US Firms Slow To Quantify Climate Change Risks
Though they recognize the financial risks associated with climate change, major US firms have been slow to quantify those risks and outline concrete plans to address them. This is one of the conclusions of the fifth Carbon Disclosure Project survey (CDP5) of S&P500 companies.
More than half of S&P500 firms responded to the CDP5 survey, which was written by The Riskmetrics Group on behalf of 315 institutional investors with assets of $41 trillion under management. The increase in respondents to 56% represents a jump of almost 10 percentage points compared to the previous survey results, but lags the 77% response rate of the companion CDP5 FT500 survey of companies worldwide.
In conjunction with the survey, Riskmetrics created a Climate Governance Index based on five criteria: Board oversight, Management execution, Public disclosure, Emissions accounting, Emissions reductions and strategic opportunities. Top scoring companies by sector were DuPont, General Motors, ConEdison, 3M, Merrill Lynch, Morgan Stanley, Hewlett-Packard, Chevron, WalMart, Hospira and Verizon. Other high scoring companies were Entergy, Exelon, Alcoa, Ford Motor, United Technologies, American Electric Power, News Corp, Weyerhaueser, Johnson Controls, Keyspan and XL Energy.
Other conclusions of the S&P500 survey:
- The highest-emitting sectors are providing the most disclosure. Electric utilities and Materials companies had the highest response rates and generated the best Climate Governance Index scores. Only the Consumer Discretionary sector had a response rate below 50%.
- Management and directors are paying more attention to climate issues. Half of the S&P500 respondents have assigned board and/or upper-level management responsibility for overseeing climate-related issues. Two-thirds of respondents are tracking and have reported greenhouse gas emissions data.
- Four-fifths of respondents recognize commercial risks posed by climate change and two-thirds are tracking and have reported greenhouse gas emissions data. But less than a third have set GHG reduction targets
American industry still lags behind its international competitors in some key respects.
S&P500 firms lag the FT500 in responding to CDP. Three-quarters of the world’s largest publicly traded companies (in the FT500) responded to CDP5, compared to 56% of the S&P500. However, the large increase in the S&P500 response rate this year is in line with historical trends for the FT500 survey.
Action to reduce emissions lags well behind climate awareness. Only 29% of S&P500 respondents have implemented GHG control programs with specific targets and timelines. Many of the targets set do not limit absolute emissions. The lack of federal GHG controls is clearly a factor in this low percentage.
Material effects of climate change remain largely undetermined and undisclosed. While most S&P500 respondents can identify regulatory and physical risks associated with climate change, few have attempted to quantify these risks in dollar terms or have discussed them in securities filings. In addition, carbon pricing is rarely factored into their capital investment decisions, even though such decisions typically require a multi-year planning process and have long payback periods.
Energy efficiency and renewables will be drivers of GHG emission reductions.
The US now rivals Europe in total annual investment in clean energy. More than one-third of S&P500 respondents are involved in renewable energy projects or purchases, and three-quarters are engaged in energy efficiency initiatives.
Much more investment will be required to achieve major cuts in GHG emissions over the next half-century. This will require a massive transformation of the global economy and a sustained commitment to low-carbon energy supplies and energy-efficient equipment.
Companies that are ahead of the curve support mandatory, market-based policies to achieve emission reductions. In embracing greenhouse gas controls, these companies know they will have greater certainty in their investment planning decisions and new business opportunities to exploit, giving them an edge over companies that hang on to business-as-usual strategies.
The S&P500 and FT500 surveys, both of whichl also include several papers on climate change issues from guest contributors, are avalailable at no charge here.
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October 8th, 2007 at 4:14 pm
[...] that all our readers cared about was the financial sector, the fifth most read post this week, US Firms Slow to Quantify Climate Change Risks, examined how S&P 500 companies are trailing their global counterparts in developing plans to [...]