The Carbon Disclosure Project

How are the world’s largest companies managing climate change amid uncertainty?

Governments have reiterated their ambition to tackle climate change but, in 2012, their focus is on economic growth. Business faces a period of high uncertainty, subdued growth, and volatile commodity prices. In this context, companies are increasingly challenged by their shareholders to demonstrate long-term resilience.

This year over 400 of the Global 500 – the largest companies in the world by market capitalization based on the FTSE Global Equity Index -- responded to the CDP questionnaire. Their responses provide valuable insight into how companies are operating in an uncertain world. The report, based on analysis of the responses, investigates whether companies are strategically focusing on climate change and its long-term impacts.

The main findings of the report are:

1. Despite the economic downturn, climate change is still on the board’s agenda – 96% of companies have board or executive level oversight of the issue.
2. Companies continue to invest in emissions reductions, but these are typically short term, cost cutting measures such as energy or resource efficiency, rather than long term capital investments in low carbon technology.
3. Although 82% of companies have set targets to reduce emissions, these are not nearly ambitious enough to achieve governments’ goals to limit warming to 2°C. Based on current projections, countries need to reduce emissions by 4% per year post 2020. The average of the longer-term absolute targets outlined by CDP respondents is only around a 1% reduction per year.
4. Recent extreme weather and natural events have tested companies’ business resilience and increased their level of understanding of the timeframes of the physical risks of climate change they identify.

US companies accelerate progress toward a lower-carbon future

The US results from the 2012 CDP survey offer definitive evidence that S&P 500 companies are making significant strides in terms of both transparency and progress on carbon goals, and that this progress is accelerating. The 2012 scores, based on the quality of a company’s disclosure and performance on actions to mitigate climate change, have significantly improved across a wide array of measures. In some cases, the S&P 500 is narrowing a previous gap with the Global 500.

The scores also show a marked increase in the number of companies addressing climate change issues at the board and executive level. The data suggests that, in the absence of global or national regulation, business is stepping into the leadership vacuum and embracing climate change as a business imperative.

More S&P 500 companies integrating climate change into overall business strategies:

• 92% (311) of the 2012 S&P 500 respondents reported board or executive-level oversight compared to 86% (292) in 2011.
• Most companies are integrating climate change with overall business strategy, with 73% (247) in 2012 versus 65% (219) in 2011.
• More companies -- 25% (83) of respondents – are disclosing greenhouse gas (GHG) information in their annual report, up from 18% (61) in 2011.

US companies see climate change as both an operational risk and a strategic advantage:

• Unprecedented weather extremes in the US are bringing a growing realization that the increased frequency and severity of events – such as hurricanes, flooding, drought and wildfires – may threaten business continuity with interruptions in power, supply and transportation networks. As a result, more companies are integrating climate change into enterprise risk management, including 83% (281) of the S&P 500 respondents in 2012 versus 75% (254) in 2011.
• 74% (251) of the 2012 S&P 500 respondents identified climate change opportunities that had the potential to generate a substantive change in business operations, revenue and expenditures, versus 69% (234) in 2011.

The Future of Reporting

Companies today are facing calls for greater transparency and accountability. The Leveson Inquiry into press standards and the investigations in to LIBOR-fixing highlight the increased scrutiny of corporate actions by regulators, shareholders and other stakeholders. Companies are increasingly being challenged to demonstrate how they are responding to the financial risks posed by climate change.

When CDP launched its first FTSE 350 report in 2006, only 49% of companies responded (83% of FTSE 100). This year, 69% (240) of the FTSE 350 did so, including 96% of the FTSE 100. This report shows the quality of reporting by UK companies and their preparedness for impending regulation. The main findings of the report are:

1. UK companies listed on the main market of the London Stock Exchange will be required to disclose their gross global emissions in their annual reports. In the UK, reporting emissions from Scopes 1 and 2 has become standard practice – almost all (93%) CDP respondents report Scopes 1 and 2 – however, only 64% of respondents include this emissions data in financial reports.
2. There is growing pressure for annual reports, traditionally built on historic financial data, to reflect a company’s exposure to all risks, including those from climate change. There is an increasing call for a move to Integrated Reporting.
3. The future of carbon reporting will increasingly be driven by regulation: 84% of responding companies believe upcoming regulations pose a risk and 32% believe these are linked to emissions reporting obligation. 74% also see regulation as an opportunity and 20% see reporting obligations in the same light.