Resource Efficiency: A Step Beyond Climate Change

by: S&P Dow Jones Indices

By Daniel Ung

In recent years, there has been much focus on the importance of climate change and how much greenhouse gas is produced in the process of conducting business. While managing greenhouse gases is an important focus, is the future more about increasing efficiency across different depletable resources, such as water?

Because the demand across different scarce resources is correlated, it may be sensible to adopt a holistic approach when managing the efficiency of these resources rather than a disjointed, piecemeal approach.

In the research paper "Resource Efficiency: A Case Study in Carbon and Water Use," (PDF) we investigated whether or not there was an impact on the financial performance of carbon-efficient companies (i.e., companies that generate the least amount of greenhouse gases per U.S. dollar of revenue) and resource-efficient companies (i.e., companies that are efficient across their water use and greenhouse gas emissions).

Despite the limited availability of data, our preliminary findings suggested that, on average, efficient companies (Quintile 1) outperformed inefficient ones (Quintile 5) over a rolling 12-month or rolling forward basis (see Exhibit 1).

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In addition to this, there are other reasons why carbon and resource efficiency are important. If companies do not promote efficiency in their business activities, some of the risks they may face could adversely affect their future profitability. For example, there are risks associated with increased regulation, resource depletion, reputation, and financing.

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