This week the Top Movers feature on our ESG Safeguard platform surfaced Union Pacific as a company with one of the top Environmental sentiment increases, prompting us to take a closer look at the railroad industry.
A look at our ESG Safeguard platform reveals how Social aspects have led the bulk of the conversation in recent years for the Railroad industry, with the topics of “Strike” and “Safety” being the most frequent, but the topics of “Fuel Efficiency” and “Emissions” are also major topics that our dashboard highlights. As the Transportation group of industries starts to prepare for a low-carbon future, most notably as we’ve seen with consumer vehicles, railroad companies are making investments in clean technologies as well.
In terms of our 5 Themes for 2022 these developments show companies are developing their goals around greenhouse gas (GHG) emissions and are making real strides and investments that are strategically aligned with these goals.
Our headliner this week is Union Pacific (UP). The company notably invested $100M this week to purchase twenty electric railcars to pilot for operations. The purchase was made from Wabtec Corporation (WAB) and the units will arrive onsite in 2023 with the goal of being operational by 2024 at the latest. Similar to many other companies, Union Pacific has an intermediary goal for 2030 in terms of emissions to get to the 2050 net zero target that has become the standard for most companies.
The company is targeting a 26% reduction in Scope 1 and Scope 2 emissions by 2030. The investment is clearly aligned with that goal and is meant as a stepping stone for future fleet overhauls. The company also cited that these improvements can also have other positive externalities, such as decreased noise levels in the communities where they operate. Two weeks ago, Union Pacific reported that 2021 was their most profitable year ever, so it makes sense that this CapEx investment comes on the heels of that news.
Union Pacific was not alone in recent weeks though in touting their sustainability cred, as two others in the industry had some significant highlights as well. In a recent earnings call Canadian National Railway (CNR:CA) said reducing carbon emissions saved them 30 Million CAD in 2021. Similar to Union Pacific, Canadian National also has an emissions goal for 2030 and plans to reduce Scope 1 and 2 emissions by 43%, a bit higher than Union Pacific’s target. The savings and emissions reductions Canadian National has experienced largely seems to stem from fuel efficiency rather than investment in battery technology, but the news this week from Union Pacific may be a sign of things to come for the industry.
Similar to Union Pacific, Norfolk Southern (NSC) installed hybrid cranes to their Atlanta and Chicago terminals last week. This investment in technology at their major shipping hubs makes a difference in that these are the first 5 of the gantry cranes to be replaced. The company plans to convert 58 more cranes to the electric-diesel hybrid model over the next 10 years. Last month, the company also unveiled a new steel railcar that is much lighter and will improve fuel efficiency significantly.
These companies all have goals in mind to reduce emissions, and what is more important is that they are actually doing something about it. Sharing this news with the public and communicating that they have a plan is a big step in not only demonstrating that they are preparing for the future, but also improves investor confidence over the long-haul that they have a plan in place and are on the right track. From coal powered steam engines that Union Pacific started with in the 1800’s to the new battery electric trains they are starting to roll out now, the company is showing why they have been around for so long.
Last week we discussed Larry Fink’s take on the future of companies and his message was pretty clear: companies that continue to evolve and prepare for the future will be successful. The Railroad companies we highlight here have made exciting strides in recent weeks and that is meaningful to their long-term success.
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