Last Wednesday was a very special day for many people around the world. I’m not talking about the release of the iPhone 5, I’m talking about a different celebration that Apple actually decided not to participate in – the release of the annual CDP Global 500 report. This event was not just an opportunity to hear how the largest companies in the world are doing when it comes to climate change, but also to get a rare opportunity to evaluate the overall progress of the business world based on actual data.
So how are we doing? We see some progress, but it’s still not good enough, which makes you a bit depressed, unless you have the new iPhone to offset these sorts of negative feelings. It’s not that there’s not a glass half full in the report, but as Paul Abberley, Aviva’s CEO, wisely said in a teleconference following the release: “If the glass is half full of Arctic melt water, it doesn’t matter.”
Take for example the number of companies that answered the CDP questionnaire – this year, it’s 405, a little more than last year (404) and a very good response rate (81 percent) in general. Among the companies that didn’t answer the questionnaire, you can find Caterpillar, Bank of China, Comcast, Sysco and Time Warner Cable, but even more importantly, Amazon and Apple.
I tried in the past to understand why Apple and Amazon don’t reply, and have decided that they find climate change disclosure immaterial to their business. I used to think that this is a failure by both Amazon and Apple, and I still believe this is the case, but I also believe that it’s a big problem for CDP. These two companies prove that you can be very successful in business while ignoring climate change concerns. The companies’ ongoing refusal to disclose their emissions, as well as growing success, is a slap in the face to the CDP’s approach that “accounting for and valuing the world’s natural capital is fundamental to building economic stability and prosperity.”
Among the companies who did report to the CDP, you can find some encouraging signs. For example, in spite of the economic downturn, climate change hasn’t dropped off the board’s agenda: 96 percent of respondents reported that they have board or senior executive oversight of climate change (93 percent in 2011), and 78 percent of the companies have integrated climate change into their wider business strategy (up from 68 percent in 2011).
One more interesting finding was that “the recent extreme weather and natural events have tested companies’ business resilience and increased their level of understanding of the timeframes of the physical risks they identify.” In other words, more companies see climate change as a physical risk that might impact them in the short-term rather than in unknown time. The percentage of companies that view physical risks as “current” has jumped from 10 percent in 2010 to 37 percent in 2011, while only 29 percent define the timeframe of climate change as a physical risk as “unknown,” compared to 37 percent two years ago.
This year’s report shows two main obstacles stand in the way of corporate climate change strategy. The first is lack of clarity on regulation – “uncertainty about when or how politicians will intervene hinders investment in emissions reductions,” the authors write. The second is the fact that capital doesn’t come easy these days, which makes it harder to approve expensive investments or ones with a longer payback period. Not surprisingly, companies are more likely to be successful at raising investment for emissions reduction activities with a long-term payback (three years or more) when they recognize that their climate change strategy gives them a competitive advantage.
And what about the actual emissions? The good news is that the total Scope 1 emissions reported by responders decreased in 2011 by 4.9 percent and Scope 2 emissions almost didn’t change. The bad news is that the average longer-term target for companies’ emissions reductions is currently only one percent per year. This is well below the four percent required by countries to limit global warming to two degrees, according to analysis by PwC (who is a co-author of the report). It means that companies need to quadruple their emission reduction efforts to help the globe warm by “only” two degrees.
“The economic driver for action is growing, as is the number of investors requesting emissions data,” summarized Paul Simpson, CEO of CDP. Malcolm Preston, global lead, sustainability and climate change, PwC, was a little more blunt: “Even with progress year on year, the reality is the level of corporate and national ambition on emissions reduction is nowhere near what is required… If the regulatory certainty that tips significant long-term investment decisions doesn’t come soon, businesses’ ability to plan and act, particularly around energy, supply chain and risk could be anything but ‘normal.’”
It would be interesting to see if anyone listens to Simpson, or if we’d rather busy ourselves with the iPhone 5 – which you have to admit is more fun.
Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development.