Despite growing investor demand for information surrounding businesses’ social and environmental performance, a new report from Carbon Clear has revealed that 61 FTSE 100 companies are not assessing or not disclosing climate risk in their annual reports.
Taking Stock of Sustainability, which ranks FTSE 100, CAC 40 and IBEX 35 companies on their sustainable business practices, finds that only 39 FTSE 100 companies see climate change as a risk to their business and record it as such in the risk assessment section of their annual reports. Though the number of companies reporting are up from last year — 23 companies reported the risk to their investors in 2016 — the majority of companies on the index are not reporting climate change as a risk. However, in light of a recent lawsuit, which saw Australia’s Commonwealth Bank sued for failing to properly disclose the risks climate change poses to its business, these attitudes could soon undergo a significant shift.
The report also sheds light on the disparity in sector performance in terms of sustainability reporting, with retailers and property development and investment companies receiving the highest scores, with a sector average of 61 percent. On the other end of the spectrum, engineering and construction sectors recorded the weakest performance, with average scores of 28 and 39 percent respectively. The service sector also demonstrated need for improvement. Companies within the financial services sector, for example, performed poorly, posting an average of 41 percent, below the FTSE average of 47 percent.
“The FTSE 100 features some of the world’s most innovative and progressive companies in terms of addressing the challenges of climate change. However, the majority are doing their shareholders a disservice by not reporting its risks. More needs to be done and companies across the UK should be committing themselves to ever more robust sustainability strategies that can help to proof and protect their businesses,” said Mark Chadwick, CEO of Carbon Clear.
“But this isn’t about doomsaying, it’s about more businesses recognizing the value of well-considered, deftly implemented and responsibly managed sustainability strategies and the opportunities they can create. The best practice exemplified by Marks and Spencer and other companies ranked highly by our report, demonstrate how such programs can become cost-effective and even cost positive, affecting change not only throughout their businesses and across their supply chain but with their customers as well.”
Retail giant Marks and Spencer (M&S) received top marks in this year’s report, receiving the highest overall score (90 percent) across all three indices. The company was also one of FTSE 100’s best-performing company in 2015. M&S was recognized for the success of its Plan A sustainability program, which has saved the business £750 million in costs through efficiencies across its business and supply chain, including increasing renewable energy usage and a reducing package. Stakeholder consultations and engagement and the company’s efforts to drive innovation also contributed to its performance on the index.
“We've made great progress over the last ten years against our commitments to make our products, stores and supply chains better for people, planet and communities. We’re proud of what we have achieved and delighted to be recognized in Carbon Clear’s report, however, we agree that there is much more to be done and that businesses need to collaborate more in order to drive industry-wide change,” said Mike Barry, Director of Sustainable Business at Marks and Spencer. “In June, we launched Plan A 2025 setting out new, ambitious targets as we work towards transforming M&S into a truly sustainable business over the next decade.”
BT Group, which has lead the FTSE 100 for the last three years, came in second with a score of 88 percent, while Kingfisher and Unilever tied for third place with 82 percent. Other standouts include the London Stock Exchange Group, which achieved top honors in the financial services sector with a score of 66 percent. Earlier this year the organization issued guidance setting out recommendations for good practice in ESG reporting for companies listed on the stock exchange, helping companies gain a clear understanding of what ESG information investors would like to see provided by companies. LandSec was named the best performing property development and investment company, coming fifth in the overall FTSE 100 rankings, with a score of 76 percent. Hammerson and Barratt Developments also feature in the Top 20.
In the property development and investment sectors, 80 percent of companies provided a climate risk assessment in their 2017 annual reports, up from 33 percent in 2016. However, only 60 percent of companies have adapted business strategies to account for the impact of climate change, down from 66 percent last year.
Companies in the retail sector, particularly supermarkets, improved overall in key areas of reporting, such as value chain resilience and adaption to climate change risks, and many reported both medium and long term carbon reduction targets in 2017.
While the financial services sector represents a significant portion of the FTSE 100, they consistently score below average in sustainability reporting with 45 percent. And although 70 percent of companies in the sector set carbon reduction targets, none have a Science Based Target, though three have committed to setting a target based on climate science in the future.
According to the report, companies listed on the FTSE 100 are lagging their French and Spanish counterparts in terms of recognizing and aligning themselves to global initiatives seeking to provide guidance on sustainable business practices. While 42 percent of FTSE 100 companies now adhere to the Global Reporting Initiative (GRI) guidelines, IBEX 35 and CAC 40 companies performed significantly better, with 94 and 80 percent signed up to the GRI respectively.
IBEX 35 and CAC 40 companies also performed better in terms of alignment with the UN Sustainable Development Goals. Only 48 percent of FTSE 100 companies are aligned with the SDGs compared to 74 percent of IBEX 35 companies and 67 percent of CAC 40 companies.
Carbon Clear’s annual research report aims to acknowledge and highlight businesses that are taking real action towards meeting ambitious sustainability plans and environmental targets, while sharing best practice when it comes to managing the risks and maximizing the opportunities of climate change.
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Published Oct 2, 2017 12pm EDT / 9am PDT / 5pm BST / 6pm CEST