Commercial Interests Drive Corporate Climate Change Actions

THE 2011 edition of the annual Carbon Disclosure Project (CDP) Global 500 report reveals that most of the largest corporations are taking climate change actions including energy efficiency improvements.

The report, which examines carbon reduction activities at the world’s largest public corporations, has found for the first time in the ten year history of the survey, that the majority have climate change actions embedded as part of their business strategy. The report, written by global professional services firm PwC on behalf of CDP, attributes this to growing board-level awareness of the link between energy efficiency and increased profitability.

The report, entitled Accelerating Low Carbon Growth, analyzed disclosures from 396 of the world’s largest companies, which revealed 68 percent have climate change at the heart of business strategies, compared with 48 percent in 2010. There was also a marked rise in the number of companies reporting reduced greenhouse gas emissions as a result of emissions reduction activities (45 percent, up from 19 percent in 2010).

A correlation was also established between higher stock market performance over time, and representation on CDP’s Carbon Performance Leadership Index (CPLI) and the Carbon Disclosure Leadership Index (CDLI). Companies with a strategic focus on climate change provided investors with approximately double the average total return of the Global 500 from January 2005 to May 2011.

Paul Simpson, CEO of the Carbon Disclosure Project, said: “The improved financial performance of companies with high carbon performance is a clear indicator that it makes good business sense to manage and reduce carbon emissions. This is a win win for business – the short ROIs many emission reducing activities have, can help increase profitability. Companies yet to take action on climate change will have to work hard to remain competitive as we head towards an increasingly resourced constrained, low carbon economy.”

Alan McGill, Partner, Sustainability and Climate Change, PwC said: “Historical financial performance is being exposed by climate change as an outdated model to assess long term business profitability and growth, when you consider the much wider range of financial and non – financial risks associated with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. 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.”

Rising oil prices, energy supply risks and growing recognition of the commercial returns on investments in emissions reduction activities contributed to the growth in importance of climate change as a boardroom issue. Over half (59 percent) of reported emissions reduction activities delivered payback in three years or less according to company submissions. These include energy efficiency projects (building fabric, building services and processes), low carbon energy installations and staff behavioural change. Employee incentives to reduce emissions are now offered by 65 percent of companies, compared with 49 percent in 2010.

Steve Waygood, Head of Sustainability Research & Engagement at Aviva Investors, the Asset Manager, said: “We believe that the external costs of greenhouse gas emissions will become internalized into company cash flows and profitability. Managing greenhouse gas emissions is therefore essential to delivering sustainable shareholder returns. There still remains huge potential in companies for achieving cost effective emissions reductions. This is why we are founding signatories to the Carbon Action initiative.”

Picture by VirtualLight © 2008

Wednesday 21st September 2011

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