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CDP S&P 500 Report 2011 – Strategic Advantage Through Climate Change Action


Toward strategic advantage


The ability to achieve strategic advantage through climate change action is no doubt a work in progress for most, if not all, companies, even those recognized as leaders in the CDP questionnaire results. Most of the leaders are global or regional companies with superior management and the financial strength to plan beyond quarterly results. On the other hand, similar types of companies in the same industries have adapted at a slower rate.


What separates the leaders? To a large extent, it appears to be a matter of perspective and vision. Leaders see managing GHG emissions as meeting a broad array of business challenges and opportunities, now and into the future. Yet others may only see the business case — if at all — as little more than prudent risk management.


This difference in perspective matters a great deal. The more relevant, reliable, and timely a company’s carbon reporting data, the easier it is for management to distill enterprise value from it. The firms that are in possession of such data appear to be using it to achieve cost savings, risk mitigation, brand enhancement, and new product development. By reducing their environmental impact, some companies are also reducing the need for future remediation, regulation and litigation. That has a savings component as well.


A lack of high-quality sustainability data, however, can have the opposite effect. Boards and management with incomplete data are hampered in their ability to respond to regulator and investor demands for information. Squeezing out waste and costs becomes more difficult, leading to a competitive disadvantage. Finally, management is unprepared to research, develop, and market the type of energy efficient products that the market is demanding — not just domestically, but worldwide.


Investor recognition


An important strategic opportunity cited by respondents is the chance to shape investor perceptions regarding the company’s sustainability posture. They believe investors are increasingly conscious of how the environmental efficiency of an organization may have a financial impact on future corporate earnings, and are looking at both potential risks and opportunities from a long-term investment perspective. Respondents also noted that investors tend to view a company’s sustainability and climate change performance as a proxy for the overall quality of a company’s management and the company’s risk and opportunity management systems.


“We acknowledge the increasing evidence of linkages between share value and environmental performance. As we grow, we believe that our environmental sustainability commitments will become of increasing interest to our shareholders and other stakeholders and that ultimately a failure to effectively respond could negatively impact our share value.” Gilead Sciences


“We believe global climate change will likely have significant long-term financial implications, although impact will vary both across and within economic sectors and geographic regions. Companies that anticipate these developments with stronger environmental business practices will have greater returns of shareholder capital over the long term as compared to peers that are not prepared for climate change actions. State Street and SSgA have joined with their clients and industry peers to raise awareness over the investment implications of global climate change.” State Street


These investor recognition issues were recently borne out by the 2010-11 Institutional Shareholder Services Policy Survey.9


83% of investors said


that environmental, social and governance (ESG) factors could have a significant impact on long-term shareholder value and 97% said board oversight of exposure to ESG risks was important to consider in proxy voting decisions.


Companies that understand the advantages are making strides to improve the quality of their sustainability data and also to subject the data to independent, third-party verification and assurance. This approach ultimately serves the long- term interests of investors who want to invest in companies concerned about sustainability and that are building strategic advantage through development of next-generation processes and products.


9. www.issgovernance.com/files/ISS2010-2011_ PolicySurveyResults.pdf


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