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US-Based Corporations View Climate Change As Risk To Bottom Line & Reputation

The latest disclosure data provided to CDP has revealed that some of the largest US-based corporations view climate change as an increasing risk to their bottom line as well as their reputation among consumers and investors, highlighting the growing business readiness for the low-carbon transition.

The latest disclosure data provided to CDP has revealed that some of the largest US-based corporations view climate change as an increasing risk to their bottom line as well as their reputation among consumers and investors, highlighting the growing business readiness for the low-carbon transition.

Environmental non-profit and investment research provider CDP, formerly the Carbon Disclosure Project, runs the global disclosure system that enables companies, cities, states, and regions to measure and manage their environmental impact and is based on the most comprehensive collection of self-reported environmental data in the world. CDP’s latest report, published this week, examines how corporations and cities across seven key states in the United States are reacting to climate change. Specifically, the report encompasses the findings from over 2,000 responses from US companies and cities filed between 2014 (the date of the last State by State analysis) and 2017 from US-based companies in Texas, Florida, Arizona, Colorado, California, Ohio, and Illinois.

The latest State by State analysis finds that US-based corporations view climate change as an increasing risk to their bottom line and their reputation among consumers and investors. However, what was even more apparent from this round of disclosures was the lack of coherent policy across the whole country and the inherent risk such a situation is creating for companies.

“A climate of policy uncertainty in the US is a distraction for companies and cities that see the problem of climate change and want to be focused on handling these costly and material risks,” said Sara Law, Vice President of Global Initiatives, CDP. “The good news is CDP’s data shows that these real economy participants have remained committed to action, bracing for impact despite distractions.”

The report showed that environmental regulations remain a widely reported risk by companies, with some companies, like Deere and Co., making clear statements affirming that climate change is an important global business issue which affects its business interests and that of its customers. Conversely, other companies, like American Electric Power, highlighted the uncertain regulatory landscape as a greater concern than the impact of the climate policy itself — which could suggest that companies which have taken steps to get ahead of actual or expected regulations see little to no benefit in abrupt shifts in policy direction.

Additionally, disclosures continued to report potential risks to their operations from a rapidly changing climate, and some companies even went so far as to report specific disruptions. Companies also reported steps they are taking to manage these risks since, as the report explains, “their investors and customers expected them to.” Unfortunately, though not completely surprisingly, not all companies are acting in this way to neutralize risk, and not enough companies are fully “future proofing” their businesses to adapt to a low-carbon economy.

Nevertheless, the disclosure data did reveal a few instances of comprehensive action which could begin to serve as a long-term best practice strategy for other companies. For example, 88% of the real estate sector which disclosed their data to CDP cited operational risks related to hurricanes, flooding, storm surges, and sea level rise as potential strains on their business which could lead to higher costs. Similarly, insurance companies are already having to manage the impact of extreme weather events through strategies such as adjusting product pricing and discontinuing coverage in certain areas prone to coverage. The 2017 Atlantic hurricane season ranked as one of the costliest disaster years for the insurance industry, with a record $215 billion in overall losses, of which approximately $120 billion was expected to be uninsured.

Another key example of comprehensive action was that taken by United Airlines which, by measuring and monitoring its risk exposure, concluded it was facing real operational disruptions and set a goal to reduce its greenhouse gas emissions by 50% by 2050.

The report also looked at disclosures by cities for the first time, bolstered by the fact that disclosure by cities to CDP since 2014 has grown three-fold to 127 cities across 35 states. Several regional highlights from the report include:

  • Californian companies reported in 2017 more opportunities from environmental regulation than companies headquartered in any other state, with 81% of Californian companies disclosing inherent benefits to their business from climate-related regulation.
  • In 2017, over half of Californian companies pointed to corporate reputation and changing consumer behaviors as drivers of business opportunities, with 69% reporting either or both drivers in their responses to CDP. Alphabet, Google’s parent company, recognized reputational benefits in the form of potential brand equity gains amounting to at least $133 million from addressing climate change risks.
  • In 2017, companies in the Southwest operating within the Colorado River Basin have reported more than 70 serious water risks to their operations and more than 70% of these risks were linked to expectations of higher operating costs and plant disruption. One of the world’s largest defense contractors, Raytheon, reported that 11% to 20% of its global revenue could be affected by water risk.
  • Ohio-based companies have consistently reported fuel and energy regulation as a top risk since 2015. American Electric Power, with over five million customers across 11 states, including Texas, West Virginia, Virginia, Louisiana, and Kentucky, is one example of a company grappling with uncertainty around the regulatory direction of the US.

Donald Trump in the Rose Garden announcing the United States’ withdrawal from the Paris Agreement in 2017

“President Trump’s unilateral withdrawal from the Paris Agreement had many long-term investors fearful that the US economy was set to miss out on the opportunities of the low-carbon transition,” said Susan Clandillon, Communications Manager for Cities, States and Regions at CDP, who spoke to me via email. “However, two years later the evidence indicates that the exact opposite has happened. US companies, cities, and states have become catalysts for emissions reduction and are setting an example for the world to follow.”

Specifically, according to Clandillon,

“In the United States, where President Trump has announced his intent to withdraw from the Paris Agreement, the full implementation of the reported and quantified individual city, states, and company commitments could provide at least half (between 670 and 810 metric tons of CO2e/year in 2030) of the emissions reductions needed to meet their Nationally Determined Contribution (NDC).

“From a CDP perspective, the role of non-state and sub-national actors is to ratchet up national action on climate change by indicating to national governments that they are not alone in the fight to against climate change and that they can commit to ambitious targets to achieve a zero-carbon, water and forest secure world.”

The CDP report, focusing as it does on the United States, highlights the importance of non-state actors and sub-national governments in filling a void created by national governments — something we are seeing in several countries around the world.

“Subnational actors often move in to fill a vacuum, either where there has been political backtracking on climate policy, as was regrettably the case when President Trump withdrew from the Paris Agreement, or when they want to create demand for sustainable services not yet available to them,” said Clandillon. “Subnational action at state and regional level is on the increase, with the number of states and regions disclosing their climate data growing from 44 governments in 2015 to 120 states and regions today across 32 countries – representing 21% of the global economy.”

“Globally states and regions are making impressive progress to reduce their carbon intensity. In our 2018 Global States and Regions Annual Disclosure report, we found that leading states and regions have committed to decarbonize at a rate of 6.2% a year. This is 3.2% faster than G20 national governments and just 0.2% away from the decarbonization rate needed to align with a 2°C pathway.

“In the case of the US, states are decarbonizing at a rate of 4.5% to 2030 compared with the NDC rate of 3.7%.”

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