2016

Donna Bebb, Research Fellow

Steyer-Taylor Center for Energy Policy and Finance

STSTANFORDS

Introduction

The Need to Integrate ESG Metrics

Challenges of Integrating ESG Metrics

The Case for Separating E

Relative Climate Value (RCV) Method

Methodology

Results

Long-term Policy Changes and Long-term Climate Shifts

Short-term Severe Weather Events

Hypermarkets

Sorted by largest index weight

Scope 1

MSCI ACWI Carbon Electricity Sea Level U.S. U.S. U.S. U.S.

Company Index Weight Tax Price Increase Drought Rise West Midwest Southeast Northeast Australia Europe Asia

Hypermarkets 0.80%

Walmart 0.48% Overweight Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral

Costco 0.12% Overweight Overweight Neutral Neutral Underweight Neutral Neutral Neutral Overweight Overweight Overweight

Walmart Mexico 0.08% Neutral Overweight Neutral Neutral Overweight Neutral Neutral Neutral Overweight Overweight Overweight

Wesfarmers 0.07% Underweight Underweight Neutral Neutral Overweight Neutral Neutral Neutral Underweight Overweight Neutral

Carrefour 0.05% Underweight Neutral Neutral Neutral Overweight Neutral Neutral Neutral Overweight Underweight Neutral

Overweight Company will outperform peers based on this factor

Neutral No relative impact on performance from this factor

Underweight Company will underperform peers based on this factor

Long-term ClimateLong-term Policy Short-term Severe Weather

Auto Manufacturers

Sorted by largest index weight

Scope 1

MSCI ACWI Carbon Electricity Sea Level U.S. U.S. U.S. U.S.

Company Index Weight Tax Price Increase Drought Rise West Midwest Southeast Northeast Europe Asia

Automobile Manufacturers 1.62%

TOYOTA MOTOR CORPORATION 0.44% Neutral Neutral Neutral Underweight Underweight Underweight Underweight Neutral Overweight Underweight

Daimler AG 0.19% Overweight Neutral Neutral Overweight Overweight Overweight Overweight Underweight Underweight Underweight

VOLKSWAGEN AKTIENGESELLSCHAFT 0.14% Underweight Neutral Neutral Overweight Overweight Overweight Underweight Overweight Underweight Overweight

BMW 0.14% Overweight Neutral Neutral Overweight Overweight Neutral Underweight Overweight Underweight Neutral

HONDA MOTOR CO., LTD. 0.12% Underweight Neutral Neutral Underweight Underweight Neutral Underweight Neutral Overweight Underweight

FORD MOTOR COMPANY 0.12% Neutral Neutral Neutral Neutral Neutral Underweight Overweight Underweight Neutral Underweight

GENERAL MOTORS COMPANY 0.10% Underweight Neutral Neutral Neutral Neutral Underweight Overweight Underweight Neutral Underweight

NISSAN MOTOR CO., LTD. 0.09% Neutral Neutral Neutral Neutral Neutral Overweight Underweight Neutral Overweight Neutral

HYUNDAI MOTOR COMPANY 0.06% Neutral Neutral Neutral Underweight Underweight Overweight Underweight Overweight Overweight Overweight

RENAULT S.A. 0.06% Underweight Neutral Neutral Overweight Overweight Overweight Overweight Underweight Underweight Underweight

TESLA MOTORS, INC. 0.06% Overweight* Not available Neutral Overweight Underweight Overweight Overweight Overweight Overweight Overweight

Fuji Heavy Industries Ltd. 0.05% Overweight Neutral Neutral Underweight Underweight Overweight Overweight Underweight Overweight Underweight

TATA MOTORS LIMITED 0.05% Overweight Neutral Neutral Overweight Overweight Overweight Overweight Overweight Underweight Underweight

Overweight Company will outperform peers based on this factor Sea Level Rise and Drought: Only occurrences in U.S. were considered; sea level rise in certain

Neutral No relative impact on performance from this factor Chinese and Japanese locations would significantly impact almost all

Underweight Company will underperform peers based on this factor automakers but was not included here

* Adjusted Tesla revenues and EBITDA to compensate for status as start-up

Long-term Climate Short-term Severe WeatherLong-term Policy

Conclusions:

Acknowledgements

i Sustainable Investing: Establishing Long-Term Value and Performance,” Deutsche Bank, June 2012 ii Cheng Beiting, Ioannis Ioannou, and George Serafeim, Corporate Social Responsibility and Access to Finance

(Harvard Business School Working Paper Number 11-130, 2010) iii “CalPERS gives its managers ESG ultimatum.” Amanda White, May 22, 2015. Top1000funds.com iv Sustainable Investing: Establishing Long-Term Value and Performance,” Deutsche Bank, June 2012

Appendix 1

EBITDA Impact of Carbon Tax (mils)$USD

2013 2013 FY2014 FY2014 Scope 1 Scope 1 EBITDA EBITDA Mgn Diff in Index

Company Scope 1&2 Scope 1 Revenue EBITDA Carbon Tax $ % of EBITDA Margin w/Tax EBITDA Mgn Weight

Automobile ManufacturersTata Motors 353,112 81,277 36,788 5,635 3 0.1% 15.3% 15.3% (0.0%) 0.05%

BMW 1,415,641 492,798 97,269 14,629 18 0.1% 15.0% 15.0% (0.0%) 0.14%

Fuji Heavy Industries 441,351 151,368 23,887 4,049 6 0.1% 17.0% 16.9% (0.0%) 0.05%

Daimler AG 3,356,000 1,052,000 157,119 19,002 39 0.2% 12.1% 12.1% (0.0%) 0.19%

Hyundai (in bil KRW) 2,440,285 841,978 80,330 9,090 31 0.3% 11.3% 11.3% (0.0%) 0.06%

Nissan 3,430,215 791,682 94,414 7,992 29 0.4% 8.5% 8.4% (0.0%) 0.09%

Toyota 7,840,000 2,979,200 226,047 29,521 110 0.4% 13.1% 13.0% (0.0%) 0.44%

Ford 4,822,287 1,482,020 142,100 11,420 55 0.5% 8.0% 8.0% (0.0%) 0.12%

Volkswagen 9,038,463 4,288,061 244,934 27,946 159 0.6% 11.4% 11.3% (0.1%) 0.14%

Tesla 54,575 18,906 3,198 115 1 0.6% 3.6% 3.6% (0.0%) 0.06%

Honda 5,207,000 1,409,000 104,968 8,426 52 0.6% 8.0% 8.0% (0.0%) 0.12%

Renault 1,260,493 677,890 49,668 3,764 25 0.7% 7.6% 7.5% (0.1%) 0.06%

General Motors 8,416,034 2,802,461 154,230 10,170 104 1.0% 6.6% 6.5% (0.1%) 0.10%

Hypermarkets & Super CtrsCostco 1,663,953 485,320 115,640 4,550 18 0.4% 3.9% 3.9% (0.0%) 0.12%

Walmart 21,435,137 6,501,715 485,520 35,880 241 0.7% 7.4% 7.3% (0.0%) 0.48%

Walmart de Mexico 1,755,582 741,589 29,886 2,982 27 0.9% 10.0% 9.9% (0.1%) 0.08%

Carrefour 3,375,000 1,775,000 90,379 4,643 66 1.4% 5.1% 5.1% (0.1%) 0.05%

Wesfarmers 4,240,752 1,568,933 48,963 3,548 58 1.6% 7.2% 7.1% (0.1%) 0.07%

$37Recommended carbon price (CDP, OMB)