PwC report finds strong correlation between financial performance and climate change disclosure and performance

September 16th, 2011 by PwC

The Annual report of world’s biggest 500 companies reveals a strong correlation between higher financial performance and good climate change disclosure and performance.

The Carbon Disclosure Project annual Global 500 report produced by PwC and released on 14 September 2011, examines the carbon reduction activities of the world’s largest public companies.

(click on the report cover to go to the download page)

The report, Accelerating low carbon growth, analysed the disclosures of 396 of the world’s largest companies, revealing the strong correlation between higher financial performance and good climate change disclosure and performance.

Companies included in the 2011 Carbon Disclosure Leadership Index and Carbon Performance Leadership Index provided approximately double the average total return of the Global 500 between January 2005, and May 2011.

Commenting on further findings in the report, partner Alan McGill, and director Jonathan Grant, of PwC’s sustainability and climate change team examine the wider trends and issues highlighted in the report.

Executive reward and responsibilities

  • 93% have board, or senior executive responsibility for climate change
  • 62% have board level responsibilities and monetary incentives for achieving climate change strategy

Alan McGill, PwC sustainability and climate change, said “we’re seeing the highest levels of board oversight and engagement on climate change strategy ever, with significant increases in the levels of monetary incentives linked to achieving targets. Companies are linking action on climate change to their employees’ work and wallets, from the board room to the office floor. It’s a shift we could not have imagined 15 years ago.”

“At director, or board level, the example they set is key if long term change is to be embedded and achieved in business.”

Commodity pricing & supply chain

Alan McGill, PwC sustainability and climate change, said “businesses and consumers cannot be insulated from the impact of climate change being felt in countries far removed from the factories and shop shelves.

“We’ve seen unprecedented moves in the commodities market over the past 12 months, and as climate change exacerbates resource availability and pricing, investors will want to understand companies’ exposure to medium – long term risks associated with their supply chain.

“Companies in the Carbon Disclosure Leadership Index are looking at their supply chain, and their business model, and considering how to grow their business in an environment that is going to become more resource constrained. This is the kind of thinking that will accelerate low carbon growth.

Voluntary reporting and mandatory reporting

Alan McGill, PwC sustainability and climate change, said “the question is not whether we need mandatory reporting, but how can we best achieve carbon reductions.

“The correlation between strong business planning, performance and reporting on climate change and strong financial performance demonstrated in the report. It is indicative of businesses who proactively manage their business risks, are more environmentally efficient, carbon productive, and are starting to decouple the link between financial growth and carbon emissions.

“A fundamental reassessment of the reporting model is gathering pace hard-wiring environmental, social and governance factors into a reframed reporting model.”

CDP criteria changes

Alan McGill, PwC sustainability and climate change, said “against tighter criteria in this year’s report, only 37% met CDP’s verification reporting criteria, a 23% drop on last year.

“The tightening of criteria is a very clear statement by CDP and its stakeholders about the importance of data quality and in building trust in carbon reporting.

“Setting higher standards on verification builds the quality and reliability of the information for consumers and investors, and is the reality of the increasingly close examinations of companies’ environmental and social responsibilities.”

Setting emissions targets

  • With 74% (294) of the Global 500 disclosing that they have an emissions reduction target (vs 65% in 2010) companies are demonstrating that they are increasingly engaged in managing greenhouse gas (GHG) emissions.
  • 59% of emissions reduction activities have a payback of three years or less.
  • 1780 emissions reduction activities are reported by 97% of the companies reporting.
  • 68% are integrating climate change into their overall business strategy, up from 48% last year.

Jonathan Grant, director, PwC sustainability and climate change, said “Global 500 companies reported reductions of over 4% in 2010 which is encouraging. The IPCC’s emissions targets could be reached if all businesses show a similar level of ambition.

“Once again the CDP reveals how sectors are responding differently to the climate change issue, and companies give an insight into the potential threats and opportunities that it presents for them.

“Energy and power companies cite concerns with extreme weather events and the potential impacts on infrastructure. They reported that fuel and energy taxes and regulations may stimulate the demand for renewable energy and biofuels.

“The retail and consumer goods companies are typically focused on potential climate impacts on their supply chain and changing consumer behaviour. Many highlight the transition towards a growing market for sustainable, locally-sourced, low-carbon products.”


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