CDP Global 500 Report 2011: Accelerating Low Carbon Growth

The 2011 edition of the annual CDP Global 500 report examines the carbon reduction activities at the world’s largest public corporations.

 
 

2011 Key Themes and Highlights

Accelerating Low Carbon Growth

Taking action towards low carbon growth is important if business is to protect itself against risks such as resource scarcity and create more sustainable business models that generate long term shareholder value. The World Economic Forum, for example, in 2009 began to examine how the growth of a low carbon economy could be accelerated – including a specific Task Force on Low Carbon Economic Prosperity. The Organization for Economic Co-operation and Development’s Environmental Action Programme Task Force marks the change from treating environmental protection as an economic burden to recognizing it as a driver for global and national economic development.

Companies in the CDLI and CPLI delivered approximately double the total return of Global 500 companies between January 2005 and May 2011. This suggests a strong correlation10 between good climate change disclosure and performance, and higher financial performance.

Figure 8: Total return % (US$)

CDP 2011 submissions reveal that many companies are now accelerating along a model of low carbon growth. In particular, the financial outperformance of the CPLI companies demonstrates how companies that understand the need to identify, manage and optimize climate related risks and opportunities can strengthen their business and future growth prospects.

Figure 9: Companies disclosing targets

 

Emissions Targets

74% (294) of respondents disclose that they have an emissions reduction target. This is an increase from 65% (250) in 2010, and shows the increased engagement of companies who manage greenhouse gas (GHG) emissions. When considering the underlying data, intensity targets are marginally more common than absolute.

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The target setting practice of companies varies significantly across sectors. The sector with the highest proportion of responding companies with targets is Consumer Staples at 94% (34). Energy has the lowest proportion of responding companies with targets at 55% (22), which, in view of the high emissions from this sector points to a need for significant improvement.

A large majority of companies with absolute or intensity reduction targets are on track to achieve or are outperforming their targets. The average emissions reduction already attained by the Global 500 against their targets is 60%, which has taken on average 57% of their allotted ‘target time’. Overall, companies are currently outperforming 71% (338) of their emissions reduction targets. The recent economic downturn has had an impact on companies’ emissions and should also be considered alongside progress in meeting targets and in relation to reduced emissions disclosure.

Figure 11: Global 500 total emissions disclosure year on year (t CO2-e)

In May 2011, the International Energy Agency (IEA) stated that emissions were at a record high. However, total emissions - and most dramatically, Scope 1 emissions - reported by CDP respondents fell by over 1 billion tonnes CO2-e in 2011 from 2010. All three scopes show the same general trend of an increase from 2009 to 2010 and a subsequent decrease in 2011. This is a positive development and is likely to relate to the increased focus of companies on emissions reduction targets. The reductions from 2010 levels need to be repeated consistently and across a wider range of global companies if long term low carbon growth is to be achieved.

Over a quarter of the fall in Scope 1 emissions are accounted for by seven Japanese companies which reported emissions totaling 272 million tonnes CO2-e in 2010 but which did not respond in 2011. Of them, the Tokyo Electric Power (TEPCO) company alone reported 108 million tonnes CO2-e Scope 1 emissions. The absence of reporting is likely to be due to the natural disasters suffered by Japan in 2011.

The Intergovernmental Panel on Climate Change (IPCC) has set a target for developed economies of an 80% reduction in emissions by 2050 (2.65% per annum), based on 1990 levels. The median absolute emissions reduction reported by Global 500 companies to CDP in 2011 is 4.4% for the year. If reductions could be made annually by all companies at this rate, the IPCC target could be achieved in the long term.

Emissions reduction activities

To date, 97% (384) of respondents have implemented emissions reduction activities in their operations (2010: 75%, 289) and 70% (279) have developed products or services designed to reduce emissions by third parties (2010: 68%, 259).

An increasing number of companies are acting on climate and business drivers to reduce emissions. 45% (178) of respondents state that emissions reduction activities have led to decreased Scope 1 and Scope 2 emissions, with 28% (112) of respondents confirming that this reduction was of at least 2.65%. This is an increase since 2010 when only 19% (75) of companies with reduced Scope 1 and 2 emissions attributed them to emissions reduction activities. This may result from the application of experience and knowledge, with earlier less-effective emissions reduction activities being replaced by more cost-effective activities that have a greater impact.

The CDLI and CPLI companies have engaged in emissions reduction activities to a much greater degree than the other Global 500 companies, with a marked increase from 2010. 73% (38) of the CDLI and 100% (29) of the CPLI companies in 2011 report that they have active projects in the reporting year compared to only 45% (24) of the CDLI and 52% (25) of the CPLI in 2010.

As in 2010, energy efficiency (building services and processes), low carbon energy installation and behavioral change are the most commonly identified activity types. A total of 1,780 emissions reduction activities were reported in the CDP 2011 information request, of which 1,402 specified a payback period. These were reported by 97% (384) of respondents. This is an average of five emissions reduction activities per company. Repsol YPF reported the largest number of activities with 59, while Westfield Group reported 24 and Apache Corporation and Boeing Company each reported 20.

Figure 12: Payback period breakdown of reported active emissions reduction initiatives by activity type

After energy efficiency activities (94%, 371) and low carbon energy installation activities (23%, 91), behavioral change is the third most popular type of activity being carried out by the Global 500. 22% (87) of respondents cite behavioral change as one of the methods in which they are engaging to reduce emissions. Figure 12 suggests that the popularity of these activities may relate to their short payback periods, with 60% of behavioral change activities having a payback period of less than one year. These activities include the training and education of staff in appropriate behaviors such as low carbon commuting and maximizing energy efficiency of IT stations. Through their products and interactions with clients, companies are also trying to change customers’ attitudes to climate change. Labeling and direct marketing were also noted as activities to change people’s behavior. The range of responses from the Global 500 provides further insight into these types of activities:

“A Green IT Hardware Purchasing Policy, which was defined in 2010 and came into force in 2011, requires all IT hardware purchasing requests for proposals to include a Green IT section. Energy Star and EPEAT have been adopted as Group-wide standards for all IT product purchases. This measure is voluntary in nature and an ongoing activity with an indefinite time horizon.” - Allianz

“By providing incentives, education and awareness on environmental matters to its employees and suppliers, we encourage people to make the right choices and promote sustainable behavior both at work and in their domestic situations. In 2010, UBS provided training and awareness raising to some 10,000 employees.” - UBS

Figure 12 also shows that companies have implemented activities across a range of timeframes. 152 companies undertook 329 initiatives with expected paybacks of less than one year; 188 companies undertook 502 initiatives with expected paybacks of between one and three years; and 193 companies undertook 570 initiatives with an expected payback of greater than three years. This willingness to invest in activities with a medium to long term payback – such as building services (119 activities) and low carbon energy installations (106 activities) – is evidence that companies regard energy and emissions reduction as an important strategic priority.

“ReCon and Green Teams in Manufacturing Sites and Offices. This is a voluntary initiative impacting scope 1 and 2. This goal is on-going as PepsiCo is constantly striving to train, re-train, and improve our workforce on reduction of energy and climate change causing greenhouse gases. This is a long term initiative expected to last greater than 20 years.” - PepsiCo

“APM Terminals has embarked on a program to convert and retrofit more than 400 Rubber-Tired Gantry Cranes (RTGs) in use. The new hybrid cranes at our terminals will reduce CO2 emissions up to 80% compared to ports with conventional diesel-powered cranes.” - A.P. Moller – Maersk

Figure 13: Opportunities identified
by type“PSE&G had invested approximately $135 million in its EE programs by directly installing measures and/or providing grants, loans and incentives to almost 9,000 residential customers, 185 municipal entities, 19 hospitals and 532 small to medium sized businesses and achieving lifetime savings of approximately 400 GWh.” - Public Service Enterprise Group

Companies are also embracing ‘quick win’ projects which have a rapid return on investment and have reported savings of up to ten times the value of the investment. Typical activities included the refurbishment of buildings to reduce emissions and improve energy efficiency.

“Since the launch of its Energy Best Practices Program in 2004, the Company continues to challenge property managers to examine their operating practices and adapt best practices to trim energy costs without affecting comfort, safety or reliability. Under the Best Practices Program, substantial energy savings are generated through low cost/no cost measures, e.g. by minimizing energy use in vacant spaces or by keeping tight control over hours of operation for all lighting systems in the common area, parking lots, and back of the house areas to minimize costs without affecting comfort, safety, or reliability.” - Simon Property Group

Integrating Low Carbon growth into Business Strategy

Companies have improved the linkage between their climate change strategy and their core business strategy, and the involvement of senior managers in this. This is all part of the clear drive for profitable, low carbon growth and provides a base from which companies can work to meet the emissions reduction required to avoid dangerous climate change. Indeed, the proportion of respondents with responsibility for climate change at the board or other senior management level increased to 93% (368) this year, up from 85% (328) in 2010.

Integration of climate change into business strategy has seen an impressive 20 percentage point increase from 48% (187) of companies in 2010 to 68% (269) in 2011. This is a reflection of the growing importance placed by companies on climate change. The value of placing climate change on the agenda of business strategy is increasingly being recognized by companies, with 72% (286) of companies rewarding employees through incentives linked to climate change. 65% (259) of respondents have monetary incentives in place (2010: 49%, 188). The remaining 7% (27) of respondents have disclosed that they have a mixture of recognition and other non-monetary incentives. A distinguishing mark of all 29 CPLI companies is that they have one or more climate change related monetary incentives for staff.

“Our Chairman’s Award recognises individual and team excellence in climate change as well as other corporate responsibility areas such as safety, customer service, and community engagement. The Awards are open to all employees.” - National Grid

“Energy Excellence Awards programme that rewards associates who develop energy saving or renewable energy projects.” -  Novartis

Opportunities

85% (337) of 2011 respondents (2010: 86%, 329) show a continued awareness of significant opportunities relating to climate change, indicating that the overwhelming majority of companies see that climate change offers them a positive means of transformation to deliver sustainable, low carbon products and services. It is this increasing awareness of potential opportunities which will be key to the Global 500 accelerating low carbon growth. Over three-quarters of companies (78%, 307) see regulatory opportunities while 62% (247) of companies identify opportunities linked to reputation and customer behavior. Notably, companies have stressed the sizeable opportunity to seize a market leadership position by mitigating their climate change effects and communicating their actions to shareholders and customers. 200 companies (51% of respondents) noted opportunities in all three categories (regulatory, physical, reputation and customer behavior).

Figure 14: Integration of climate change in corporate governance

Verification

Figure 15: Percentage of companies in each sector with verification complete for at least a proportion of their emissionsCDP is committed to increasing the level of verification of emissions disclosures in order to improve the quality of the information submitted by companies globally. In turn, this will build trust in carbon reporting and lead to an increase in the use of the data in analysis and decision making. Key drivers for verification include the increasing market demand from investors, customers, regulators, nongovernmental organizations and other stakeholders for assured and reliable climate data.

Improved internal management processes that can be harnessed for competitive advantage is a key benefit of verification. In order to support this drive, CDP rewards verification highly in both disclosure and performance scoring in 2011 and it is one of the criteria for entry into the CPLI.

Verification levels in 2011:
In 2011, a number of criteria were introduced to determine what is accepted as verification within CDP’s scoring methodology. It requires that a verification statement:

  1. Is related to the relevant emission scope
  2. Clearly states the type of verification that has been given and the standard used
  3. Covers the current reporting year
  4. Is undertaken by an independent third party

Verification of emissions has decreased in the year on year analysis in this report because CDP has strengthened its criteria to reflect the importance of verification. Whilst 69% (275) of respondents stated that they had gained or were in the process of gaining verification of Scope 1 or 2 emissions (an apparent increase of 9% compared with 2010), only 37% (148) met all criteria noted above for Scope 1 or 2 emissions, resulting in an overall decrease of 23%. CDP sees this higher standard as a key strategic priority to enhance the quality and reliability of the data reported by companies for the use of investors and consumers, both now and in the future. The sector breakdown of companies verifying their Scope 1 and Scope 2 emissions is shown in Figure 15.

The number of companies obtaining verification is similar for both Scope 1 and Scope 2 emissions for the majority of sectors. Energy and Utilities sectors, having significant scope 1 emissions have more companies obtaining verification of Scope 1 than Scope 2.

What is CDP doing to support reporting companies? For 2012, CDP is providing further clarity on what constitutes an acceptable verification process, which will be communicated as part of the questionnaire consultation process in September 2011. Looking further ahead, CDP has launched a verification white paper and consultation on a verification roadmap (2013-2018) aiming to encourage more companies to verify their climate data. Visit www.cdproject.net/verification to find out more.

10. Statistical correlation, based on daily returns, between 2011 CDLI and the Global 500 is 0.5, and between the 2011 CPLI and Global 500 is 0.6 (from 1 January to 31 May 2011). It is likely that other factors will influence the relationship between financial performance and high carbon disclosure and performance scores. These could include the capability of the management team or the company’s broader approach to identifying and capitalizing on opportunities or managing risks.

11. Total emissions values between Figure 11 and Figure 7 may vary due to late responses being included in Figure 11. *t CO2-e refers to metric tonnes of carbon dioxide equivalent

12. The “Reputation & Customer Behavior” group includes the following types of opportunity: reputation, changing consumer behavior, induced changes in human and cultural environments, fluctuating socio-economic conditions, increasing humanitarian demands.

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