Sustainable companies score bigger returns on investment

Ilario D'Amato
29 September 2014

LONDON: Corporations who include effective plans to manage climate change impacts have a 18% higher return on equity than companies that do not. This figure is 67% higher than companies who refuse to disclose their emissions, according to evidence contained in the ninth annual S&P 500 report by CDP.  

Not-for-profit organization CDP, which represents 767 investors with US$92 trillion in assets, has scored companies by evaluating the amount, transparency and quality of information they disclose about how they're managing climate risk. The data shows a strong correlation between disclosure score and financial performance.

These findings represent further proof that tackling climate disruption benefits not only the environment, but also business, a fact which is finally resonating worldwide.

Opening Climate Week NYC last week, John Kerry, US Secretary of State stated, “It doesn’t cost more to deal with climate change, it costs more to ignore it”. At the summit, climate change was also proclaimed as “the biggest market failure in history and must be tackled to spur growth”.

Earlier this month, the critical report Better Growth, Better Climate: The New Climate Economy by the Global Commission on the Economy and Climate was launched by former President of Mexico Felipe Calderón, Chair of the Global Commission on the Economy and Climate, who said: “To choose between fighting climate change and growing the world’s economy is a false dilemma."

CDP's research expands on this evidence that reducing emissions doesn't have to impact the bottom line. The new report's graph below shows those S&P 500 companies who disclose emissions and include sustainability in their business plans rank highest in terms of performance. 

Companies which scored the highest grades in the report include technology giants Google, HP and Apple. Speaking at the Climate Week NYC 2014 Opening Day, Apple CEO Tim Cook said his business is increasing low carbon activities, mentioning Apple is the largest private solar owner in the US and its new HQ will be the greenest building in the world.

But not only does including climate action in strategies help companies ourperform their peers who do not disclose such data, it is virtually free: “At a minimum,” suggests the report, “there is no penalty to corporate profitability for establishing climate change reporting, governance and management systems and taking action on climate change”.

These figures also show managing climate risk leads to greater stability, with leading companies achieving 50% lower volatility of earnings over the past decade and 21% stronger dividends than low scoring peers.

CDP hopes the market will act on the investment opportunities of low carbon activities that are proven by these leading companies. “There is only upside for corporations acting in a prudent way to address the challenges of climate change,” concludes Paul Simpson, CDP CEO, “for which disclosure through CDP lays the foundation”.


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