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September 21, 2011
US Companies Don't Wait for Regulation, Address Climate Change to Compete
    by Robert Kropp

The Carbon Disclosure Project's survey of S&P 500 companies finds that the number integrating climate change into business strategies nearly doubles.

Last week, the Carbon Disclosure Project (CDP) published its annual Global 500 report, and the news from the world's largest investor-led depository of corporate emissions data was surprisingly good. Despite a global economy that shows little sign of improvement, and a lack of political will to enact regulatory changes to hasten the transition to a low-carbon economy, for the first time a majority of respondents report that they are integrating climate change into their business strategies.

Nowhere in the world is a lack of political will coupled with such high per capita emissions as in the United States, and in fact the Global 500 report identified companies in the US as lagging behind those in leading countries such as Australia, Germany, Italy, Switzerland, and the UK. Because of that analysis, the release this week by the CDP of its annual S&P 500 report was greeted as always with interest by investors. But it would not be surprising if hope for meaningful improvement were hedged.

Fortunately, the report does find meaningful improvements in managing carbon emissions by many of the nation's largest companies. As was the case with the Global 500 report, the number of S&P 500 companies now reporting that they integrate climate change policies into their overall business strategies nearly doubled, from 35% in 2010 to 65% this year. And the percentage of companies that set emissions reduction targets improved from 51% to 64%; as recently as 2008, that percentage was only 32%.

Even in the absence of a regulatory framework, CDP noted, companies in the US are addressing climate change to reduce overall energy costs and seize the opportunity to develop low-carbon products and services. In addition, companies are finding that managing emissions reduces financial and reputational risks, and appeals to investors who recognize that doing so improves the long-term performance of portfolios.

The most common emissions reduction programs reported addressed energy efficiency, supported both by capital investments and changes in staff behavior. Most companies reported that the payback period for such programs was less than three years.

Zoe Tcholak-Antitch of CDP North America told, "One of the things we're quite proud of at CDP, despite this difficult climate in which companies have to operate, is that we've kept their feet to the fire. It doesn't surprise us that so many companies report to CDP, as there a lot of drivers for that. And we've seen improvements in a lot of the areas that count."

"There's a lot of uncertainty about fuel prices, and that's driving companies to take action to improve efficiency," she continued. "There have been many more extreme weather events this year, which are focusing companies' attention on potential risks. But I think what's really happening is companies are waking up to new revenue and product opportunities."

Asked to account for the reasons why more companies are now focusing on opportunities in addition to risks, Tcholak-Antitch said, "The US companies we work with are huge global names. They've got customers and operations all around the world. They're doing business in other markets that have got political leadership on climate change, so they have to keep up with the game."

"There's a reason why companies are working climate change into their overall business strategies, and that is that they are trying to figure out how to be competitive," she continued. "It's really about being profitable in a low-carbon future."

Of course, the news is not all good. Of the companies in the Index, 339 responded to CDP's request for information; the number, Tcholak-Antitch said, "Is almost the same as last year."

The list of largest S&P 500 non-responders in 2011 includes a number of names that will be familiar to the least attentive of consumers. Headed by Apple,, and Warren Buffett's Berkshire Hathaway, the list also includes Comcast, Honeywell, and DIRECTV.

In a recent interview, Paul Simpson, CEO of CDP, addressed the non-reporting status of Apple, saying, "They are growing very fast, and I would imagine their emissions are also growing very fast. However, companies still need to be disclosing that and reporting on it and we would expect them to do so. A company that is well managed would take climate change seriously."

Tcholak-Antitch said, "It's difficult to generalize, but how do investors know if companies that are not disclosing are at risk or not? The reasons for not disclosing can range from companies not having the information available, to companies not having the top-down approach that we're seeing from the leaders."

The top-down approach referred to by Tcholak-Antitch can be seen in the report's finding that 87% of US respondents now have senior executive or board oversight of their company's climate change programs, up from 68% in 2010.

"Those companies don't have the resources internally to deal with this," Tcholak-Antitch said. "That's unfortunate for them, because they are going to be playing catch-up and that's going to be more expensive."

"We've already got the EPA with a mandatory reporting rule, and the SEC has already updated its guidance for companies on reporting climate change risks," she continued. "If you can't get your act together and report through CDP, it's going to be tough for you to do it through those agencies."

In fact, 63% of US companies cite regulatory risk as a primary driver for their climate change strategies. Every company in the high-emitting industry sectors of Energy and Utilities report that concerns over potential regulatory action represent the greatest risk for them.

According to CDP, the highest-performing companies in the S&P 500 include UPS in Industrials, Cisco Systems in Information Technology, and Consolidated Edison in Utilities. The Carbon Disclosure Leadership Index, which includes the top-scoring 10% of S&P 500 companies, is led by Bank of America, Spectra Energy, and Simon Property Group.

Companies were scored according to their performance in the areas of strategy, governance, stakeholder communications, and achievement.

"It's important that we're seeing such improvement against a backdrop of regulatory uncertainty," Tcholak-Antitch saind. "There's still a long way to go for US companies. We want to see them better represented in the global report. It's all about being competitive, and that's what Americans are good at."


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