Global Policy Forum

By Sanjay Suri

Forget conscience and concern. The biggest companies are told in a new report, released Monday, that they will save money if they take account of climate change.

The survey of the 500 largest companies by market capitalisation was conducted by the Carbon Disclosure Project (CDP) set up last year. Thirty-five major institutional investors, who had more than four trillion dollars in assets between them in May last year, set up the project.

Questionnaires were sent to the chairmen of the 500 companies. Forty-three per cent of them filled in the questionnaire. And another six per cent said they would respond but did not.

"The rest ignored us," Paul Dickinson, CDP co-ordinator Paul Dickinson acknowledged to IPS. "But we made our final report in these cases based on data we collected through other sources," he said.

That data shows discouraging results. Of those who responded, 80 per cent acknowledged that climate change could bring a financial risk, "but only 35 to 40 per cent were actually taking action to address the risks and opportunities," the CDP says in its survey report released in London Monday.

The survey is the first attempt at relating companies' exposure to climate change through the impact of extreme weather events and regulation of greenhouse gas emissions, to the value of their shareholdings. The report was prepared by Innovest Strategic Value Advisors, a New York-based firm that analyses and rates companies' environmental and social practices.

The survey stops short of establishing a clear correlation between share value and commitment to addressing climate change. But the survey report says 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."

BP (British Petroleum) had cut annual carbon dioxide emissions at its plants by 10 million tonnes, saving 650 million dollars, the report points out.

"These companies are ahead of the curve," says CDP chairperson Tessa Tennant. "They are better positioned to achieve cost-effective risk management solutions and adapt to unforeseen future developments. What's more, they are able to exploit any upside profit opportunities."

Tennant admits that investors are unable to see a clear picture because of a "knowledge deficit when it comes to obtaining systematic, portfolio-wide information about the risks companies face when it comes to climate change." Financial consequences of climate change are certain to grow, and the information deficit for investors will prove costly, she says.

The report says the financial impact of climate change "extends well beyond the obvious emissions-intensive sectors such as oil and gas and electric utilities. "Companies in the financial services, transportation, semiconductor, telecommunications and electronic equipment sectors will also be significantly affected," the report says.

"Companies stand to lose money but also they can make a lot of money as BP has," Dickinson told IPS. Deutsche Telecom, he said is studying the benefits of far greater use of video conferencing than travel. This would save both money and emissions through travel, he said.

Many of the top 500 companies do not produce any emissions directly. "More than 25 per cent of the companies we wrote to are banks," Dickinson said.

"But banks have a lot of investment in oil and coal companies, and there is a clear role they can play." The survey report works out that "share price valuations could fall as much as 29 per cent for banks without adequate carbon risk management strategies."

Some companies at great risk are not the ones with "the strongest risk management structure," the report says, indicating that many companies are not factoring climate change into their risk assessments. Among the top 500, automobile manufacturers vary by a factor of 35 in terms of carbon dioxide emissions per vehicle produced, the report says.

In the U.S., the report says, the cost of reducing greenhouse gas emissions by 10 per cent range from 1.70 dollars to two cents per megawatt. In oil and gas, the cost of reducing carbon dioxide emissions by 10 per cent can vary from 0.7 per cent to 5.1 per cent of net income.

Inadequate preparation for climate change will also have an impact on supply chains, the report warns. Additional costs associated with climate change would "alter the economics of supply chains, especially in the commodity and manufacturing businesses," the report says.

Companies who do not get the message "are likely to hear from their shareholders," Tennant says.

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