Despite the economic conditions, senior management of British companies perceive climate change as a major driver of new business opportunities. In addition, there is increasing investment in measuring and reducing the impact of emissions in company supply chains, as well as those related to product use and disposal.
These are among key findings to emerge from the Carbon Disclosure Project’s (CDP) 2008 Information Request (CDP6) to companies requesting greenhouse gas emissions data and climate change strategies. CDP, acting on behalf of some 385 institutional investors with $57 trillion in assets under management, issued the Questionnaire to the FTSE 350 companies.
The response rate to CDP from the UK’s FTSE 100 companies amounted to 90%, the highest of any CDP sample in the world. There are eight ongoing constituents of the FTSE 100 that did not respond, these were Antofagasta, Icap, InterContinental Hotel Group, Kazakhmys, Kelda Group, Rexam, Shire and Thomas Cook. Resolution and Reuters, both responded in 2007, but due to takeovers, did not respond in 2008.
While 90% of FTSE 100 companies report through CDP, only 58% of FTSE 250 companies do so. This gap in carbon reporting between the large cap FTSE 100 companies and the smaller FTSE 250 companies needs to be closed in the future and the UK government debate over plans for mandatory carbon reporting makes this clear to those companies not yet measuring and reporting emissions. The Carbon Reduction Commitment, a mandatory emissions trading scheme covering all UK organisations with electricity consumption greater than 6,000MWh per annum (approximately £500,000 per annum), will also force increased compliance from 2010.
Despite the gap between FTSE 100 and FTSE 250 respondents, analysis of the responses indicates a significant increase in management’s appreciation of the indirect impact of British companies on climate change. 50% of responding FTSE 350 companies reported Scope 3 (indirect) emissions. The volume of corporate reporting of these indirect emissions, generated from product use and disposal, business travel and through a company’s supply chain, almost doubled compared to 2007. The level of disclosed Scope 3 emissions went from 1310 million tonnes in 2007 to 2573 million tonnes in 2008.
Paul Simpson, Chief Operating Officer of CDP, commented: "It is promising that a significant number of large UK companies see climate change as a driver of new business opportunities and many of these corporations have the influence to drive large scale emissions reductions, through energy efficiency and new technologies and improve their bottom line by doing so. Clear understanding and disclosure of these opportunities and risks will help avert long term undisclosed exposure to climate change bringing down the value of companies - as the current economic crisis shows, failing to address undisclosed risk in the short term can lead to substantially larger problems in the long term."
PricewaterhouseCoopers (PwC) produced the FTSE 350 report: Richard Gledhill, Partner, Sustainability and Climate Change commented on the report: “The high response rates, particularly in the FTSE 100 demonstrate that the carbon agenda in the UK has moved from debate to action. It is a strategic issue for business, both from growth and survival perspective. The volume of companies responding – including many taking a lead on addressing the implications of supply chain emissions – underlines the fact that despite economic conditions, UK companies are integrating the value and cost of climate change into the long term strategic plan for their business.”
The increased perception of new business opportunities is most apparent in the Retail & Consumer and Technology sectors (through the development of low carbon products) but also in raw materials and mining (through sourcing low carbon energy sources and materials). 85% of FTSE 350 responding companies point to general opportunities arising from climate change. Within the low carbon-intensive sectors, the most significant relate to:- Change in consumer preferences – in response to escalating energy costs, consumers may opt to holiday in the UK thus benefiting tourism and leisure services;
- Customer awareness – UK companies in the Retail and Consumer sectors are responding to increased public awareness of climate change related issues by providing more environmental information regarding their respective performances and products, green marketing and new low-carbon products. Consumer understanding of carbon emissions is expected to increase consumer demand for green products, such as fuel efficient cars and low energy light bulbs and directly benefit specific manufacturers and suppliers.
- Teleconferencing and distance learning – within technology, media and telecoms sectors, the mounting cost of travel is expected to benefit companies engaged in the provision of online distance learning, audio and video conferencing.
- Advising clients and trading on the carbon market;
- Providing a range of ‘green’ products to the environmentally conscious consumer;
- Financing renewable energy projects; and
- Making investments in new technologies that serve to mitigate or adapt to climate change.
- Oil & Gas: new business ventures in renewable energy, either as sources for cleaner power generation or as new transportation fuels (e.g. biofuels); competitive advantages in new areas such as carbon sequestration as well as facility upgrades that reduce emissions and save energy (e.g. elimination of gas flaring in production activities).
- Construction & Building Products: regulations promoting energy efficiency and greener buildings increase demand for new building products, particularly in respect of adaptive construction to existing infrastructure.
- Metals & Mining: opportunities identified included the increased utilisation of aluminium for lighter, more energy efficient metals in transportation products, higher demand for platinum as fuel cell technology develops, the prospect of rising sea temperatures leading to an expansion in the shipping period for ports that traditionally become ice-bound during the winter.
- Pharmaceuticals: development of medicines in response to the changing profile of disease.
Whilst UK plc may be well placed to profit from these opportunities British corporations also face material challenges, with 84% of responding companies citing critical risks from climate change. These risks stem from a range of factors including increasing extreme weather events, and new regulation, technology and changing consumer sentiment rapidly changing market dynamics.
Carbon Disclosure Leadership IndexReport writers PwC scored all responses based on climate change disclosure and governance practices. FTSE 350 companies with ‘leading’ disclosure practice are highlighted in the Carbon Disclosure Leadership Index (CDLI). The highest scoring companies in the CDLI include:
- AstraZeneca – Chemicals & Pharmaceuticals
- Barclays, HBOS, Lloyds TSB – Financial Services
- TUI Travel – Hospitality & Leisure
- BHP Billiton, Rio Tinto – Raw Materials & Mining
- Tesco – Retail & Consumer
- Centrica, Scottish and Southern – Utilities
