CDP's Annual Report Finds Sustainable Companies are More Profitable

CDP's Annual Report Finds Sustainable Companies are More Profitable

The world's largest companies aren't waiting around for an international climate change treaty to be drafted before they start taking action. Not only are they addressing their own carbon footprints, in many cases, they're thriving because of it.

Consider this: Global 500 companies that have demonstrated leadership in carbon disclosure or performance yielded twice the average return as the index as a whole between January 2005 and May 2011.

"It suggests a strong correlation between higher financial returns and good carbon disclosure and good carbon performance," said Paul Simpson, chief executive officer of the Carbon Disclosure Project (CDP), which today released the CDP Global 500 Report 2011. "We realize that many may like to challenge this. We would be delighted to see the investment community, some in this room and in the wider community, look into this further. It's not yet widely accepted or integrated in investment that being sustainable is going to deliver better returns."

This is just one of the findings from the latest CDP report, an annual ritual that is increasingly service as a chance to take the pulse of just how well the world's largest companies are addressing climate change.

 The report studies the climate change performance of companies on the Global 500 Index, based on responses to a questionnaire that has been sent by the CDP on behalf of institutional investors every year since 2002. Each year, a larger portion of companies respond to the survey, and this year's results show significant progress in a few key areas.

Among the highlights:

• 81 percent of Global 500 companies responded to the CDP in 2011. Of those, 93 percent said their board or a senior executive oversees the company's climate change program, compared to 85 percent in 2010.

• 74 percent on Global 500 respondents reported greenhouse gas reduction targets, up from 65 percent the year before. 45 percent have made emissions reductions, more than double the 19 percent that had trimmed their carbon footprints in 2010.

• Those climate change actions have short ROIs. Nearly 60 percent of emissions reduction efforts paid for themselves in three years or less.

• In terms of carbon performance, companies in Canada, Japan and the U.S. lag behind their peers in Australia, Germany, Italy, Switzerland and the U.K.

For the first time in the history of the investor questionnaire, the CDP noted, most of the Global 500 companies (68 percent) have integrated climate change action into their overall business strategy, compared to 48 percent in 2010.

Alan McGill, a partner with PricewaterhouseCoopers, which prepared the report, pointed to three companies illustrating this phenomenon. BMW, he said, has clearly started to integrate sustainability and climate change thinking into its overall corporate strategy by looking across its entire value chain, ranging from its suppliers to the consumers who will drive its products. It has even developed a sub-branded called BMWi, which focuses on sustainable mobility. 

"They clearly understand the future and where transportation issues are going to go, and consequently are changing their business to adapt to that and the future requirements around mobility and how people get around," McGill said.

Meanwhile, Unilever's global strategy to grow the business over the next few years heavily takes into account its need to reduce its environmental impacts, which has led to it reformulating products to achieve a smaller carbon footprint, McGill pointed out. A revamp of some laundry products helped the company reduce its greenhouse gas emissions by 4 million metric tons on that line alone.

McGill also gave Novartis kudos for its Energy Excellence Awards, which give monetary incentives to employees who come up with energy-saving ideas or renewable energy products.

While all of these efforts certainly helps to move the needle in the right direction, Christiana Figueres, Executive Secretary of the United Nations Framework Convention on Climate Change, challenged companies to go even further.

What is needed is "serious investment in new technologies, new materials, the new business models that have been discussed," she said. "That is where we're going to get the quantum leap ... Assuming that there is a critical mass of businesses that understand those opportunities are there, then from our perspective what is urgently needed is a very active and engaged dialogue with governments at home."