IBM, Tesco and Dell Receive Top Scores in First-Ever Ranking of Consumer & Tech Companies on Climate Change Strategies
Nike and Wal-Mart Post Highest Scores in Apparel and Retail Sectors
While progress is being made, consumer and technology companies still have more to do in confronting the business challenges posed by climate change, according to a report issued today by the Ceres investor coalition and authored by RiskMetrics Group that analyzes climate change governance practices at 63 of the world's largest retail, pharmaceutical, technology, apparel and other consumer-facing companies.
With millions of customers and massive operations and supply chains, consumer and technology companies face broad impacts from climate change, whether from higher energy costs due to emerging climate regulations or growing global demand for products that use less energy and contribute fewer greenhouse gas (GHG) emissions.
The Ceres report found that select companies in various consumer and technology sectors are responding to the risks and opportunities presented by climate change, primarily by setting GHG emissions reduction targets, boosting energy efficiency efforts, expanding renewable energy purchases and integrating climate factors into product design. But the report found that many other companies are still largely ignoring climate change, especially at the board and CEO level. For example, only 11 of the 63 companies have their boards receive climate-specific updates from management, only seven of the CEOs among these firms have taken leadership roles on climate change initiatives and none of the companies have linked C-suite executive compensation directly to climate-related performance.
The mixed performance was evident in the report's final scores. Using a 100-point scale, the three highest scoring companies were IBM, UK-based grocery retailer Tesco and Dell, with 79, 78 and 77 points, respectively. More than half of the 63 companies scored under 50 points, with a median score of 38 points.
"Many companies, especially technology and pharmaceutical firms, are doing a better job of integrating climate change into their business strategies," said Mindy S. Lubber, president of Ceres, which published the report, Corporate Governance and Climate Change: Consumer and Technology Companies. "But the overall responses among these companies are very spotty, especially in the restaurant, real estate and travel & leisure sectors where climate change is barely on their radar. With or without a recession, climate change is a core business issue that all consumer and tech companies should be focused on.”
The report uses a "Climate Change Governance Framework" to evaluate how 48 US companies and 15 non-US companies are addressing climate change through board of director oversight, management execution, public disclosure, GHG emissions accounting and strategic planning and performance. Some of the largest global companies in 11 consumer and technology sectors were evaluated using a 100-point scoring system based on this framework.
The 11 industry sectors included in the report are: Apparel, Beverages, Big Box Retailers, Grocery & Drug Retailers, Personal & Household Goods, Pharmaceuticals, Real Estate, Restaurants, Semiconductors, Technology and Travel & Leisure. The report took six months to complete and uses data from securities filings, company reports, company websites, third-party questionnaires and direct company communications.
Leading institutional investors requested the report to elevate their understanding of which consumer and technology companies have the best management systems in place to address climate risks before they become liabilities and which companies are pursuing strategic opportunities with their customers and suppliers. The investors are part of the Investor Network on Climate Risk (INCR), an alliance of 75 institutional investors coordinated by Ceres.
“Green strategies that save energy and fight global warming have broad consumer appeal and political support,” said Doug Cogan, Director of Climate Risk Management for RiskMetrics Group, which authored the report. “Companies that seize the initiative can gain market share, build investor confidence and insulate themselves against future energy shocks and climate change regulations. It’s simply smart business to employ these governance practices today.”
“There is a strong link between sound reporting and management of climate- and energy-related challenges, and the long-term financial viability of companies we invest in,” added Anne Stausboll, interim chief investment officer at the California Public Employees Retirement System (CalPERS), the nation’s largest public pension fund with $181 billion in assets under management and an INCR member.
The report finds evidence that many U.S. and European companies are responding to climate change, with technology, pharmaceutical and semiconductor firms leading the way. IT companies such as IBM, Dell and Intel were especially strong in product and service innovation, particularly in regard to making their operations, data centers and product lines substantially more energy efficient. IBM's energy conservation programs saved the company nearly $20 million in 2007 alone.
A handful of apparel companies and retail chains also received high marks, although average scores in both sectors were disappointingly low. Tesco and Wal-Mart stood out for their performance on energy efficiency, green product promotion and supply change management. Nike's strong board governance systems and product design innovations were also noteworthy.
The report concludes that more action is needed to align company strategies with GHG reductions that scientists say are needed to avoid dangerous impacts from climate change. In this regard, the report recommends that companies:
- elevate climate change as a governance priority for board members and CEOs
- link the company's largest compensation packages – those of the CEO and other senior executives – to GHG reduction targets or other climate performance measures
- set company-wide energy efficiency goals and mandate energy efficiency evaluations for all major capital investments
- boost attention to supply chain management by including supply chain GHG emissions – emissions that result from raw material extraction, production, transport and packaging – in emissions inventories and setting emission standards for suppliers
- set renewable energy purchase targets
- expand programs to educate, empower and reward employees for climate-related initiatives.
Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change. Ceres also directs the Investor Network on Climate Risk, an alliance of 75 institutional investors focused on the business impacts from climate change. For more information, visit http://www.ceres.org and http://www.incr.com.
About RiskMetrics Group
RiskMetrics Group is a leading provider of risk management and corporate governance products and services to participants in the global financial markets. By bringing transparency, expertise and access to the financial markets, RiskMetrics Group helps investors better understand and manage the risks associated with their financial holdings. Our solutions address a broad spectrum of risk across our clients’ financial assets. Headquartered in New York with 19 global offices, RiskMetrics Group serves some of the most prestigious institutions and corporations worldwide. For more information, please visit: http://www.riskmetrics.com.