In
the run up to the United Nations Climate Change Conference in
Copenhagen, latest research from EIRIS focuses on 300 of the world’s
largest companies to examine the progress they have made over the last
12 months in responding to the challenges of climate change.
Climate Change Compass: The road to Copenhagen
analyses the 300 largest companies listed on the FTSE All World Index
and finds that just over a third are failing to address the risks they
face from climate change – although the quality of companies management
response to climate change has improved overall.
Climate change has the potential to seriously impact shareholder value, especially in the medium to long term. As
the significant physical and economic impacts of climate change
increase, investors need to develop a greater understanding of the
extent and impact of corporate response to this issue. Highlights of
EIRIS’ research into how some of the world’s largest companies are
responding to climate change challenges are listed below:
Some improvements, but further momentum needed
§ Over a third (35.6%) of global 300 companies have a high or very high climate change impact1. Of these, 33% are failing to mitigate their climate change risk (down from 34% in 2008)
§ 99%
of companies with a high or very high climate change impact have a
corporate-wide climate change commitment (in comparison with 84% in
2008). This improvement can be explained by a number of drivers coming
into play including the increasing activity of investors
§ Almost
three quarters of companies (73% compared with 61% last year) have
referenced the wider policy context by referring to international
targets, regulations or the scientific imperative
Opportunities at Copenhagen
§ The
UN Climate Change Conference may create significant opportunities for
companies – linked to the development of green stimulus packages or a
clearer regulatory framework.
Engagement is key
§ Many large cap companies face significant climate change
risks and opportunities. Investors must understand the impact these
issues will have on their portfolios and integrate climate change into
their engagement strategies or when exercising voting rights.
Climate
change affects businesses across every sector of the economy – from
aviation to agriculture. EIRIS’ latest research also outlines the
various risks and opportunities for companies and their investors which
climate change presents, including:
§ Regulatory challenges – Copenhagen
may bring about a number of changes in national and international
legislation for reducing greenhouse gas (GHG) emissions. Potential
environmental taxes and compliance costs must therefore be factored
into company valuation
§ Changing market dynamics
- relating to higher and fluctuating energy costs, especially for
energy intensive sectors. Changing consumer attitudes and demand
patterns also open up opportunities for new technologies, products and
markets
§ Changing weather patterns – security
and cost of water and energy supplies, plus the physical risks of
climate change, including damage to assets as a result of extreme
weather events all have cost implications
§ Reputational - customer, employee, investor and societal perceptions are having an increasing impact on brand value
Given
the importance of climate change and the likely impact of it on future
long-term corporate financial performance, it is increasingly seen as
an investor’s fiduciary responsibility to integrate consideration of
climate change into their investment strategy as outlined in the
UNEP-FI Fiduciary II report2. Against a backdrop of the
recent global financial crisis and growing evidence of the significant
physical effects of climate change, the outcome of the Copenhagen
Conference will set the direction for a financial and policy framework
for future climate change investment for governments, corporations and
investors.
Stephanie Maier,
Head of Research at EIRIS said ‘Our research identifies a number of
improvements in the strategies that companies have put in place with
regard to their climate change impact. It is encouraging to see some
evidence that regulation and the increasing engagement activity of
investors on climate change are driving companies to focus more
attention on the climate change risks and opportunities they face.’
However, there are areas where further progress can be achieved. Stephanie Maier
added ‘Board level responsibility and ownership of a company’s response
to climate change is crucial. Linking remuneration to performance in
this area will help ensure companies remain focussed on these issues.
Likewise the increased use of verification for GHG emissions data will
provide investors with further reassurance on the reliability of the
information published. These are key areas where investors should exert
influence so as to help them minimise their risk.’
The full research report is available here (http://www.eiris.org/files/research%20publications/ftse300climatechangepaper09.pdf)
EIRIS
has developed a comprehensive suite of products to help investors
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Press contact: carlota.garcia-manas@eiris.org, +44 (0)20 7840 5711