Majority of Top Businesses Now Set Emissions Targets, But Still Seek Global Policy Direction

Sep 21, 2009

For the first time, more than half of the world's largest companies have set greenhouse gas reduction targets, and most are strategically identifying risks and opportunities related to climate change, the Carbon Disclosure Project reports today in its 2009 Global 500 Report.

There's a catch to the progress, though. Only 36% of those carbon reduction targets extend beyond 2012.

Corporate leaders tell the CDP that they are holding off setting medium and long-term targets until the international community gets its act together at Copenhagen — they need a price signal and a secure understanding of the future rules of the game.

It's a message that the CDP, investors and business leaders have been stressing as international leaders prepare for this week's UN climate summit in New York and then the G20 meeting in Pittsburgh.

"Given the multinational nature of many companies, the evolution of these policies is likely to have significant implications on strategic direction and operations, and many of the world's largest companies want to seize early mover advantage," the CDP writes.

The Carbon Disclosure Project 2009 Global 500 survey queried the 500 largest corporations in the FTSE Global Equity Index Series, a group worth $15.5 trillion.

Their responses revealed that many of the world's top corporations are already being affected by climate change. Flooding, water shortages, the spread of disease and changing weather patterns all affect businesses, their supply chains, and their employees.

The key to minimizing the impact is preparation with comprehensive risk assessments and contingency plans, the CDP writes. It found utilities and energy companies leading the way on that front.

In general, companies in the energy, health care and utility industries responded that they saw more risk from climate change — including regulatory risk — than opportunity, while on the flip side, information technology, industry and consumer projects saw more opportunity in responding to climate change than they saw risk.

For all of them, the speed and severity of the financial crisis brought the need for risk planning in all areas of their businesses into sharp relief, says Alan McGill, a partner with PricewaterhouseCoopers.

"Without question, a major contributory factor to the rapid escalation of the [financial] crisis was an underestimation of risks and their systemic impact. Put bluntly, when they needed it most, management teams in many organizations — not least banks — lacked vital, connected insight into their businesses," McGill said.

"As a result, CEOs, non-executive directors, investors and regulators worldwide have now become skeptical about the quality of information they receive — and the value that this information actually delivers. Is it possible that they are missing some critical insight? And if they are, how much damage could result?"

Paul Dickinson, CEO of the Carbon Disclosure Project, put it this way:

"Corporate carbon reduction targets are now a 'need-to-do' not a 'nice to have'."

The report found that among the Global 500, 68% now disclose greenhouse gas emissions, up from 55% percent last year; 51% disclose emissions reduction targets, up from 41% last year; and 49% verify their emissions, up from 43% last year.

A separate CDP report looking solely at the U.S. companies in the S&P 500 found lower percentages across the board: 52% of the U.S. companies disclose their greenhouse gas emissions, up from 46% percent last year; only 34% disclose emissions reduction targets, up from 20% last year; and just 26% verify their emissions, up from 22% last year.

This year, the CDP also gauged corporate performance in preparing for and responding to climate change, in addition to public disclosure of their emissions details. It found that more than half of the worldwide performance leaders were based in Europe, where strict carbon targets and emissions trading rules are already in place through the ETS.

In general, the top performers effectively managed their carbon data and publicly disclosed their performance, engaged with policy makers, implemented innovative ideas to capitalize on climate change opportunities, and had incentives for employees who lowered corporate carbon emissions. When it comes to engagement with policymakers, some questions do arise about just what sort of climate response corporations are seeking do arise, particularly when the top sectors are utilities and mineral companies.

Not everyone is on board in accepting or preparing for climate change, as these comparisons from the survey responses show:

Take the food sector, where the approaches to climate change by food giants Heinz and Danone are like day and night.

H.J. Heinz, known for ketchup and a list of other brands, writes:

"In FY2010, our goal is to accelerate and increase water and energy conservation in the years to come through implementation of our Global Utility Optimization Process. When drought reduces the availability of water, Heinz is at risk despite our focus on sustainable agricultural practices. Heinz faces drought and water supply risks in many countries."

Danone, recognized in the United States as Dannon, says:

"Physical changes resulting from climate change don't present any opportunities for Danone, as a food industry uses products from nature."

The mining companies Newmont Mining, a Colorado-based gold producer, and South Africa-based Anglo Platinum show a similar contrast in their current approaches, though Anglo Platinum sounds as though it may be coming around.

Newmont Mining writes:

"We have developed a financial risk model that calculates the costs of CO2 emissions for all of our operations globally and our project pipeline for 20 years into the future. Estimated emissions costs become part of our Life of Mine plans for our existing operations. For our project pipeline, carbon costs are one factor of many that contribute to the overall cost of the project. Only projects with favorable costs, including any GHG emission costs, move forward."

Anglo Platinum says:

"At this stage Anglo Platinum does not explicitly factor the cost of future emissions into capital costs/investments. However, as growing awareness of issues surrounding emissions expands, this is likely to become a factor in future decisions."

In the energy sector, BP is clear in understanding that what a company doesn't know can hurt it the most, particularly where climate change is concerned:

"The size of our exposure and the changing risk to both our future operational integrity and our current facilities is not yet well understood. In adapting to a world in which extreme weather might be more common there is also a risk of over-engineering solutions and consequently increasing our construction and abandonment costs. In addressing these issues we are carrying out research, jointly with Imperial College London, to understand better the potential impacts on BP's operations posed by a changing climate."

Canada-based Nexen, on the other hand, thinks it knows exactly where it stands — out of danger:

"We believe that any rise in sea levels during the productive life of existing offshore structures will be minimal and well within design limits. In the extreme, future increases in sea level, measured in meters, alone, or in combination with severe weather events could affect offshore production installations designed to today's standards. In the event that the classification societies, insurers, national regulatory authorities and other involved parties make changes to the applicable design standards at some future date, we would apply that revised guidance."

The CDP report serves as more than a roundup of the top corporations' knowledge of their own contributions to climate change and preparations to deal with its impacts — it's also being used as a call to action for global leaders as they prepare to write a new international climate treaty, and for businesses and investors who may be in the best positions to persuade them to take bold action.

UN Secretary-General Ban Ki-moon writes in the introduction to the report:

"Over the next few months, the business and investor communities will play a pivotal role in mobilizing the political will needed to encourage governments to cross over the finish line in Copenhagen."

"Companies and investors that are able to assess risks and seize new opportunities will be ahead of the curve in terms of global competitiveness. Conversely, those businesses that fail to have a strategy in place to deal with climate change will be on the losing side of history. Now more than ever, we need leadership from savvy CEOs and investors who understand that in a climate constrained world, 'business as usual' is no longer possible; indeed, is a recipe for financial as well as planetary disaster."

"What is needed is a new model of business profitability; one that takes into account the full costs of doing business and incorporates a company's long-term impact on the environment as well as on local communities. We must eschew the tyranny of short-term thinking and ask ourselves if the profits we are reaping today are adding to — or depleting — the planet's potential to sustain future generations. "

"We must work together to encourage governments to seal a deal in Copenhagen and catalyze the green economy of the future. The science demands it, the world economy needs it, and the livelihoods of hundreds of millions of people depend on it."

 

See also:

Top Investors: World Needs Strong Climate Policies to Ensure Economic Growth

Businesses Need a Clear Path to Clean Energy, CEOs Tell Obama

Energy Investors Seek Strong, Green Signal from Stimulus

Insurance CEOs Call on Industry to Get Proactive About Climate Change

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