On March 21, 2006, the investor coalition
Ceres published its new
Climate Change and Corporate Governance Report (
PDF). The report looks at how 100 global companies in ten carbon-intensive industries are approaching climate change. It scores companies on a 100-point scale, with the scoring broken down as follows:
- Up to 12 points for establishing explicit Board oversight over climate strategies;
- Up to 18 points for management's clear articulation of the company's position on climate change and for having management incentives in place;
- Up to 14 points for clear disclosure of GHG emissions and risks;
- Up to 24 points for carefully monitoring corporate GHG emissions; and
- Up to 32 points for setting targets and undertaking emissions reductions.
The report concludes that the private sector has made important strides in the climate change arena. Far fewer companies seem to be simply doing nothing. And companies in sectors that the report characterizes as having been largely oblivious to the issue in 2003 (e.g., the oil and gas sector) are more actively pursuing relevant measures like renewable energy investments.
The report lists top performing companies in different sectors; for example, BP scores 90, DuPont scores 85, AEP scores 73, Toyota scores 65, and GE scores 58. It lists accomplishments of these and other companies, while noting that certain sectors are still lagging in their response to climate change, including the coal and airline industries.
The Ceres report has a lot of good information, and does a good job of helping benchmark the 100 companies against a consistent set of evaluative criteria. Whether it's effectively evaluating companies’ true positioning and preparedness for climate change risk, however, is another question. For example, one senior utility executive told me he was outraged by the Ceres rankings because of his perception that while top-ranked companies in his sector may have great PR strategies for climate change, their behind the scenes actions are at odds with their public pronouncements.
This comment points out a fundamental difficulty with the kind of ranking process Ceres has done. The Ceres ranking clearly rewards corporate measures that could primarily reflect a public relations strategy rather than a true policy commitment or risk-management strategy. Whether it’s creating a senior position with climate change in the title, carrying out a GHG inventory, or undertaking voluntary emissions reduction efforts, it’s often pretty hard to look behind these measures to figure out what’s really going on within the company when it comes to evaluating and responding to climate related risk and opportunity.
It is almost obligatory today for companies to publicly accept the importance of the climate change issue and to suggest they are favor mitigation efforts. And that’s a good thing. But when one sets aside the public relations around this issue, how far can most companies actually go to adopt material measures in light of policy uncertainties? Many companies firmly believe that they simply cannot take significant action on this issue without federal direction. Many companies are putting the best spin on their climate activities that they can, but are really in a "wait and see" mode.
The Ceres report has a chapter entitled "Why Companies Must Act Now," but it does not indicate the fine line that big companies walk when undertaking activities on climate change. The Ceres ranking rewards early actions to reduce emissions, but do companies that take early action to reduce their GHG emissions risk changing their baseline under future regulatory mandates, thus actually increasing their regulatory risk? Do companies that publicly proclaim the importance of climate change, but that do not feel they can justify major expenditures on emissions reductions to their shareholders, put themselves at increased risk in future legal actions for not following through? Both of these outcomes have happened to companies in the past, and it’s one of many very real considerations they have to evaluate when developing corporate strategy.
The Ceres report does offer considerable insight into how companies are choosing to pursue the climate change issue, at least publicly. Unfortunately, the public relations of climate change do not necessarily correspond to the politics of climate change or the effectiveness with which climate risk is being addressed. We have to recognize that even high-scoring companies may not be changing their behavior very much from what they would consider "business as usual." At the same time, companies scoring low on the Ceres’ scale could be taking climate change risk very seriously and be well-positioned for the range of potential policy outcomes over the next 10 years. These companies might not be pursuing an effective climate change PR strategy, but might be serving investors’ interests very well. As with so much in the climate change arena, it is hard to distinguish the optics from the substance of climate change action.
I’ve expanded on the dilemma facing many companies in addressing climate change in an article that’s recently appeared in the journal Electricity and Natural Gas.
Email me if you’d like a copy.
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Dr. Mark C. Trexler has more than 25 years of energy and environmental experience, and has focused on global climate change since joining the World Resources Institute in 1988. He is now president of Trexler Climate + Energy Services, which provides strategic, market, and project services to clients around the world.
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