14 September, 2011

Corporate climate change strategies create greater value for shareholders

Sergio Abranches

The Carbon Disclosure Project (CDP) its annual survey of the Global 500 largest companies by market capitalization included in the FTSE Global Equity Index Series provides some interesting indications on how the larger public corporations are dealing with climate change.

The study on behalf of 551 investors with US$71 trillion of assets, has asked the Global 500 to measure and report what climate change means for their business. This year, 81% (404) of the Global 500 responded to the CDP questionnaire.

These responses provide some insight into “how companies are preparing for a resource constrained world and show a shift in company strategy to prepare better for a low carbon economy and act on the business opportunities”, says de  CDP report.

The most interesting indication from the survey is that those companies with more advanced strategies and better carbon performance, those in the Carbon Performance Leadership Index (CPLI) – tend to perform better, not only in terms of greenhouse gas emissions management, but also in terms of financial performance.

The companies in the 2011 Carbon Disclosure Leadership Index (CDLI) and Carbon Performance Leadership Index (CPLI) provided approximately double the average total return of the Global 500 between January 2005 and May 2011. Companies in the CPLI had a total average return in this period of 82.44%. Those in the CDPLI yielded a total average return of 85.72%. Their rates of return compare to 42.71% for all Global 500. This suggests “a strong correlation between higher financial performance and good climate change disclosure and performance”, concludes the report.

Other interesting findings are:

74% (294) of the Global 500 respondents disclose absolute or intensity emission reduction targets, an increase from 65% (250) in 2010.

68% (269) of companies are integrating climate change initiatives into their overall business strategy, up from 48% (187) in 2010.

The majority  of 2011 respondents (93%, 368) report board or senior executive oversight for their company’s climate change program, up from 85% (328) in 2010. This shows a marked rise in companies linking their climate change strategy with their overall business strategy.

45% (178) of respondents have made emissions reductions in some or all of their business from specific measures. This compares with 19% (75) of respondents that had reduced emissions in 2010. The leaders are clearly moving ahead in this regard with all of the CPLI (2010: 52%, 25) and 73% (38) of the CDLI (2010: 47%, 24) showing emissions reductions.

59% of emissions reduction activities reported by the Global 500 respondents have a payback period of three years or less and 41% of initiatives have paybacks of over three years.

A total of 1,780 emissions reduction activities are reported by 97% (384) of responding companies in 2011. Energy efficiency (building fabric, building services and processes), low carbon energy installations, and behavioral change are the most commonly identified activity types.

65% (259) of respondents provide monetary incentives to staff for managing climate change issues, versus 49% (188) in 2010.

The Energy sector is showing the lowest proportion of companies with targets (55%, 22) and is underrepresented in both the CPLI and CDLI. In view of the high emissions from the Energy sector, this points to the need for improvement. The Consumer Staples sector has the highest proportion of companies with emissions reduction targets (94%, 32).

Utilities emerged as the sector with the best average climate change performance (band B). The sector with the lowest average performance score was Information Technology (band C). The only sector with no companies in the CPLI was Telecommunications.

Companies in Australia, Germany, Italy, Switzerland and the UK are demonstrating strong performance leadership. Canada, Japan and the USA lag behind on performance.


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