CDP: More big businesses see risks from climate change

This story has been corrected to reflect the fact that the Royal Bank of Canada did not refuse to share emissions data with CDP this year; rather, RBC has moved to an every-other-year schedule with CDP.

Although few politicians aside from President Obama dare utter the words "climate change," more global businesses see its impact as a "real and present" danger to their operations, according to a new analysis from the Carbon Disclosure Project (CDP).

More than three-quarters (81 percent) of the world's largest public companies that report their greenhouse gas (GHG) emissions data and sustainability strategies now include physical threats and disruptions from climate change -- such as flooding, drought and fires -- among their corporate risk disclosures, reports the latest CDP Global 500 Climate Change report, co-written with professional services firm PwC.

What's more, 37 percent of the 405 companies reporting to CDP list those factors as a serious threat, up from 10 percent in 2012.

“Extreme weather events are causing significant financial damage to markets,” said Paul Simpson, CEO of the CDP. “Investors therefore expect corporations to think more about climate resilience," he said. "There are still leaders and laggards but the economic driver for action is growing, as is the number of investors requesting emissions data. Governments seeking to build strong economies should take note.”

More progress needed

The number of companies integrating climate change factors into their overall business strategies rose by 10 percent over the past year, contributing to a reported 13.8 percent reduction in corporate GHG emissions between 2009 and 2012.

Still, about one-third of the companies covered by the report reported no emissions reductions. And some major Global 500 companies did not share emissions data with CDP this year, including Amazon.com, Apple, Berkshire Hathaway, Royal Bank of Canada, Caterpillar Inc., Comcast Corporation, America Movil, Lukoil, Bank of China and National Oilwell Varco.

Photo of cracked ice provided by Sergey Vasilyev via Shutterstock

Next page: Lack of government leadership

The lack of government leadership toward reducing carbon dioxide emissions has left the responsibility for meaningful progress in the hands of business leaders. However, the average long-term emissions reduction target for the companies covered in the CDP report is just 1 percent per year -- below the 4 percent annual cuts needed to limit global warming, according to PwC.

“Even with progress year on year, the reality is the level of corporate and national ambition on emissions reduction is nowhere near what is required," said Malcom Preston, PwC's global lead for sustainability and climate change. "The new ‘normal’ for businesses is a period of high uncertainty, subdued growth and volatile commodity prices. If the regulatory certainty that tips significant long term investment decisions doesn’t come soon, businesses’ ability to plan and act, particularly around energy, supply chain and risk could be anything but ‘normal’.”

What defines a climate leader?

The reports being released this week included detailed information from 379 companies; although 405 businesses submitted data for the Carbon Disclosure Leadership Index (CDLI) some were too late for the PwC analysis. Among the factors considered for the disclosure rankings were scale of emissions reductions, and preparedness to respond to regulations.

The companies with the best climate leadership strategies tend to be those that take a long-term view more than 10 years into the future. CDP has created a separate index to recognize these companies called the Carbon Performance Leadership Index (CPLI). The companies that make it onto these lists are generally generating superior returns for investors.

"An investment in a basket of stocks of CPLI companies following the publication of CDP's global report each year since 2006 and rebalanced on any annual basis to reflect that year's CDLI would have generated total returns of 67.4 percent, more than double the 31.1 percent return of the Global 500," write the CDP report authors. "Moreover, past CPLI companies generated average total returns of 15.9 percent since 2010, more than double the 6.4 percent return of the Global 500."

Next page: Germany's leaders, America's progress

Germany boasts most climate leaders

Some countries are proportionally over-represented on the lists, particularly Germany (which dominates the Top 10). Finland, Spain and the Netherlands also have a strong presence. But France, Japan and the United Kingdom are under-represented.

The companies with the two highest disclosure scores in this year's analysis (receiving the maximum score of 100) were German pharmaceuticals company Bayer and consumer goods giant Nestle of Switzerland, which was new to the list this year.

Here's the rest of the top 10:

BASF (Germany)

BMW (Germany)

Gas Natural SDG (Spain)

Diageo (United Kingdom)

Nokia Group (Finland)

Allianz Group (Germany)

UBS (Switzerland)

Panasonic (Japan)

US companies make progress

As you might expect, the United States has the most companies on the CDLI. Aside from its Global 500 analysis, CDP also publishes an assessment of U.S. companies that are part of the Standard & Poor's 500 (S&P) large equities index. The latest survey suggests these companies are narrowing the climate strategy performance gap compared with the Global 500, says CDP.

"The scores also show a market increase in the number of companies addressing these issues at the board and executive level," says CDP in its S&P analysis. "The data suggests that, in the absence of global or national regulation, business is stepping into the leadership vacuum and embracing climate change as a business imperative."

The average disclosure scores among the S&P 500 companies improved by 13 percent and far more of them were eligible to receive a performance score rating their credentials as a sustainable business investment.

The top five S&P companies for carbon disclosure in 2012 are Microsoft, UPS, Hess, Pepco Holdings and Sempra Energy.

Meanwhile, 15 companies from the S&P 500 are recognized for carbon performance: Ace, Allergan, Allstate, Autodesk, Bank of America, Best Buy, Eaton, Exelon, Intel, Lockheed Martin, North Grumman, NYSE Euronext, Pepco Holdings, Pfizer and Wells Fargo.