Behavior Change
Reports Explore Corporates’ Climate-Related Risks — and What They Can Do to Mitigate Them

Two reports released this week examine the increasingly urgent risks to which major corporations around the world are vulnerable thanks to climate change, along with their own part in exacerbating those risks and how they could act to mitigate them.

Gap, HP, PepsiCo and over 50 other S&P 500 companies are feeling climate-change-related risks increase in urgency, likelihood and frequency, with many describing significant impacts already affecting their business operations, according to a new report from CDP.

Reported risks affect companies in all economic sectors, including damage to facilities, reduced product demand, lost productivity and necessitated write-offs, often with price tags in the millions.

Nearly 60 companies across 10 sectors describe the current and potential future risks and their associated costs in the report, which highlights excerpts from the companies’ disclosures to their investors between 2011 and 2013.

Some examples include:

• Gap, Inc. reports experiencing higher material costs for cotton due to changes in precipitation and drought in China;
• Dr. Pepper Snapple Group, Inc. discusses the potential for weather, climate changes and availability of water to put $2.5 billion of their cost of sales at risk;
• HP describes a decline in revenue of 7 percent following the 2011 floods in Thailand.

"Dealing with climate change is now a cost of doing business," says Tom Carnac, president of CDP in North America. "Making investments in climate-change-related resilience planning both in their own operations and in the supply chain has become crucial for all corporations to manage this increasing risk."

Great advice, which holds true for the “Big 10” food and beverage companies that Oxfam calls out in its Standing on the Sidelines report as being both highly vulnerable to climate change and major contributors to the problem. Together, Oxfam says they emit so much greenhouse gas (GHGs) that, if they were a single country, they would be the 25th most polluting in the world — and they are not doing enough to tackle it.

The Big 10 — Associated British Foods, Coca-Cola, Danone, General Mills, Kellogg, Mars, Mondelez International, Nestlé, PepsiCo and Unilever — should be capable of cutting their combined emissions by a further 80 million tons by 2020, Oxfam says. This would be equivalent to taking all of the cars in Los Angeles, Beijing, London and New York off the road.

Some of the “Big 10” companies admit they are beginning to feel the effects of climate change on their bottom lines. Unilever says it now loses $415 million a year, while General Mills reported losing 62 days of production in the first fiscal quarter of 2014 alone because of extreme weather conditions that are only growing worse. Oxfam projects that the price of popular, corn-based products such as Kellogg’s Corn Flakes and General Mills’ Kix cereal could spike by up to 44 percent in the next 15 years because of climate change.

As PepsiCo outlined in the CDP report, since it spends roughly $12 billion (18 percent of revenue) annually on primarily raw, agriculturally based ingredients, and about $6.9 billion (10.5 percent of revenue) annually on packaging that is closely related to oil, paper and other raw commodities, its revenues are “sensitive to changes in crop yields due to changes in precipitation and temperature patterns, increases in transportation costs and increased supply chain costs due to changes in crop locations, increased energy cost, increased fiberboard cost or disruptions due to flooding” and more — all risks that these companies are now being forced to consider as the impacts become more apparent.

Agricultural and forest-related materials drive roughly 25 percent of global GHG emissions, and this continues to grow as demand for food rises. Experts say that if the world is to keep within a “safe” 2C threshold by 2050, net global emissions from the food sector needs to fall to zero and actually become a “carbon sink” — working to remove GHGs from the atmosphere — by mid-century.

Oxfam says Kellogg and General Mills are two of the worst offenders in this area and is calling on them to lead the sector towards more responsible policies and practices. The organization says they should disclose their agricultural emissions and most-polluting suppliers, set targets to cut emissions from their supply chains and speak out more to other industries and governments to address the climate crisis.

Oxfam credits Unilever, Coke and Nestlé for being more assertive in their policies and actions to tackle climate change, though they all still had a lot of room for improvement.

While Oxfam focuses on the Big 10, its assertions apply to all multinationals with complex agricultural supply chains.

More and more investors are beginning to take climate risks into consideration. In the past year, the number of investment professionals in the US offering fossil fuel-free portfolios to investors jumped by more than 50 percent — from 22 percent to 36 percent, according to a recent survey by First Affirmative Financial Network.

Meanwhile, a recent report by Ceres and Sustainalytics found that, despite encouraging pockets of sustainability leadership in the US business community, far too many companies are only taking small, incremental steps to address pressing sustainability issues that could impact their bottom lines and the future of our planet and economy. Most prominent among these sustainability issues are climate change and human rights.