November 1, 2005
Business faces pressure on climate change stance
By Gerard Wynn
LONDON (Reuters) - Businesses are feeling the heat as the
world warms up and investors demand to know what companies are
doing to curb greenhouse gases -- adding a new element to
financial risk that analysts say industry can no longer ignore.
have to audit their output of one greenhouse gas, carbon
dioxide (CO2), under the European Union's emissions trading
scheme (ETS), which charges firms if they exceed a CO2 quota.
However, investors are pushing for better public disclosure
of these emissions.
"Climate change is one particularly striking example of an
environmental factor that can badly damage wealth," said Karina
Litvack, head of governance and socially responsible investment
at F&C Asset Management, which manages 128 billion pounds in
"What is clear is that the damage caused by ever more
severe and frequent weather events...ripples across the economy
to the eventual detriment of shareholders," said Litvack.
Many scientists say that a build-up of heat-trapping gases
from burning fossil fuels in places such as power plants and
factories is pushing up world temperatures.
Hurricanes in the United States, drought in southern Europe
and Asia's deadly 2004 tsunami have focused attention on
threats from extreme weather. Although the link with global
warming is still debated, this has stoked public calls for more
Shareholders worry about the effect of climate change on
economies, and also about how the businesses they invest in
will cope with increasingly complex environmental red tape.
The London-based Carbon Disclosure Project (CDP) is
spearheading the drive to know more about companies' emissions.
It seeks to make investors and public companies aware of the
effects of carbon emissions on long-term company valuations.
The CDP has written annually for the past three years to
the world's 500 biggest companies asking them about emissions
on behalf of 155 investors with $21 trillion worth of assets
Responses to their questions have created the world's
largest database of corporate greenhouse emissions.
"It's a very exciting time and only going in one
direction," said Paul Dickinson, CDP project director.
Responses were up at 71 percent this year from 49 percent two
One company responding for the first time in 2005 was Kraft
Foods Inc., the largest U.S. food company. It disclosed its
global CO2 emissions, and said it planned a 2006 strategy for
the ETS, which is set to become more onerous under the Kyoto
Protocol from 2008.
The U.N. protocol requires developed nations to cut
greenhouse emissions by 2008-2012. The United States and
Australia are the only two developed nations outside Kyoto.
Talks on a strategy to reduce global warming after 2012
take place in Montreal later this year.
Even in the United States, which does not regulate global
warming emissions, many U.S. companies are beginning to prepare
for greenhouse gas limits. This year 60 percent of more than
250 companies responded to the CDP, up from 42 percent last
Environmental laws influence many multinationals' overall
strategies, including where they site overseas units, said
Geoff Lane, a partner in PricewaterhouseCoopers' Corporate
Social Responsibility (CSR) practice.
"For energy-intensive companies, the cost of carbon is now
an important issue in determining business strategy," he said.
From next year, changes to disclosure rules in Europe will
put further pressures on companies to go public on their
A European Union directive, to be adopted next spring, will
require companies to reveal how upcoming issues, including
changing rules on CO2 emissions, will affect their bottom line.
Britain has adopted the directive through its Operating and
Financial Review (OFR), which companies are now drafting in
readiness for introduction next year.
"OFR is upping the ante," said Douglas Johnston, a member
of Ernst & Young's Corporate Responsibility team. "It's a
report that will need to be signed off by the board."
OFRs tighten up voluntary disclosure under current CSR
reports, which describe how companies integrate social,
environmental and community demands with their business
performance, for example taking into account pollution, carbon
emissions, waste and health and safety issues.
"The OFR is elevating CSR reports to the boardroom," said
James Stacey, head of KPMG's U.K. sustainability practice.
About 80 of Britain's top 100 companies produce CSR reports
now, compared to a handful five years ago. Some critics say the
reports are not audited with the same rigor as financial
reports and are sometimes just public relations' exercises.