29 May 2012 (Renew Grid)
“Good sustainability policies and practices, including energy efficiency and demand side management, could be worth billions of dollars to utility investors, according to [The Value of Sustainability] from Target Rock Advisors LLC…Comparative analysis of the 10-year total returns for the 49 utilities included in Target Rock's 2012 sustainability rankings and indexes, along with several what-if’ scenario tests, suggest that the value of sustainability could be worth between $20 billion and $25 billion… “The $20 billion to $25 billion range represents 8% to 10% of the total starting market capitalization of the utilities covered by the Target Rock indexes and an additional 1% of relatively low-risk compound annual return over 10 years. With the three major utility indexes (S&P Utilities, Dow Jones Utility Average and Philadelphia Utility Index) posting an average compound annual growth rate of 3.6% over that period, another 1% is quite material, and the numbers could be larger going forward, according to Target Rock…”
click to enlarge“In addition, while the $20 billion to $25 billion estimate is a relevant indicator of shareholder value, these figures understate the true economic value of sustainability, because market capitalization metrics do not capture socioeconomic benefits created by utilities but accrued to others and society as a whole. These benefits include reductions in pollution and water use all along the consumption and carbon chain, as well as contributions to local economic health and development. “It is impossible to say just how much causality is implicit in the relationship between strong sustainability practices and higher market returns - and there are certainly other factors in play - but Target Rock Advisors believes there is enough of a connection to use these relative performance baselines as a reasonable foundation for a "what-if" analysis in estimating the value of overall sustainability in the U.S. utility sector…”
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