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
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: Amazon.com, 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
"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
The investor coalition includes Boston Common Asset Management, Calvert Investments, and First Affirmative Financial Network.
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
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,
CDP will release its report on the S&P 500 next week.