Two electric utilities, in the same business. But measured against what each one owns, one carries about 117 times more financial risk from carbon exposure than the other. How do we know?
That's what the CQ500 Index measures. It scores 500 large-cap U.S. publicly traded companies, using one simple idea.
Companies release greenhouse gases. Imagine each ton came with a $100 price tag, the estimated cost of permanently removing it from the atmosphere.
Now add time. A company's plants and equipment operate for years. The longer they operate, the more emissions the bill covers. We call that total the unrealized carbon expense: a cost that hasn't been paid, but sits behind the company's assets.
Then we compare that bill to what the company owns: its assets. Unrealized carbon expense, divided by what the company owns. That is the Carbon Quotient Ratio, or CQR, a measure of financial risk: the risk that a company's assets will become prematurely obsolete. The bigger the ratio, the bigger that risk.
Every number is built from public information: financial statements filed with the SEC, plus the emissions companies disclose themselves. Nothing is guessed, and each calculation links back to the filing.
Back to our two utilities. Duke Energy's Carbon Quotient Ratio is 1.26: its carbon bill is more than one and a quarter times what it owns. Eversource's is 0.01: about one percent. Same industry, a roughly 117-times gap, and that gap is exactly what the index is built to reveal.
And look at what happens across the index at that $100-a-ton price. If required to permanently remove the greenhouse gases they emit, 48 of the 500 would report a net loss, and 67 would have negative stockholders' equity.
Across sectors, the average ratio ranges from nearly zero in Financials to 1.47 in Utilities.
One caution. CQR doesn't predict the future or put a value on a company. It's a way to compare relative financial risk on a common scale.
The CQ500 Index. Free, independent, and transparent. Explore the numbers for yourself.
