Greenhouse gas emissions reduction being driven by commercial interests

The 2011 edition of the annual Carbon Disclosure Project Global 500 report, examining carbon reduction activities at the world’s largest public corporations, has found for the first time in the survey’s 10-year history that the majority have climate change actions embedded as part of their business strategy.

The report by global professional services firm Pricewaterhousecoopers (PwC) attributes this to growing board-level awareness of the link between energy efficiency and increased profitability.

The report, entitled ‘Accelerating low carbon growth’, analysed disclosures by 404 of the world’s largest companies. It showed that 68 per cent have climate change at the heart of business strategies, compared with 48 per cent in 2010.

There was a marked rise in companies reporting emissions reduction activities (45 per cent, up from 19 per cent in 2010).

The report established a correlation between higher stock market performance and representation on CDP’s Carbon Performance Leadership Index and the Carbon Disclosure Leadership Index.

Companies with a strategic focus on climate change provided investors with approximately double the average total return of the Global 500 from January 2005 to May 2011.

Paul Simpson, CEO of the Carbon Disclosure Project, said: “The improved financial performance of companies with high carbon performance is a clear indicator that it makes good business sense to manage and reduce carbon emissions.

“This is a win-win for business – the short returns on investments many emissions reducing activities have, can help increase profitability.

“Companies yet to take action on climate change will have to work hard to remain competitive as we head to an increasingly resourced constrained, low-carbon economy.”

Alan McGill, partner, sustainability and climate change, PwC said:

“Historical financial performance is being exposed by climate change as an outdated model to assess long-term business profitability and growth, when you consider the much wider range of risks associated with business today.

“Today’s investors have different information needs, leading to tougher verification regimes, more emphasis on executive and staffing responsibilities and incentives, and much more unforgiving examinations of the contribution of business to society. We are accelerating towards newer reporting models that better balance financial and non-financial performance.”

Rising oil prices, energy supply risks and recognition of the returns on investments in emissions reduction activities contributed to the growth in importance of climate change as a boardroom issue.

“Over half (59 per cent) of reported emissions reduction activities delivered payback in three years or less according to company submissions. These include energy efficiency projects, low-carbon energy installations and staff behavioural change. Employee incentives to reduce emissions are now offered by 65 per cent of companies, compared with 49 per cent in 2010.