Executive Summary

Increasing environmental pressures — Corporations globally are experiencing growing pressure about environmental issues reflecting, in large part, regulatory initiatives that could potentially increase costs. Among the factors driving the growth and stringency of environmental regulations: energy security issues, public health challenges, impact of pollution on economic growth.

“E” at the sector level — We examine the implications of a potential increase in key environmental costs for ten industry sectors. Subsequent research will examine the implications — positive or negative — of social and governance factors for these sectors.

In our opinion, “E” costs are material — With many externalities being priced at — or close to — zero, regulations are an effective way of imposing more realistic pricing.   A sensitivity analysis that incorporates assumed prices for GHGs, water and waste suggests that a rise in specific “E” costs could be more material for some sectors than others. Water price: Utilities.  Waste price: Telecom.  CO2 price: Industrials.

Sector strategy refined — While there is no material change in sector rankings, the new environmental metric refines our sector strategy by explicitly incorporating risks typically not captured by traditional financial analysis.

Please contact us on how you can become a client and read more about our analysis on The Economics of Environmental Issues in Sector Strategy.

Michael Geraghty is the Global Markets Strategist at Cornerstone Capital Inc. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.