GIN 2010 Conference

Carbon Ebitda Strategy

Generating Performance with Lower than Averaged GHG Emissions

Presented by Youngjae Ryu

(CEO, Sustinvest Research & Consultancy)

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US $ 2.2
Trillion

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UN report tells us
According to the UN Report conducted by Trucost, Worlds top firms
cause $2.2tn of environmental damage in 2008
The figure accounts for one-third of profit firms made in 2008

More than half of $2.2tn was caused by GHG emission

What if firms were forced to pay for use, loss and damage of
environment ?
One-third of their profit would be lost

How does investor integrate the risk into investment process ?

Quantitative data on environment impact is severely needed

(Source : The Guardian Newspaper, 18th Feb. 2010)

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TRUCOST METHODOLOGY OVERVIEW

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Measuring Company Environmental Impacts

464
Environmental
Activity Profiles

Financial and Disclosure

Initial Company
Segmental and Public
Profile Registers Profile
Analysis

Identify company Produce company Analyze company Calculate direct

activities and assign profile with disclosures for and indirect
revenue to sectors quantities of 700 actual impact data environmental
resources and impacts
emissions

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464 Environmental
Activity Profiles

Financial and Initial Disclosure Company

Segmental Analysis Profile and Public Registers Profile

Modeling env.impacts
Developed unique methodology based on an input-output
model to calculate companys env. impact
Extensive studies of industries to identify the quantities of
over 700 env. Indicators
Trucost calculates env. Impact of 464 industries, based on
the North American Industrial Classification System(NAICS)

Trucost produces environmental profiles

All companies have impact on environment through their
operations and supply chain
Trucosts profile provides quantitative data on companys
environmental impact
Many companies do not disclose their env. impacts in
quantitative terms

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464 Environmental
Activity Profiles

Financial and Initial Disclosure Company

Segmental Analysis Profile and Public Registers Profile

Identify company activities and assign revenue to sectors

Break down and assign company activities into 464 sectors
Use data from FactSet and company accounts to identify segmental
revenue data and map each company to a set of sectors
Oil and Gas Utilities: Power Generation
Crude petroleum and natural gas extraction Hydroelectric

Natural gas liquid extraction Coal

Drilling activities for oil and gas operation Natural Gas

Support activities for oil and gas operations Petroleum

Tar sands extraction Nuclear

Petroleum refineries Solar

Industrial gas manufacturing Wind

Petrochemical manufacturing Geothermal

Petroleum lubricating oil and grease manufacturing Wave & Tidal

Gas stations Biomass

Natural gas distribution Landfill gas

Pipeline transportation Other

All other petroleum and coal products manufacturing Power distribution

pipeline transportation of natural gas

Power transmission

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464 Environmental
Activity Profiles

Disclosure
Financial and Initial Company
and Public
Segmental Analysis Profile Profile
Registers

Produce company profile with quantities of 700 resources and emissions

Includes the resources such as water, as well as waste production and pollutants such as
mercury and GHG emissions.
The system is consistent with the United Nations Millennium Ecosystem Assessment
Initial profile includes data from the US Toxic Release Inventory, Federal Statistics Office
of Germany(Destatis), The UK Environmental Accounts, Japanese Pollution Release and
Inventory and Canadas National Pollutant Release Inventory

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464 Environmental
Activity Profiles

Disclosure
Financial and Initial Company
and Public
Segmental Analysis Profile Profile
Registers

Analyze company disclosures for actual impact data

Review and incorporate publicly disclosed data into the profile
Standardize the quantities of resources used or pollutants emitted using metric tones
or cubic meters to allow for direct comparison across companies, industrial sectors and
geographies

Companies are given the opportunity to review and verify their data
Companies can easily verify their data through Trucosts on-line system

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464 Environmental
Activity Profiles

Disclosure
Financial and Initial Company
and Public
Segmental Analysis Profile Profile
Registers

Calculate direct and indirect environmental impacts

The quantity of profile of a company is calculated and a damage cost is applied to
each resource and emission to generate an external environmental cost profile.
The costs represent the quantities of natural resources used or pollutants emitted
multiplied by their environmental damage costs to society
External costs are incurred whenever a natural resource is used or emissions are made to
air, land or water
Valuing environmental impacts
Price the damage that is done to society and human capital by pollutants and natural
resource use, including quantifying associated with health costs
By applying a price to each environmental resource, based on the environmental impact of
that resource, the model is able to analyze, in financial terms, the productivity and
environmental performance of each sector

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CARBON PORTFOLIO STRATEGY

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Sustinvest applied T/C into Korean company

