The Global 500 Tackles Climate Change: Low Carbon Growth Central to World’s Largest Companies

"Managing carbon emission and protecting the business from climate change impacts is fundamental to achieving sustainable and strong shareholder returns." -- Paul Simpson, CEO, Carbon Disclosure Project

If you've ever wondered what the world's largest publicly traded companies are thinking and doing about climate change, the Carbon Disclosure Project has a report for you. Since 2003, CDP, a UK-registered charity, has sent its annual questionnaire to the 500 largest companies by market capitalization listed on the FTSE Global Equity Index Series to produce the Global 500 Report, which analyzes the state of low carbon growth in the private sector. This year, they sent the questionnaire on behalf of 551 investors with USD 71 trillion in assets. On Wednesday, they published disclosures from 396 respondents in the 2011 edition of their Global 500 Report, entitled "Accelerating Low Carbon Growth."


One of the most striking findings is how climate change has quickly moved towards the center of the discussion, with 68 percent of respondents saying that it is central to business strategy, compared with 48 percent last year, marking the first time that a majority of respondents said having this position.

Other key findings include:

  • 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
  • 65 percent (259) of respondents provide monetary incentives to staff for managing climate change issues, versus 49 percent (188) in 2010
  • 59 percent of emissions reduction activities reported by Global 500 respondents have a payback period of three years or less and 41 percent of initiatives have paybacks of over three years

While there isn't necessarily a causality, there is a correlation between carbon disclosure and better financial performance, which should incentivize other companies to step up to the plate. "Historical financial performance is being exposed by climate change as an outdated model to assess long term business profitability and growth, when you consider the much wider range of financial and non-financial risks associated with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," said Alan McGill, a partner at PwC. "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."


While it's impossible to predict the next financial bubble that will burst or the next sudden shock to the market, most nations know what their 2020 carbon reduction targets are, many of which have been set in agreement with the United Nations Framework Convention on Climate Change (UNFCCC) as part of the Copenhagen Accord. The United States and Canada, for example, must reduce its greenhouse gas emissions by 17 percent , while the European Union has a 30 percent reduction goal.

And achieving these goals requires initiatives from both the public and private sectors. Governments must pursue low-carbon policies, carbon trading schemes, green investments and tax incentives for businesses to adapt to a low-carbon economy (LCE). The corporate world must continue to recognize the value that sustainability has for their current and future success, as more consumers, investors and fund managers look to socially responsible investing.


And that's why having a report such as the CDP's is so valuable, especially for the private sector, which is generally more focused on numbers than on the social impact discussions that fuel public policy. As UK Financial Services Authority chairman Lord Adair Turner notes, "The first step towards managing carbon emissions is to measure them because in business what gets measured gets managed."

"We need to emphasise the opportunities here," writes Alan Brown, group chief investment officer at Schroder Investment Management Limited, for the Guardian Professional Network. "Climate change is not only raising the temperature of the planet, it is also delivering the first predictable industrial revolution as trillions of dollars get spent on mitigation and adaptation. While there is no immediate direct translation from growth to profits, most of us, given a choice, would prefer to swim in the fast-flowing part of the river." Scientists have known for a long time that reducing carbon emissions is better for the global climate. What is becoming abundantly clear is that the private sector is also seeing that low carbon growth is also an essential lever in achieving long-term shareholder value.



image: A Honda Airwave fuel efficiency meter showing that this car requires a liter gas to run 18.1 kilometers (credit: Qurren, Wikimedia Commons)