The majority of multinational companies have climate change strategies embedded in their business strategy, despite the fact that mandatory federal or global policies remain uncertain.
The Carbon Disclosure Project, which has been conducting the S&P 500 report for 10 years, marks this year as the first time that a majority of companies recognize the opportunity to gain strategic advantage from addressing climate change.
Increasing investor pressure, uncertain fuel prices, extreme weather events, recognition of new revenue and product opportunities are the drivers for corporate attention to climate change, says the Carbon Disclosure Project.
396 of the world’s largest companies responded to this year’s survey – 65% of them say they have climate change strategies, up dramatically from 35% in 2010.
And 45% of companies report they have reduced greenhouse gas emissions, up from 19% in 2010.
There’s growing board-level awareness of the link between energy efficiency and increased profitability.
In addition, the correlation between climate strategies and higher stock market performance over time is now well established.
Investors in companies with a strategic focus on climate change received double the average return on their shares from January 2005 to May 2011.
"Historical financial performance is being exposed by climate change as an outdated model to assess long term business profitability and growth, when you consider the much wider range of financial and non – financial risks associated with business today," says Alan McGill, partner, sustainability and climate change, PwC (who wrote the report on behalf of the Carbon Disclosure Project).
"Today’s investors have different information needs, which are leading to tougher verification regimes, more emphasis on executive and staffing responsibilities and incentives, and much more unforgiving examinations of the contribution of business to society. We are accelerating towards newer reporting models that better balance financial and non – financial performance," he adds.
Climate Change is a Boardroom Issue
Rising oil prices, energy supply risks and growing recognition of the commercial returns on investments in emissions reduction contributed to the growth in importance of climate change as a boardroom issue.
Contrary to conventional wisdom that presumes long payback periods for emissions reduction and energy efficiency programs, respondents say over 60% of projects have a payback of three years or less.
The most common projects disclosed by corporations are improvements to energy efficiency in their facilities, business processes and transportation networks, supported both by capital investments and changes in employee behavior. 54% of companies now offer financial incentives to staff for managing climate change issues, up from 35% in 2010.
"Energy costs represent a significant component of operational spend and we are seeing the management of carbon increasingly move into companies’ core business strategies, in order to reduce this overhead. As rising energy demands compete for finite resources, the businesses that make the decisions today that perpetuate a low-carbon, high growth economy will be best placed to forge ahead of their slow moving peers," says Paul Simpson, CEO of the Carbon Disclosure Project.
In addition to reducing energy costs and the ability to market low-carbon related products, carbon strategy is viewed as an important way to mitigate fiduciary and reputational risk.
Companies cite the chance to shape investor perceptions as an important strategic opportunity, recognizing increasing investor focus on how the environmental efficiency of an organization may impact future corporate earnings.
The Carbon Performance Leadership Index and Carbon Disclosure Leadership Index are revised annually based on company submissions and represent the leaders of the Global 500 in carbon performance and disclosure respectively.
The top 10 best performing companies on both measures this year are:
- USA: Bank of America, Cisco Systems
- Japan: Honda Motor Company, Sony Corporation
- Germany: Bayer, BMW, SAP
- United Kingdom: Tesco
- Netherlands: Philips Electronics
- Australia: Westpac Banking Corporation
There are 14 new entrants to the 2011 Carbon Performance Leadership Index, which has just 29 companies because of its more demanding criteria. These are:
- USA: Air Products & Chemicals, Lockheed Martin, Morgan Stanley
- Japan: Honda Motor Company, Sony Corporation
- Germany: SAP
- France: AXA Group, Schneider Electric
- Italy: ENEL, FIAT
- United Kingdom: British American Tobacco, BG Group, Glaxo SmithKline
- Switzerland: Novartis
Other key findings from Carbon Dislosure’s S&P 500 report:
- 64% of respondents reported emission reduction targets, up from 51% in 2010 and 32% in 2008;
- 87% reported board or senior executive oversight on climate change initiatives (68% in 2010);
- The Utility industry as the best average climate change performance
- Telecommunications is the only sector absent from this year’s list, a surprising finding;
- Just 37% of respondents verify their emissions with independent auditors despite the importance of providing investors with validated climate data
The Carbon Disclosure Project collects data from companies on behalf of 551 signatory investor institutions, which together manage $71 trillion in assets worldwide.
Here’s the Global 500 report for 2011: