Investors weigh risks of not fighting climate change

By Emma Byrne and Fiona Harvey in London
Published: September 22 2008 03:00

Investors are using information on companies' carbon dioxide emissions to manage their portfolios, according to an annual survey of the world's leading businesses.
The Carbon Disclosure Project (CDP), backed by hundreds of institutional investors, asks the world's biggest companies to report their greenhouse gas emissions. This year, almost two-thirds of the 385 institutional investors behind the project, whose findings are published today, said they used the survey to identify companies not adequately addressing climate change.
The Axa Group, for instance, said: "In terms of investment policy, companies which are ill-prepared for more stringent environmental regulation may face unexpected new expenses and decreasing ability to sustain their returns and share price."
The investors are basing their decisions on the belief that emissions will be more closely regulated around the world in future, giving companies that already manage their emissions a competitive advantage. They are also weighing other factors, such as the risk that companies may face future litigation, and the possible illeffects of climate change, such as floods and storms.
Paul Dickinson, chief executive of the CDP, said: "[The survey is] effectively an audit of climate-change risk. Over 1,500 companies have gone through that process this year, with 77 per cent of the Global 500 responding. Whilst it's hard to evaluate definitively, the CDP is likely to have had a pivotal role in developing consciousness of those risks."
This year's report found that companies were starting to manage environmental risk at board level. Of the 383 groups that responded to the Global 500 survey, nearly two-thirds said they had an executive with overall responsibility for climate-change management, compared with half of respondents in 2007, and most had put in place some risk management measures to prepare for climate change.
Companies in all sectors said that uncertainty about future regulation was a stumbling block. Arcelor Mittal told the survey: "There is significant risk in the lack of predictability in climate-change regulation."
Another survey, by McKinsey and the UK government-funded Carbon Trust, found that companies were failing to respond adequately to the need to reduce emissions.
Tom Delay, chief executive of the Carbon Trust, said: "Our findings show that we are not on the path to a low-carbon economy. This is something that will impact on all investors - it will have a damaging effect on shareholder value. Shareholders should be demanding that the companies they invest in address these issues."
Copyright The Financial Times Limited 2008