Last week saw the launch of two major reports that showed the corporate world’s growing focus on sustainability and climate change.
S&P Dow Jones Indices and New York-based sustainability investment firm Sustainable Asset Management (SAM) released an annual review of the Dow Jones Sustainability Indices on Thursday, one day after the global non-profit Carbon Disclosure Project published its 2012 report, which found that more than a third of companies now see climate change as a “real and present danger” to their businesses.
Each year, Carbon Disclosure Project (CDP) lists the top companies in both disclosing and reducing carbon emissions. European firms dominate this year’s top 10 leadership index, with Japanese electronics firm Panasonic making the only appearance by an Asian firm.
The CDP Global 500 Climate Change report, which included data from 81 per cent of the world’s 500 largest firms, said that 78 per cent of companies planned for climate change impacts in their business strategies in 2012 - ten per cent higher than in 2011.
Efforts from these firms to reduce their carbon footprint, combined with the economic troubles that started in 2008, have resulted in half a billion metric tonnes fewer emissions in 2012 than in 2009. This equates to having 138 million fewer cars on the roads.
According to global advisory firm PwC, which co-authored the report, these efforts will not achieve the four per cent reduction in carbon emissions needed annually to limit global warming to two degrees.
Head of sustainability and climate change for PwC Malcolm Preston said in a statement that the emissions targets of governments and corporations were not nearly ambitious enough, and cautioned that climate change was creating a ‘new normal’ for businesses. He explained that the new business environment consisted of investment uncertainty, subdued growth and unstable commodity prices.
“If the regulatory certainty that tips significant long term investment decisions doesn’t come soon, businesses’ ability to plan and act, particularly around energy, supply chain and risk could be anything but ‘normal’,” he added.
The report noted that corporate boardrooms were taking notice of the increasing number of weather related disasters which were affecting business profits. For example, this summer’s drought in the United States, fires in Russia and flooding in the United Kingdom, Japan and Thailand were disrupting business operations and supply chains.
Of the 379 companies reporting to CDP, 81 per cent said they believed climate change presented a physical risk to their business.
CDP chief executive Paul Simpson said, “Extreme weather events are causing significant financial damage to markets.”
Investors increasingly expect companies to prepare for climate change and related regulations, and a growing number are requesting carbon emissions information, he added.
Sustainability indices such as the CDP leadership index help guide investment decisions, said the report, which cited research demonstrating that the stock of CDP leaders has historically performed better than that of industry peers.
Administrators of the Dow Jones Sustainability Indices (DJSI) also noted that investors depend on sustainability ratings to choose where to put their money.
Chairman of the S&P Dow Jones Index Committee David Blitzer said in a separate statement that the DJSI had become an important tool for investors seeking to evaluate companies on their performance. He explained that interest in sustainability investing as a long-term strategy was growing.
The DJSI series, which polls 2,500 of the world’s largest firms from 58 different sectors, had 8.4 per cent more companies respond this year compared to 2011. 340 of these firms – representing about US$6 billion in assets under management - have been included in this year’s index, while the Asia Pacific-specific index features 154 companies.
Harold Woo, senior vice president of investor relations for Singapore-based real estate firm CapitaLand, agreed that the expectations of investors are increasing with regards to sustainability.
“Some investors will gradually shy away from investing in companies that do not have some sustainable practices in place,” he told Eco-Business.
Inclusion in the DJSI sends a strong signal that a company is on the right track, added CapitaLand’s deputy chief corporate officer, Tan Seng Chai.
CapitaLand was one of the 41 companies added to the DJSI World Index this year, after four years on the DJSI Asia Pacific Index.
Sustainability ratings: Benefit or burden?
A recent survey by London-based consultancy SustainAbility – noting the increasing burden on companies to provide information for multiple sustainability indices - examined how experts were using the ratings.
Part of a joint project with sustainability market research firm GlobeScan called “Rate the Raters”, the survey included responses from 850 sustainability experts from 70 countries and multiple sectors. It found that ratings may be pushing companies to improve their sustainability performance, but they were not necessarily changing the way people chose investments or suppliers.
While 64 per cent of the experts said they regularly used ratings to learn about a company’s sustainability performance, more than half said they almost never used ratings to influence decisions such as investments or purchasing.
The “Rate the Raters” project leader, Michael Sadowski, noted that the raters had to overcome trust issues if they wanted to increase their value for users. Sustainability indices ranked second after non-governmental organizations for credibility, but none of them scored higher than 16 per cent when respondents were asked if they were “very credible”.
Sustainability raters are typically secretive about their methods and sources – making it impossible for people to assess their conclusions, he explained.
Transparent or not, high rankings on sustainability indices are still coveted in the corporate sector.
CapitaLand’s Mr Tan said that achieving a spot on the DJSI World Index motivates the firm to continue its commitment to sustainability.
He noted that while the DJSI survey did require detailed information, CapitaLand has developed processes over the years to efficiently gather data in the 20 countries where it operates. The company uses the same information for its audited sustainability reports, which it files each year with the non-profit Global Reporting Initiative.
“We hope that our DJSI ranking will encourage more companies, especially our partners and service providers, to embark on sustainability initiatives for the betterment of the world,” added Mr Tan.
