Many of the world’s largest companies are at risk from the threats presented by climate change. A study by global responsible investment specialists EIRIS of some of the 300 largest cap global companies listed on the FTSE All World Index showed that 35.6% of the companies, representing over $6.8trn (€4.36trn) in market cap, are assessed as high or very high impact for climate change, including that of carbon emissions.
The idea behind the research was to assess and benchmark the state of the markets and how the largest companies respond to climate change, according to Stephanie Maier, (pictured right)head of research at EIRIS. “We will be monitoring these companies on an annual basis to see whether investors have an impact and performances are improving,” she says. “The fact that so many companies are at risk means investors will have to pay attention to this in their investments. To protect shareholder value, investors should identify the risks in their portfolio, factor in the impacts of carbon emissions and engage with companies and the wider policy debate to achieve the step change and robust policy framework that is required.”
The study also found that although 84% of these high-impact companies have a corporate-wide commitment to combat climate change, they still have not translated these into a coherent climate change strategy. Only 14%, for example, link board remuneration to climate change strategies, while a mere 25% publish a long-term strategic target to reduce emissions.
Another finding was that companies’ emissions disclosures are variable and sometimes unreliable. While 81% of high-impact companies disclose either absolute or normalised data, only 9% disclose the scope of their emissions against the Green House Gas (GHG) Protocol, the international accounting tool to quantify GHG emissions.
“This shows that there still is a large number of companies that have not appreciated the impact that climate change will or can have on their business,” says Maier.
“While some companies have experienced the cost of climate change first hand, for example through taking part in the EU Emissions Trading Scheme, others have yet to look at the issue. With regard to the emissions data quality, a lot of companies are still in their first stages of collecting data and have not been paying attention to the GHG Protocol, partly because they are large organisations and partly because they have not centralised their emissions data.”
Maier believes that targets are an important indicator of a company’s true commitment to reducing its climate change.
“First of all companies need to have clear strategies in place,” she says. “Then they need to start measuring their impact with reliable emissions data. And targets are a key aspect of that, both in terms of investors being able to understand the strategy that the company has and the company being able to drive performance in the right direction.”
The research was based on publicly available information and analysed according to 24 climate change indicators covering governance, strategy, disclosure and performance elements. On top of that, each company had a chance to respond to the information available on them.
While Maier admits there already is a lot of climate research in the public domain, she believes the global 300 research differs from the majority. “A lot of studies tend to focus on issues such as disclosure, but this one focuses on particular indicators such as targets, remuneration and climate change strategy which we believe give a deeper, more concrete understanding of how companies try to address climate change within their businesses,” Maier says.
“And both responsible as well as mainstream investors need to draw on a range of studies like this when they look at climate change as an investment theme.”
Following on from this, EIRIS also intends to undertake regional assessments and is currently working with its research partners in Australia on an assessment of the ASX200 companies.
In the spring, the research company had already looked at FTSE100 companies through the lens of environmental, social and governance (ESG). It found that most companies had been making good progress, particularly in environmental policy development, human rights and supply chain management, but that progress was slower in areas such as environmental disclosure, equal opportunities and board diversity.
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