CDP’s (formerly Carbon Disclosure Project) Europe report for 20181 provides an invaluable window into the state of climate-related risks and considerations among Europe’s largest companies, and signals that environmental issues have taken precedence within corporate boards.
This second annual study, published last week, polled 859 companies from 24 European countries during 2018. The region has some of the world’s most advanced climate regulations and is home to many of the world’s corporate environmental pioneers. The 2018 questionnaire asked companies to report on their action on climate change, forests and water security and was newly aligned with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD).
CDP found that 80% of companies have identified climate-related risks facing their businesses. Around half of respondents cited increased operating costs as a result of climate-related policy and legal changes as a potential problem, the most commonly cited risk. Over a quarter of respondents said these headwinds are already present or soon to be.
“This report evaluates in greater detail than ever before the perception of future opportunities and risks,” CDP wrote. “In analyzing these disclosures, it has been possible to take a deeper look into how companies are building sustainability into their longer-term strategy.”
Opportunities in change
Interestingly, a higher share (85%) of companies saw climate change as providing growth opportunities, the report found. The highest such response (71%) came from the possibility of offering new products or services. About 40% saw opportunities from improved resource efficiency, while just over a quarter said growth may come from harnessing clean energy sources.
One shortfall, however, is that few companies in 2018 were either willing or able to publicly quantify the financial value at stake from climate-related risks and opportunities.
Executive oversight
More than a third (35%) of businesses have Chief Executive Officer oversight on climate matters, CDP said. About 6% of them said they have a dedicated top-level executive focusing on sustainability, such as a Chief Sustainability Officer.
While environmental concerns have grown among Europe’s executives, it is still not fully clear to what extent they are being followed by action, CDP’s report said.
“One thing that is clear across all areas of disclosure is that sustainability is now a boardroom issue that requires governance at the most senior levels,” the report said. “However, there is still a question over whether these environmental challenges are being sufficiently factored into strategic decision-making, or acted upon swiftly enough.”
Carbon emissions and supply chain
Elsewhere, the report highlighted European corporates’ progress in reducing carbon emissions. Two-thirds of them periodically disclose their greenhouse gas emissions performance. However, only a small number said they fully follow best-practice recommendations in this field, CDP reported.
A total of 58% companies that reported in 2017 and 2018 showed a reduction in emissions. A tenth of participating companies said they were working towards zero emissions, becoming carbon neutral or net positive, the report said. At the same time, more than half of companies that see business risks from climate change have no emissions reduction target in place.
The report also sheds light on the level of management, reporting and executive oversight of climate-related risks by company, country and industry. It asked which companies see risks emanating from either their customer base or suppliers, and whether they have climate-related scenario planning in place. The questions covered current performance but also forward-looking business impact.
ESG futures
CDP is STOXX’s partner in low-carbon products. The data company ranks businesses worldwide according to their efforts to combat climate change, employing a score based on their past track record as well as future commitment towards a more sustainable world. CDP also provides STOXX with reported carbon emissions data.
Two of those joint products, the EURO STOXX 50® Low Carbon Index and the STOXX® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index on Feb. 18 became the underlying for futures contracts on Eurex. The listings enhance the possibilities for environmental, social and governance (ESG) portfolio strategies. Futures on a third ESG-compliant benchmark, the STOXX® Europe 600 ESG-X Index, also started trading in February.
CDP has 656 investor signatories and 67 members worldwide, which oversee $87 trillion in assets.
Featured indices
- EURO STOXX 50® Low Carbon Index
- STOXX® Europe Climate Impact Ex Global Compact Controversial Weapons & Tobacco Index
- STOXX® Europe 600 ESG-X Index
1 CDP, ‘Higher ambitions, higher expectations,’ Europe Report 2018.