From Apple to Wal-Mart, Companies Make Bets on Climate Change

Louisiana Wetlands
A coastal restoration project in the marsh coast of Louisiana, near the Gulf of Mexico on Sept. 8, 2014. A New Orleans levee board sued 97 oil and gas companies last year, arguing decades of drilling and dredging helped destroy coastal marshes that once shielded the area from flooding. Photographer: Derick E. Hingle/Bloomberg

If acting on climate change hurts the economy, as the American Coal Council's talking points suggest, it’s a lesson lost on some of the world’s most successful companies.

Stocks of companies that take climate change seriously beat the wider market by almost 10 percent over the last five years, according to a report released this week by a U.K. nonprofit. The group, CDP, encourages companies to disclose their climate change work publicly, on behalf of hundreds of institutional investors.

CDP's Carbon Performance Leadership Index (CPLI) is composed of companies that lead their peers in managing and reporting the carbon pollution from their own operations and supply chains. That’s not necessarily the same as the least-polluting companies; it’s the companies most aggressively wrangling carbon. In the five years since the CPLI first launched, the index beat both the Bloomberg World Index, which tracks the largest companies across sectors by market value, and the Dow Jones Sustainability World Index (DJSWI):

Source: data in US$ from 1/10/2010 to 22/9/2014, source ECPI based on data by Thomson Reuters Datastream and Bloomberg.
Source: data in US$ from 1/10/2010 to 22/9/2014, source ECPI based on data by Thomson Reuters Datastream and Bloomberg.

CDP grades companies based on how aggressively they are setting and meeting carbon goals, and on how forthcoming they are about this work. CDP started with a pool of about 2,000 companies that shared information about their climate-related work earlier this year. The 187 companies that received an "A" from group this year made the index. They include some of the world’s leading brands — Apple, Bank of America Merrill Lynch, BMW, CVS Health, Google, Northrop Grumman, Samsung, Unilever.

At least part of the strong performance of the CDP carbon index can be attributed to its heavy concentration of tech and financial stocks, sectors that grew faster than average in the last five years. Businesses in those industries have embraced pollution cuts much faster than their counterparts in industries where burning fossil fuels is more central to the core business. The energy sector, for example, "has very few companies" -- five -- "that are able to meet the leadership criteria" laid out by CDP this year, according to the report.

"Energy companies struggle to really put themselves on a path of a low-carbon transition," says Paul Simpson, CDP's chief executive. "Their core business is very carbon-intensive."

The results challenge the still-pervasive assumption that climate-friendly business is automatically bad business. "The A List" study complements a library of research into the benefits to businesses and investors of considering environmental and other sustainability criteria when setting strategy. There's some evidence of a “halo effect” associated with do-gooder companies on low-carbon diets. More likely, the CDP results are a case of already-successful companies taking on climate change, not climate change activities per se categorically pushing stocks higher somehow.

If nothing else, CDP’s new report is a reminder that rational executives atop leading companies are embracing the changes that are already underway in consumer sentiment, regulation and the climate itself.

More by Eric Roston (@eroston on Twitter):

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