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 Business News | November 2005 
Business Faces Pressure on Climate Change Stance
 Gerard Wynn - Reuters
Businesses are feeling the heat as the world warms up and investors demand to know what companies are doing to curb greenhouse gases - adding a new element to financial risk that analysts say industry can no longer ignore.
In Europe, some 12,000 factories and power plants already have to audit their output of one greenhouse gas, carbon dioxide (CO2), under the European Union's emissions trading scheme (ETS), which charges firms if they exceed a CO2 quota.
However, investors are pushing for better public disclosure of these emissions.
"Climate change is one particularly striking example of an environmental factor that can badly damage wealth," said Karina Litvack, head of governance and socially responsible investment at F&C Asset Management, which manages 128 billion pounds in assets.
"What is clear is that the damage caused by ever more severe and frequent weather events...ripples across the economy to the eventual detriment of shareholders," said Litvack.
Many scientists say that a build-up of heat-trapping gases from burning fossil fuels in places such as power plants and factories is pushing up world temperatures.
Hurricanes in the United States, drought in southern Europe and Asia's deadly 2004 tsunami have focused attention on threats from extreme weather. Although the link with global warming is still debated, this has stoked public calls for more action.
Shareholders worry about the effect of climate change on economies, and also about how the businesses they invest in will cope with increasingly complex environmental red tape.
Going Public
The London-based Carbon Disclosure Project (CDP) is spearheading the drive to know more about companies' emissions. It seeks to make investors and public companies aware of the effects of carbon emissions on long-term company valuations.
The CDP has written annually for the past three years to the world's 500 biggest companies asking them about emissions on behalf of 155 investors with $21 trillion worth of assets under management.
Responses to their questions have created the world's largest database of corporate greenhouse emissions.
"It's a very exciting time and only going in one direction," said Paul Dickinson, CDP project director. Responses were up at 71 percent this year from 49 percent two years ago.
One company responding for the first time in 2005 was Kraft Foods Inc., the largest U.S. food company. It disclosed its global CO2 emissions, and said it planned a 2006 strategy for the ETS, which is set to become more onerous under the Kyoto Protocol from 2008.
The U.N. protocol requires developed nations to cut greenhouse emissions by 2008-2012. The United States and Australia are the only two developed nations outside Kyoto.
Talks on a strategy to reduce global warming after 2012 take place in Montreal later this year.
Even in the United States, which does not regulate global warming emissions, many U.S. companies are beginning to prepare for greenhouse gas limits. This year 60 percent of more than 250 companies responded to the CDP, up from 42 percent last year.
Going Green
Environmental laws influence many multinationals' overall strategies, including where they site overseas units, said Geoff Lane, a partner in PricewaterhouseCoopers' Corporate Social Responsibility (CSR) practice.
"For energy-intensive companies, the cost of carbon is now an important issue in determining business strategy," he said.
From next year, changes to disclosure rules in Europe will put further pressures on companies to go public on their environmental performance.
A European Union directive, to be adopted next spring, will require companies to reveal how upcoming issues, including changing rules on CO2 emissions, will affect their bottom line.
Britain has adopted the directive through its Operating and Financial Review (OFR), which companies are now drafting in readiness for introduction next year.
"OFR is upping the ante," said Douglas Johnston, a member of Ernst & Young's Corporate Responsibility team. "It's a report that will need to be signed off by the board."
OFRs tighten up voluntary disclosure under current CSR reports, which describe how companies integrate social, environmental and community demands with their business performance, for example taking into account pollution, carbon emissions, waste and health and safety issues.
"The OFR is elevating CSR reports to the boardroom," said James Stacey, head of KPMG's U.K. sustainability practice.
About 80 of Britain's top 100 companies produce CSR reports now, compared to a handful five years ago. Some critics say the reports are not audited with the same rigor as financial reports and are sometimes just public relations' exercises. |
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