Largest Companies Taking Climate Change Into Account

LONDON, UK, May 25, 2004 (ENS) - The world's largest firms are showing a growing willingness to face the potential risks and opportunities of climate change, a group of institutional investors said on Wednesday. The second annual report of the Carbon Disclosure Project (CDP) is based on responses to a survey of the world's 500 biggest public companies.

“Investors are saying that climate change can impact shareholder value both positively and negatively, and the market needs information to assess and value the issue,” said James Cameron, CDP chairman. “Companies are now acknowledging they should communicate what they know to their investors, or at the very least, find out what they don’t know.”

The Carbon Disclosure Project provides a coordinating secretariat for a group of institutional funders and investors. It is a special project of Rockefeller Philanthropy Advisers, with nonprofit charitable status in the United States.

The CDP was launched on December 4, 2000 at No. 10 Downing Street. The results made public by the CDP on May 19 are from the second cycle of the project which involved sending a letter and questionnaire to the 500 largest companies in the world.

Greenhouse gas emissions rise from Chemical Works, Wilton, Teesside, England (Photo by Ian Britton courtesy FreeFoto)

Fifty-nine percent of the 500 companies surveyed this year responded, compared with 47 percent last year. The report on their responses was authored by Innovest Strategic Value Advisors.

Fifty companies are identified as "climate leaders." But the CDP also praises many other respondents for quantifying and preparing to trade emissions and for issuing more coherent and comprehensive corporate climate strategies.

The CDP report welcomes the creation of multi-disciplinary teams to manage companies' risk profile, greater use of standardized measurement systems and more involvement in renewable energy projects.

“Companies failing to respond or providing weak responses to those that own a significant share of their business will invite particular scrutiny from the investment community,” said Cameron. “Investors now have ample understanding and opportunity to reallocate assets to reduce climate change risk and invest in companies offering solutions to accelerated global warming.”

Solar panels power the petrol pumps at a BP station in Perivale, United Kingdom. BP was one of the companies that answered the CDP survey. (Photo courtesy BP Solarex )

Firms are also responding to a growing array of legislation promoting a lower carbon economy - including more investment in non-hydro renewables and clean technologies.

Fears, especially in energy intensive industry sectors, about the future cost of carbon are also an important driver.

Tessa Tennant, CDP chairperson said, "We face a monumental educational challenge because most institutional investors have a knowledge deficit when it comes to obtaining systematic, portfolio-wide information about the risks companies face when it comes to climate change."

She noted that the financial consequences of climate change are almost certain to grow, and the information deficit for investors will prove costly.

Managing the financial risks of climate change does not necessarily impose a net cost on companies. The report noted that those companies surveyed who were quick to reduce gas emissions stand to gain competitive advantage, in terms of both cost and market risk management. For example BP has cut annual carbon dioxide emissions at their plants by 10 million metric tons, saving some $650 million.

Companies are facing pressure from financial market authorities and fiduciaries to deal with climate risk. The introduction of “Generally Accepted Carbon Accounting Principles” appears likely, and litigation against major emitters is possible, the CDP report states.

Despite the signs of progress it identifies, the CDP points out that there are significant "inconsistencies" between some responses and what happens on the ground.

The report was launched in New York on Friday, and it will be introduced in Melbourne, Australia on June 2 and inr Tokyo on June 3.

{ENDS Environment Daily contributed to this report.}