10 Themes Driving Climate Change Investments
10 Themes Driving Climate Change Investments
Despite challenging economic conditions and regulatory uncertainty, global executives believe that the climate change agenda will significantly impact and drive their business performance and strategy over the next few years according to a recent survey by Ernst & Young: Action amid uncertainty: the business response to climate change.
Three hundred global corporate executives from 16 countries with at least $1 billion in annual revenue participated in the survey conducted during the spring 2010. Here are 10 key findings that offer insight into where businesses are with their climate change strategy and investment, and perhaps more importantly, where they are going.
1. Increasing spend on climate change business initiatives: 70 percent of the corporate executives plan to increase spending on climate change initiatives between 2010 and 2012. Nearly half plan to spend between 0.5 percent to more than 5 percent of their revenue on climate change initiatives. For a $1 billion company, this represents an anticipated spend of $5 million to $50 million annually.
2. Energy use is top of mind: When asked about what factors will be important in driving their climate change initiatives in the coming months, 92 percent of respondents consider energy costs to be a very important or important driver over this period. As a reflection of this, energy efficiency is at the top of the list as 82 percent of respondents plan to invest in this space over that time period. About half of the respondents confirm new ventures, such as spin-offs or start-up businesses, as an area for focus. Additionally, 65 percent of executives intend to focus investments on new products and services.
3. Consumer demands are driving investment: Corporate climate change activities are being driven by evolving customer demands according to 89 percent of survey respondents. In some sectors -- including automotive, consumer products and technology -- the response is unanimous that this is an imperative for action.
4. Regulatory uncertainty is not a barrier to take action: Ninety-four percent of respondents see national policies as important or very important in shaping their climate change strategies. There is still a good deal of uncertainty around the details of these policies, however. Despite these uncertainties,, two-thirds of executives remain committed to continuing with their existing strategies.
5. C-suite leadership is essential: More than 90 percent of executives surveyed indicate that climate change governance rests with the C-suite executives or board members. A strong governance framework with senior executive support from central and functional area through a steering committee will be important in finding the appropriate balance between central controls and timely local responsiveness.
6. Everyone is part of someone else's supply chain: Some of the biggest climate change-related risks and opportunities for companies exist within their supply chains. Approximately 66 percent of respondents are discussing climate change programs with their suppliers and 36 percent of respondents are already working directly with these stakeholders to decrease the carbon in their supply chains.
7. Transparent reporting is gaining momentum: Executives and boards are acutely aware of the growing demand for more transparent reporting of climate change business strategies, initiatives and performance. Sixty four percent of respondents report greenhouse gas data in an annual corporate social responsibility or sustainability report. Of the organizations that say they report, 62 percent verify their data through an independent, third-party.
8. Executives across the board are committed to action: Two-thirds of executives surveyed have already launched an enterprise-wide climate change program and 16 percent expect to do so in the next two years.
9. The journey is challenging: Just because executives are committed, doesn't mean it's easy. Three out of four respondents indicated that they expect it to be either very challenging or challenging to execute their climate change goals in the next two years. The challenges mentioned by the executives included identifying ways to remove carbon from the supply chain, grappling with varying environmental data collection systems, engaging employees enterprise wide, and illustrating the ROI of climate change investments to a variety of internal stakeholders.
10. Investors are watching: Forty three percent of the executives believe that equity analysts are now considering climate change related factors in the valuations of their companies. An additional 21 percent believe the analysts will begin doing so in the next two to three years. This places more pressure on transparent and credible reporting of climate change initiatives.
Steve Starbuck is the Leader of Ernst & Young LLP’s Americas Climate Change and Sustainability Services. In this role Steve oversees the development and implementation of climate change and sustainability competencies throughout the U.S., Canada, and Latin America extending to clients through the firm’s core services: assurance, advisory, tax and transaction advisory services. In his 30-plus years with Ernst & Young LLP, Steve has held numerous leadership positions, including the Director of State and Local Tax for our National Tax Department.
The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.
Image CC licensed by Dudu Viana.