S&P 500 industry leaders that are actively managing and planning for climate change are generating 18 percent higher return on equity (ROE) than peers and 67 percent higher than companies that do not disclose on climate change, according to a new report by CDP.
The report tracks industry-leaders over the last three years against their financial performance. The analysis revealed that those who lead on climate disclosure and performance have generated higher profitability.
Companies pursuing sustainability initiatives have seen 50 percent lower volatility of earnings over the past decade than low-ranking peers. In addition, dividends to shareholders are 21 percent stronger than low-ranking peers.
The analysis shows how these companies — some of the most profitable in the world — are planning for the future and protecting their profitability by taking action on climate change including disclosing to CDP, setting ambitious greenhouse gas (GHG) emissions reduction goals, putting in place strong governance and risk management of climate change and using internal carbon pricing.
Microsoft is one such company to implement an internal price on carbon. Microsoft’s Carbon Fee Program is a financial model that puts an incremental fee on the carbon emissions associated with the company’s operations.
Each year, CDP ranks companies based on their climate-related-disclosures to investors in two indices: the Climate Disclosure Leadership Index (CDLI) — a measure of a company’s transparency; and the Climate Performance Leadership Index (CPLI) — a measure based on that transparency of the company’s actions to address climate change. This year’s report announces CDP’s 2014 CPLI and CDLI leaders from the S&P 500 .
"With this comprehensive analysis of S&P 500 companies, the market has new, compelling evidence of the link between industry leadership on climate change and corporate profitability,” said CDP CEO Paul Simpson. “There is only upside for corporations acting in a prudent way to address the challenges of climate change — for which disclosure through CDP lays the foundation."
In June, CDP released a white paper that looked into how a price on carbon pollution might benefit companies and the U.S. economy as a whole. Contributors include American Electric Power (AEP) chairman Nick Akins, former Governor and EPA Administrator Christine Todd Whitman, along with investors, policy experts from Stanford and Columbia Universities, and other select thought leaders.