24/06/10
By Andrew Holt
A new report from EIRIS, the London-based non-profit investment research specialists, shows that leading European companies representing €1.2 trillion by market capitalisation are failing to address the various climate change risks they are exposed to.
Climate change has the potential to seriously impact shareholder value and will affect businesses across every sector of the economy, especially in the medium to long term.
The EIRIS 2010 European Climate Change Tracker report focuses on the activities of 300 companies listed on the FTSE Eurofirst Index and analyses both the extent of their climate change impacts and also the quality of their responses to climate change.
EIRIS' research focuses on key parameters which enable investors to understand the extent to which efforts to tackle climate change are embedded within a company's culture. Research parameters include product impacts, long-term targets, executive remuneration and disclosure.
Key research findings
Poor performance, regional differences
EIRIS identifies over a third (41%) of Europe's largest 300 companies as having a significant climate change impact. Of this 41%, approximately two thirds (64%) are failing to adequately manage the climate change risks they face. Most of the worst performers are in sectors with the highest climate change impact.
Corporate responses to climate change vary between European countries. The best performing companies are from the most economically powerful European countries, namely the UK, Germany and France.
Product impacts
Although 97% of the European companies with potential product impact have a product policy commitment, only 10% of these have targets in place to address impacts arising from products.
Remuneration
Performance-based compensation can incentivise company leaders to improve corporate climate change performance. 62% of very high and high climate change impact companies are already linking performance-based remuneration with emissions reduction initiatives.
Long-term targets
Long-term targets (more than 5 years) are a key to the effective management of climate change. 55% of large climate change impact companies in the FTSE Eurofirst 300 have long-term targets in place.
High impact industries like oil & gas and electricity contain the lowest proportion of companies with long-term climate targets in place.
Peter Webster, executive director at EIRIS, said: "Externalities such as climate change pose major risks to the global economy, yet many investors are still not fully aware of these risks, nor do they know what to do about them.
"Climate change impacts arising from companies' products can be very significant yet very few companies have targets in place to address these impacts. It's important that investors focus on the bigger picture and consider both indirect and direct emissions."
"We urge investors to exert their influence and engage for long-term targets, identify and respond to portfolio risk, encourage companies to consider product strategies and their product impact on climate change and increase their investment in climate change solutions," he continued.
EIRIS research also identifies a number of improvements in the strategies that companies have put in place with regard to their climate change impact.
For example, it is encouraging to see some evidence that regulation and the increasing engagement activity of investors on climate change is driving companies to focus more attention on the climate change risks and opportunities they face.
The full version of EIRIS' 2010 European Climate Change Tracker report can be downloaded here
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