulations to bring their emissions down substantially by 2030. Nine of the 12 companies in these two sectors have reduced their CO2 emissions.
Exhibit 4: Total CO2 & Equivalent Emission in Tonnes: The Household Durables & Product Sectors
Source: Refinitiv ESG
Hotels, restaurants and leisure
This is a group that is strongly dependent on various macroeconomic factors, including consumer confidence. The latest reading on the Refinitiv consumer confidence index shows that consumers’ optimism about the economic recovery has dampened as another wave of Covid-19 hits the country. The Delta variant continues to triggers shifts in consumer sentiment. As people cope with the Delta variant, it is clear that their spending is focused on improving the stay‐at‐home experience as opposed to hotels, restaurants and leisure spending.
Over 50% of the companies in this category have reduced emissions, especially large-cap restaurants (Exhibit 5). Yum! Brands seems to lead this category with the biggest percentage reduction over a period of three years, followed by Dunkin’ Brands and McDonald’s. The fast-food restaurant recently announced that it plans to significantly decrease the amount of plastic used in their famous Happy Meal toys.
After this announcement, the Center for Biological Diversity, a non-profit working to protect endangered species, responded to the news on Twitter. Its response said McDonald’s must “reduce the amount of beef it serves, too.” (Source @CenterForBioDiv tweet, Sept. 21, 2021) McDonald’s itself reports that beef production is one of the largest segments of its carbon footprint.
Exhibit 5: Total CO2 & Equivalent Emission in Tonnes: Hotels, Restaurants & Leisure
Source: Refinitiv ESG
Airlines industry
As consumers become more socially and environmentally conscious about reducing their own carbon footprint, travel sites are starting to highlight the most CO2-friendly flights. Accordingly, Delta has just launched a new campaign in September to highlight its carbon-neutral efforts and appeal to eco-conscious frequent flyers.
In 2020, Delta Airlines committed $1 billion to becoming the first carbon neutral airline over a ten-year plan. This is crucial as the airline has seen a 7.6% rise in CO2 emissions from 2016 to 2019 based on data reported in its latest corporate responsibility report. In accordance with the International Air Transport Association (IATA) policy, Delta’s long-term plan includes reducing net-aviation carbon emissions by 50% from 2005 to 2050.
Analysts polled by Refinitiv see the airline’s CO2 emissions goals lagging behind some of its peers, because of the average aircraft age of its fleet. Moreover, the airline giant could benefit from upgrading to more energy-efficient aircrafts to further reduce its respective company carbon emissions. Some of its global airline peers already seem to be ahead on this upgrade.
Meanwhile, the airline sector continues to be impacted by international travel restrictions related to Covid-19. Additionally, it continues to face rising costs associated with increasing legal regulations associated with greenhouse gas emissions. Although airlines’ CO2 footprint might be decelerating, a number of airlines still haven’t posted negative growth rates in CO2 emissions.
Exhibit 6: Total CO2 & Equivalent Emission in Tonnes: Airlines
Source: Refinitiv ESG
Coincidentally, most of these airlines are on track to miss their earnings estimate and post a negative surprise this quarter. Looking forward to anticipated Q3 performance, we used StarMine’s SmartEstimate to determine which companies mentioned in this report are better poised to beat and/or miss earnings estimates. The results show that negative surprises for the major airlines are in the offing, considering consumers are concerned with the Covid-19 Delta variant (Exhibit 7). Moreover, international travel restrictions are still in effect.
Still, the bulk of companies on track to miss Q3 earnings are among the largest CO2 emissions violators. These companies have either stopped reporting CO2 emissions, never reported it, or have not reported it consistently (Exhibit 7).
Exhibit 7: StarMine Negative Predicted Surprise Q3 2021
Source: Refinitiv Eikon
The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as Predicted Surprise (PS%).
The SmartEstimate data shows investors can expect positive surprises from companies that have improved their CO2 emissions. These include Dick’s Sporting Goods, Etsy, and Best Buy among others (Exhibit 8). Dick’s Sporting Goods currently has an EPS mean forecast of $1.86 a share for Q3 2021. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Dick’s Sporting Goods to report earnings of $2.18 a share, well above the mean.
A positive earnings surprise is not an indication that a company is doing a good job in reducing their CO2 emissions. Ideally, successful companies should become more transparent in reporting ESG data to fire on all cylinders, especially since consumers are showing a growing preference to do business with companies that are environmentally and socially conscious.
Exhibit 8: StarMine Positive Predicted Surprise Q3 2021
Source: Refinitiv Eikon
Companies are increasingly taking actionable steps in tracking and reporting ESG standards to achieve long-term success. The companies below either just started reporting or have less than two years of reporting CO2 emissions (Exhibit 9). Meanwhile, some companies haven’t reported ESG metrics for two years. That group includes Costco, which published its Sustainability Commitment report in 2019; therefore, it is more difficult to track its current CO2 footprint.
Exhibit 9: Total CO2 & Equivalent Emission in Tonnes: Less than 2 Years ESG Data
Source: Refinitiv ESG
Biggest culprit
Nevertheless, perhaps the largest CO2 emission violators are those that either have stopped reporting it, or never have reported it (Exhibit 10 and 11). Granted during the pandemic, several companies stopped reporting financial reports. Still, in order to track CO2 emissions, and other ESG metrics, relevant ESG reports need to be produced on a regular basis and must be accessible in a centralized location in a transparent manner to secure long-term success. The long-term, broader goal is to help keep the global temperature from rising.
Below is a list of the remaining 158 companies who haven’t reported CO2 metrics.
Exhibit 10: Companies that stopped or haven’t reported CO2 (Part 1)
Source: Refinitiv ESG
Exhibit 11: Companies that stopped or haven’t reported CO2 (Part 2)
Source: Refinitiv ESG
