Do companies really benefit from reducing their greenhouse gas emissions?

An extensive analysis of 497 companies in the S&P 500 (the 500 large-cap common stocks actively traded in the United States), has demonstrated the competitive advantage that companies can gain by reducing their greenhouse gas emissions. The Carbon Risks and Opportunities in the S&P 500 report was commissioned by the Investor Responsibility Research Center Institute (IRRCi) and conducted by environmental data firm Trucost.

Jon Lukomnik, program director of the IRRCi, said under imminent emissions trading schemes "companies will have to reform how they think about carbon emissions and the associated costs, or their bottom line will suffer greatly”.¹

“Companies that are more carbon efficient than sector peers across their own operations and supply chains stand to gain a competitive advantage” according to Trucost’s chief executive Simon Thomas.²

Advice to investors

According to the report carbon-efficient investment funds are set to be in a good position as we shift towards a low carbon economy. “Already we are seeing increased interest from investors looking to reduce their own risk by positively selecting those companies with lower carbon emissions, and this is set to increase in the future,"³ Thomas said. With this in mind and as many companies become increasingly exposed to emerging carbon costs, Trucost advise that investors take the following actions:

• Develop an investment position on climate change
• Assess material climate risks to fund returns
• Incorporate criteria on carbon disclosure and performance into active ownership practices.
• Develop capacity to evaluate carbon exposure in stock selections.⁴

Advice to companies

With investors increasingly seeking out companies with low carbon exposures, those that make real efforts to reduce their greenhouse gas emissions can begin to realise both the short and long term benefits of doing so.

Trucost suggests that companies should consider the following actions if they want to provide investors with the information they’re looking for:

• Measure and report Scope 1 and Scope 2 greenhouse gas emissions for entire operations in line with the Greenhouse Gas Protocol
• Disclose the geographic location of emissions
• Identify significant carbon emissions from supply chains separately
• Assess exposure to carbon costs under emissions trading schemes
• Develop a strategy to manage carbon exposure and adaptation to climate change impacts.⁵

References:

1, 2 & 3.   
“New study calculates carbon exposure of the S&P 500”, June 2 2009, www.trucost.com

4 & 5.
“Carbon Risks and Opportunities in the S&P 500”, Trucost 2009.

Image:
by iStock