Sustinvest made partnership with Trucost in 2009
Established DB of Env. impact on 250 Korean companies, using the Trucosts
input-output model

<DB of Korean companys env. Impacts>

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Carbon Ebitda Strategy

Carbon Ebitda Strategy applies the Ebitda selection
factors to companies that have been pre-filtered for
lower carbon emissions
No Negative The bulk of CO2 emission is concentrated in a few
Screening! sectors, such as power companies, material manufacture
etc. Excluding the sectors from the portfolio(negative
screening) would cause significant tracking error
relative to the benchmark

The Carbon Ebitda Strategy adopts a best of the class

approach by allowing only the stocks with lower CO2
Emission stocks in each sector to be eligible for selection
by the Ebitda performance

Carbon Ebitda Strategy uses screening process based on GHG

emissions of a company relative to other companies in the same
sector

CarbonEbitda Strategy was developed, referring to CROCI Carbon Strategy conducted

by Deutsche Bank
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Objectives
Selection of companies with lower greenhouse gas emissions in each sector,
reducing the intensity of the greenhouse gas emissions

Apply Ebitda/Total Asset selection process within the lower CO2 emitting stocks
to generate performance

Historically, the Ebitda/Total Asset process has outperformed the benchmark

Although the emissions screening has had a modest effect on performance,

it has significantly reduced greenhouse gas emissions of the porffolio

Objective: Lower emissions and outperformance relative to the benchmark

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Selection Process
200 stocks selected from KOSPI200
KOSPI200
Stocks filtered according to carbon
100 stocks with below sector emission(CO2 Equivalents/Revenue),
Median emissions with only those with below sector
median emissions

50 stocks with highest

Top 50 selected on Ebitda/TA ratio
Ebitda/TA

Stocks weighted by Portfolio weighted according to market

Market Capitalization capitalization

* Ebitda=Earning before Interest, Taxes, Depreciation, and

Amortization

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 0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2007/04/30
2007/05/29
2007/06/26
2007/07/24
2007/08/21
2007/09/17
2007/10/18
2007/11/14
Carbon50
KOSPI200

2007/12/11
2008/01/11
2008/02/12
2008/03/10
2008/04/04
2008/05/06
2008/06/03
2008/07/01
2008/07/28
2008/08/25
2008/09/22
2008/10/20
2008/11/14
2008/12/11
2009/01/12
2009/02/10
2009/03/09
2009/04/03
2009/04/30

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2009/05/29
2009/06/25
2009/07/22
2009/08/18
2009/09/14
Historical Performance Analysis(I)

2009/10/12
2009/11/06
2009/12/03
2010/01/04
2010/01/29
2010/02/26
2010/03/26
Time period: 30-April-07 ~ 30-April-10

2010/04/22
14.3%
56.8%

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 0.000
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
2007/04/30
2007/05/31
2007/07/02
2007/08/01
2007/08/31
2007/10/05
2007/11/05
2007/12/04
2008/01/08
2008/02/11
2008/03/11
2008/04/10
2008/05/14
2008/06/13
2008/07/14
2008/08/12
2008/09/11
2008/10/14
2008/11/12
2008/12/11
2009/01/14
2009/02/16
2009/03/17
2009/04/15
2009/05/18
2009/06/16
2009/07/15

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2009/08/13
2009/09/11
2009/10/13
2009/11/11
2009/12/10
Historical Performance Analysis(II)

2010/01/13
2010/02/11
2010/03/16
Time period: 30-April-07 ~ 30-April-10

2010/04/14
Ebitda 55

Carbon50
KOSPI200

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Comparison of Risk Profile

0.2400 1.0400 0.0240

1.0000
0.1999
0.9770

0.9600
0.1567 0.0155
0.1600 0.0160

0.8800
0.8567 0.0106
0.0886

0.0800 0.0080 0.0068

0.8000

0.0000 0.7200 0.0000

Sharpe ratio Beta Treynor

KOSPI200 Ebitda55 Carbon50

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Comparison of Carbon Intensity

0.00050

0.00043
KOSPI200
0.00040
0.00034

0.00030
Ebitda55
0.00020

0.00010 Carbon50
0.00010

0.00000

Carbon intensity

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Implications

Carbon50 Portfolio outperformed respectively KOSPI200 by 42% and Ebitda55 by 20%

On the other hand, the carbon intensity of carbon50 portfolio lowered that of
KOSPI200 by 76%

In terms of risk profile, carbon50 portfolio is less volatile as well as less risky

Carbon Ebitda Strategy represents excellence in terms of performance, risk profile and
greenhouse gas emissions

So, Carbon Ebitda Strategy is strongly recommendable

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END OF PRESENTATION

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