A new model of business leadership for a low carbon economy
Many more companies are putting climate change at the heart of business strategies, paying bonuses to staff who effect change
Along with the lack of global regulation, current unsustainable business models are one of the primary barriers for progress towards a low carbon economy. While overcoming this barrier presents one of the major challenges for business today, it also provides us with a significant opportunity.
The pressure on global business is building. From commodity price rises to increasing investor demands and the need to protect brand reputation, multiple drivers are precipitating a shift in how companies are acting to mitigate and adapt to climate change. Companies that embrace a new model – one that moves away from short-term thinking to achieve more sustainable growth in the long term – are blazing a trail to leadership in a low carbon economy.
According to this year's Carbon Disclosure Project Global 500 report, which provides a window into how the world's largest public companies are managing carbon, there is a shift in behaviour amongst Global 500 companies. An increasing number (68% from 48% in 2010) now have climate change at the heart of their business strategies. Companies are showing more active commitment to advancing carbon management, with 65% now providing monetary incentives to staff for managing climate change issues, compared with 49% in 2010.
What's more, there has been a rise in the number of companies reporting reduced greenhouse gas emissions as a result of emissions reduction activities (45%, up from 19% in 2010). A growing awareness at board level of the link between energy efficiency and increased profitability seems to be accelerating this trend.
Increasingly, reporting and acting on carbon and climate change is being viewed as an opportunity to identify and benefit from cost savings. There is a growing recognition of the carbon management activities that companies can undertake with a very clear business case. Research by McKinsey & Co finds that most companies have options to reduce carbon emissions at negative cost – across the overall economy there is the potential to save as much as 25% of the global total annual emissions in this way by 2030.
This year's report provides growing evidence of this link. Companies are citing commercial benefits from emissions reductions: more than half of the reported emissions reduction activities have delivered payback in three years or less. The most commonly identified types of activities include energy efficiency and low carbon energy installations, supported by employee behaviour change.
The report also establishes a correlation between good climate change disclosure and strong financial performance. It shows companies with representation on CDP's carbon disclosure leadership index and the carbon performance leadership index generating approximately double the average total return of the Global 500 from January 2005 and May 2011. This is a clear indicator that it makes good business sense to manage and reduce carbon emissions.
The rising number of Global 500 companies moving to capitalise on these opportunities highlights an acceptance that business as usual is simply no longer an option. Despite the challenges that must be overcome, there is significant value to be gained from moving towards more sustainable business models. This is a win-win, not just for an organisation's long-term growth prospects but also for the environment.
Paul Simpson is the chief executive of the Carbon Disclosure Project. To read the CDP Global 500 report released today visit www.cdproject.net
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