Update on the current board issues: September 2012

September 2012
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To achieve diversity, boards may have to shake things up

At a glance

This issue of BoardroomDirect® from PwC highlights results from the Carbon Disclosure Project and what the results mean for directors.

Issue in focus

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Report: More US companies getting the climate change message

More US public company boards are making climate change issues a regular part of their strategic risk oversight.

The 2012 Carbon Disclosure Project (CDP) S&P 500 Climate Change Report, co-written by PwC and the CDP and released on September 12, shows that 92% of the 2012 S&P 500 respondents reported board or executive-level oversight over sustainability issues including carbon reduction, compared to 86% in 2011. The findings also indicate that 25% of respondents disclosed greenhouse gas (GHG) information in their annual reports, up from 18% in 2011. [For more highlights and the full reports, go to the PwC/Carbon Disclosure Project web site.]

U.S. firms are making progress in both transparency and carbon reduction goals, according to the report. It also provides an annual update on GHG emissions data and climate change strategies at America’s largest public corporations.

In the absence of global or national regulation on climate change, respondents report that investor pressure, market forces, and physical risks are the key drivers for action:

  • The size of CDP’s investor backing reflects the growing interest of the investor community in environmental, social and governance (ESG) reporting. The 2012 questionnaire was sent on behalf of 655 institutional investors and financial institutions representing $78 trillion in assets, an increase in signatories of 19% over 2011.
  • Seventy-four percent of respondents identified climate change opportunities that had the potential to generate a substantive change in business operations, revenue and expenditures. Seventy-three percent are integrating climate change into their overall business strategy.
  • The increasing pattern of extreme weather events has led more companies to embed the physical risks of climate change into their business continuity plans, with 83% integrating it into enterprise risk management.

"The results highlight a tipping point in the actions being taken in American C-suites and boardrooms to integrate a sustainability agenda into overall business strategy", said Doug Kangos, PwC partner for Sustainable Business Solutions. “The takeaway from this year's report is clear: more S&P 500 companies have begun to view climate change as critical to their long-term resilience."

The report is based on 338 responses, or nearly 68% of the S&P 500 companies. This compares to the Global 500 CDP report, also released on September 12, which received 379 responses, or 81% of the world’s 500 largest companies based on market capitalization. Despite the difference in response rate, which is consistent with the previous two years, U.S. companies narrowed a historic gap with the Global 500 on many key disclosure and performance indicators.

“The best interests of investors are catalyzing U.S. companies to improve the management of environmental risk, which is vital if we are to forge a more sustainable economy," said CDP's Executive Chair Paul Dickinson, who is also a member of the Environmental Research Group of the UK Faculty and Institute of Actuaries.

What directors should know about the CDP S&P 500 Climate Change Report:

  • Some of the leading companies in carbon disclosure are discovering their efforts in this area led to increased efficiency and effectiveness, lower costs, and improved brand image. That can prove to be a strategic advantage.
  • Investor queries of CDP data on Bloomberg terminals have risen substantially, both in quantity and number of users, Peter Grauer, Bloomberg chair, wrote in a guest commentary for the report. In July 2012 alone, investors viewed more than four million greenhouse gas-related indicators.
  • CalSTRS' board has made climate risk management the signature issue in its corporate governance engagement program, according to its CEO Jack Ehnes. This appears to be in line with respondents' views that investor pressure and market forces are key drivers for action.