Businesses address climate change

Viewpoints Managing risk

Image: Managing risk Companies across varied industries are beginning to factor climate change into their corporate plans. Previously, View reported on the strategies businesses are implementing to address the reputational and financial risks stemming from climate change. Now, a new report on carbon disclosure that requested data from S&P 500 companies indicates that businesses are beginning to broaden the definition of climate-related risks beyond public relations and the environment.¹ Instead, executives are viewing climate change as an enterprise-wide risk—and opportunity.

Opportunities from climate change abound for businesses. Companies and consumers alike are looking for new products and services that offer both environmental and economic sustainability. Adapting a company’s corporate strategy to the effects of climate change means not only bettering the company’s image as a responsible corporate citizen but also improving profitability. As a result, the clean technology sector is growing. This industry offers such innovative products as energy-storage batteries, low-carbon raw materials, and energy-efficient solar panels.

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Companies have already begun to understand the magnitude of opportunities available in a carbon-constrained economy. In fact, 71 percent of participants in the study agreed that commercial opportunities deriving from climate change exist, and all manufacturing and construction company executives stated that they viewed climate change as an opportunity. The study also found that a growing number of companies are developing strategies to address potential climate-related opportunities in the future. One major scientific products company, for example, is doubling its research and development spending in anticipation of growing revenues by at least $2 billion from creating products that are energy efficient or that reduce greenhouse gas emissions.

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Despite the potential in these varied opportunities, risks do exist and range from disastrous weather patterns to rising energy costs. Beyond these, however, other factors are also causes for concern. In particular, uncertainty around reporting standards and potential national regulations on carbon trading may hinder companies from making key business decisions—for example, process and equipment changes, research and development practices, and emissions mitigation planning.

Nevertheless, many companies are not waiting to take action. According to the report, more companies are disclosing greenhouse gas emissions. Seventy-three percent of the participants indicated that they reported emissions, up from 65 percent in 2007. Around 30 percent of companies are developing emissions target programs and the same percent already have targets in place. The increase in companies reporting on emissions suggests that many more executives now view emissions tracking and reporting and energy management as building blocks to corporate sustainability.

Embedding these building blocks is an essential step toward addressing climate change risk as an important part of enterprise strategy. In fact, 81 percent of participants indicated that they have been exposed to business risks stemming from a changing climate. Such risks include rising energy costs and the costs associated with regulatory compliance and weather-related physical damage. In addition, climate change can have an indirect effect on many non-carbon-intensive industries. For example, a major banking and insurance company participant recognized that severe weather attacks could negatively affect the company’s retail and corporate locations and clients, consequently impacting the company’s investment portfolio.

Companies, like this banking and insurance firm, are reaching a fuller understanding of why climate change is becoming a central factor in doing business and are embedding its risks and opportunities in their corporate strategies.

¹Carbon Disclosure Project Report 2008 (S&P 500), September 2008.