Like it or not, most decisions today are based on economics. It’s the way our system is put together and it has been, in many ways, successful in generating innovation and prosperity, for many if not for all. That fact is not one that is likely to change easily, though the system’s shortfalls are beginning to show up like cracks in a once impenetrable façade. Prominent questions that arise, for anyone when pondering a choice, whether it’s an individual or a large company, tend to fall along the lines of:
So, within this context, looking at an issue like climate change and the large-scale actions required to adequately address it, the question of whether these actions can have an economic upside is critical. If we had to rely strictly on a sense of civic duty and social responsibility, that would surely be a harder road.
CDP was engaged by a group of 767 major investors representing an enormous amount of money, some $92 trillion, to assess all the companies in the S&P 500 Index based on two things:
So what did they find out? After looking at these metrics and correlating them with the financial metrics of the companies that participated, CDP made the following statement.
“We find that U.S. corporate leaders on climate change management, as measured by S&P 500 peer-relative CDP disclosure and performance, have generated superior return on equity, more resilient earnings, and stronger dividend growth than their peers. At a minimum, CDP data suggests that there is no penalty to corporate profitability for establishing climate change reporting, governance and management systems and taking action on climate change.”
In fact, overall, the 174 companies in the top half of the list for both disclosure and performance had a return on equity (ROE) of 25.1 percent, while those in the bottom half had an ROE of 20.6 percent. Even those in the bottom half fared better than the 152 companies who did not respond at all. Those companies had a collective ROE of 15.4 percent. Those are significant differences. That is why the authors were able to write, “In this report, we answer the No. 1 question U.S. investors ask CDP about climate change data -- ‘is there evidence of a link to financial performance?’ — with a resounding yes.”
Now, we all know that correlation does not prove causality, but it seems clear from these results “that climate change leadership is another strong reflection of superior management quality.”
These management teams that top the list, are clearly looking ahead, are strategic in their thinking and responsive to those factors that will likely impact their businesses down the road.
Both disclosure and performance scores were based on the same factors with different weightings. These were:
These are significant results that should put to rest the notion that taking action on climate change is bad for companies -- or bad for the economy. Of course, major changes are involved that will impact different players differently, but the overall direction of the impact on the economy should be clear from this report. Yes, there will be expenditures. Yes, some prices will go up. Some businesses will falter. That has happened throughout history as the result of changes that we called progress at the time. But, this is one of those times that not taking action will cost far more in the long run.
Image credits: NY Stock Exchange: Balon Greyjoy: Wikimedia Commons
Infographic courtesy of Carbon Disclosure Project
RP Siegel, PE, is an author, inventor and consultant. He has written for numerous publications ranging from Huffington Post to Mechanical Engineering. He and Roger Saillant co-wrote the successful eco-thriller Vapor Trails. RP, who is a regular contributor to Triple Pundit and Justmeans, sees it as his mission to help articulate and clarify the problems and challenges confronting our planet at this time, as well as the steadily emerging list of proposed solutions. His uniquely combined engineering and humanities background help to bring both global perspective and analytical detail to bear on the questions at hand.
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RP Siegel, author and inventor, shines a powerful light on numerous environmental and technological topics. His work has appeared in Triple Pundit, GreenBiz, Justmeans, CSRWire, Sustainable Brands, Grist, Strategy+Business, Mechanical Engineering, Design News, PolicyInnovations, Social Earth, Environmental Science, 3BL Media, ThomasNet, Huffington Post, Eniday, and engineering.com among others . He is the co-author, with Roger Saillant, of Vapor Trails, an adventure novel that shows climate change from a human perspective. RP is a professional engineer - a prolific inventor with 53 patents and President of Rain Mountain LLC a an independent product development group. RP was the winner of the 2015 Abu Dhabi Sustainability Week blogging competition. Contact: email@example.com