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September 16, 2011
More Large Companies Have Climate Change Strategies
    by Robert Kropp

In its most recent annual report, the Carbon Disclosure Project finds that for the first time a majority of Global 500 companies integrate climate change into business strategies.

The Carbon Disclosure Project (CDP) released its annual Global 500 report this week, and the news from 396 of the world's largest companies suggests that a tipping point in the climate change mitigation strategies of businesses may have been reached. The survey this year was sent by CDP to Global 500 companies on behalf of 551 investors with $71 trillion of assets.

In a webcast, CDP Executive Chairman Paul Dickinson said, "Resource scarcity is a major issue. It is impacting companies' long-term planning and is a driver for action."

The report, entitled Accelerating low carbon growth, reveals that for the first time, a majority of respondents report that they are integrating climate change into their business strategies. In 2011, 68% of the companies said they are doing so, compared to 48% in 2010. Furthermore, 97% of companies engaged in a total of 1,780 emissions reduction activities, with 94% reporting energy efficiency measures. Low carbon energy installations (23%) and staff behavioral change (22%) were also cited as key mitigation measures.

"The popularity of these activities may relate to their short payback periods," the report observed.

Energy efficiency measures are often referred to as the lowest-hanging fruit of climate change mitigation strategies, and the report's findings bear out why this is so. The report states, "Fifty-nine percent of emissions reduction activities reported by Global 500 respondents have a payback period of three years or less."

Yet the financial benefits of effective climate change strategies produce financial benefits beyond those of the relatively short-term measures cited above. An overwhelming number of companies now see climate change as an opportunity to provide low carbon products and services. More than half of respondents now see opportunities in all three categories of regulation, reputation, and physical mitigation.

Investors will be pleased to learn that leading companies have outperformed to a significant extent over the last six years. According to the report, "Companies in the 2011 Carbon Disclosure Leadership Index (CDLI) and Carbon Performance Leadership Index (CPLI) provide approximately double the average total return of the Global 500 between January 2005 and May 2011."

While 74% of respondents now disclose absolute or intensity emission reduction targets, voluntary compliance varies widely among industry sectors. Consumer Staples, at 94%, was the sector with the highest proportion. Energy, at 55%, had the lowest proportion, "which, in view of the high emissions from this sector points to a need for significant improvement," according to the report.

Overall, companies are outperforming 71% of their reduction targets, which, the report advises, must take into account the impact on emissions of the global economic downturn.

Regionally, the report found, companies in Australia, Germany, Italy, Switzerland, and the UK lead in performance, while companies in Canada, Japan, and the US lag behind.

Philips Electronics and Bayer shared the highest ranking of companies. Of the top ten companies according to industry sector, two—Bank of America and Cisco Systems—are headquartered in the US. US-based companies added to the Carbon Performance Leadership Index include Air Products & Chemicals, Lockheed Martin, and Morgan Stanley.

An indicator of the status of the US as laggard can be found in the report's list of largest non-responders by market capitalization. The list includes three companies headquartered in the US:, Berkshire Hathaway, and Apple.

Asked in an interview why Apple, which has replied to CDP in the past, did not do so this year, Paul Simpson, CEO of CDP, said, "Part of that is probably because they are growing very fast, and I would imagine their emissions are also growing very fast. For all companies, it's challenging if you’re growing very fast to keep your emissions stable."

"However, companies still need to be disclosing that and reporting on it and we would expect them to do so," Simpson continued. "A company that is well managed would take climate change seriously because it affects business, and would take their supply chain – including its climate impacts – very seriously too."

An investor initiative launched recently by CDP is requesting that companies implement cost-effective greenhouse gas (GHG) emissions reductions. CDP Carbon Action, a coalition of 35 investors with $7.6 trillion in assets under management, have asked companies in the FTSE Global Equity Index Series to make year-on-year emissions reductions, invest in initiatives that have satisfactory returns on investment, and publicly disclose reduction targets.

The investor coalition includes Boston Common Asset Management, Calvert Investments, and First Affirmative Financial Network.

CDP has also formed a verification working group to encourage companies to submit their data for third-party verification. According to the report, only 37% of companies meet its criteria for verification of Scope 1 or 2 emissions.

During the webcast, Simpson said, "Global 500 companies are investing further in actions to mitigate climate change and provide climate change solutions. But we need to see further action from business, government, and investors to secure sustainable, profitable, long-term growth."

CDP will release its report on the S&P 500 next week.


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