Multinationals preparing for climate change

13th September 2012

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More of the world's leading firms consider their operations at risk from climate change and are adapting their corporate strategies accordingly, says the Carbon Disclosure Project (CDP)

In its annual survey of FTSE 500 companies, the CDP reveals that, despite the continued tough economic environment, climate change is not slipping down the boardroom agenda, with a rise in supply chain disruptions from extreme weather conditions driving action.

Of the 379 companies that participated this year, which included Unilever, BMW, Tesco and Microsoft, 78% confirmed that climate change had been integrated into their wider business strategy, 10% more than last year and 30% more than in 2010.

Strategic changes continue to focus on the short term, however, with 65% of those integrating climate change into their plans saying it was only influencing near-term strategies, compared to 54% saying it was being considered in their long-term plans (up from 48% in 2011).

The upward trend in companies taking a more strategic approach to tackling climate change could reflect the impact that it is already having on global supply chains. With unprecedented droughts in the US and floods in Thailand this year, the number of firms saying that their operations were already physically at risk from climate change rose to 37%, from just 10% two years ago.

In the report, Intel, which produces processors for computers and smartphones, revealed that it lost $1 billion in revenue as a result of the disruption caused by flooding to its Thailand-based suppliers.

In total 81% of those surveyed said their operations were physically at risk, 10% more than a year ago. Almost two-thirds (61%) expect to be impacted in the next five years and 80% in the next decade (rising from 48% and 63% respectively in 2011).

The results also show, that businesses are increasingly seeing changing climate as both a reputation risk (63% up from 52% in 2010) and a potential opportunity to enhance their reputation with stakeholders (68% up from 58%).

Paul Simpson, chief executive of the CDP, said that investors in particular are helping to drive firms to address climate change. “Extreme weather events are causing significant financial damage to markets. Investors therefore expect corporations to think more about climate resilience,” he said.

“There are still leaders and laggards but the economic driver for action is growing, as is the number of investors requesting emissions data.”

According to the CDP, emissions from those responding to its survey have fallen by half a billion tonnes since 2009, to 3.1 billion tonnes. However, the report warns that a significant portion of this saving is due to the economic downturn, with only 40% of companies attributing a drop in their emissions to specific carbon reduction measures.

The results also reveal that the proportion of companies with carbon reduction targets has increased slightly from 74% in 2011 to 82% in 2012. Despite this increase, the CDP warns that only one-fifth of firms have set targets to 2020 and beyond, and that emissions savings goals are well below the levels needed to restrict global temperature rises to 2°C. According to analysis by PwC, companies are aiming to reduce their carbon emissions by 1% a year, but reductions of 4% are needed.

“Even with progress year on year, the reality is the level of corporate and national ambition on emissions reduction is nowhere near what is required,” confirmed Malcolm Preston, global lead, sustainability and climate change, PwC.

“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.”

In the report, the CDP ranked the FTSE-500 firms in terms of their efforts to cut carbon emissions and disclose their output, with German pharmaceutical firm Bayer ranked top alongside food and drink manufacturer Nestlé.

The top UK firm was drinks maker Diaego, whose brands include Guinness and Smirnoff. It was ranked sixth.


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