DESPITE challenging economic conditions and regulatory uncertainty, global executives believe that climate change will significantly impact business performance and strategy over the next few years.
According to Ernst & Young's new Global Climate Change and Sustainability Services survey called 'Action amid uncertainty – the business response to climate change,' 70% of corporate executives plan to increase spending on climate change initiatives between 2010 and 2012.
Three hundred global corporate executives from 16 countries and across 18 industry sectors, with at least US$1b in annual revenue, participated in the survey. It revealed that in order to deliver both cost savings and revenue generation opportunities relating to climate change, businesses will have to invest significantly. As such, nearly half the respondents plan to spend between 0.5% to more than 5% of their revenue on climate change initiatives. For a US$1b company, this represents anticipated spend of US$5m to US$50m annually.
In Copenhagen in December 2009, the world watched as nations gathered to discuss responses to climate change. Whilst this was a step too far for COP15, even with the lack of a legally binding agreement on climate change being reached, the results of this latest Ernst & Young survey clearly demonstrate that climate change investment remains a priority due to the wealth of opportunities to make money, save money and respond to stakeholders’ expectations by integrating their climate change response into business plans and sustainability strategies.
Ernst & Young partner, Chris Matthews said, ‘The survey explores how organisations are responding to the complexities associated with climate change risks and opportunities within their businesses.’
‘The results of the survey suggest that over the next few years we are going to see businesses make massive investment in climate change initiatives and indicates consumers are a key factor in driving this investment trend. Whether this is being led by firms’ recognising business opportunities or their own ethical conscience is still questionable but this is certainly going to be an area for expansion.’
The survey found that corporate climate change activities are being driven by evolving customer demands. Some sectors, including automotive, consumer products, and technology, unanimously agree that changing customer preferences have created significant drivers for action and innovation. Energy efficiency is at the top of the list as 82% of respondents plan to invest in this space over the next 12 months. Meanwhile, 94% of respondents see national policies as important or very important in shaping their climate change strategies.
Mr Matthews said, ‘We are already seeing an increasing trend for ethical investing, particularly within the ‘cleantech’ market, whereby investors do not just want to invest, but are looking for an environmental return.’
While the idea is not a new one, the firm believes that the Channel Islands has an opportunity to make a significant entrance into the market over the next few years.
‘Globally there is a very large investment market in clean technology and an opportunity to be the jurisdiction of choice. The Channel Islands certainly have the skills and capability within this arena but more needs to be done in promoting the islands as domiciles and to take a lead’, said Mr Matthews.
Respondents recognised that whilst keeping abreast of national climate change legislation and business incentives across jurisdictions will be challenging, it will be necessary for many businesses, in order to prioritise investments, to capture opportunities and mitigate risks in response to the growing number of climate change policies, in developing and developed countries.
Whilst politicians and climate change experts continue to debate the constitutional way forward in this regard, business leaders are continuing to focus their time, and importantly their money embracing the opportunities that addressing climate change has for their business. As the level of global investment from the private sector increases alongside funds earmarked from global stimulus packages and ongoing government spending, the momentum of the sector is set to gain pace.
Other key findings from the survey include:
• In the developing economies of China and India, executives rank product development as the top challenge to achieving their goals, 97% and 72% respectively. Respondents in Australia, Canada, US, Japan, Germany and France indicate that regulatory and compliance issues present primary challenges in the next two years.
• Approximately 66% of respondents are discussing climate change programs with their suppliers and 36% of respondents are already working directly with these stakeholders to decrease the carbon in their supply chains.
• Transparent reporting is gaining momentum, as 64% of respondents report greenhouse gas data in an annual corporate social responsibility or sustainability report. Of the organizations that say they report, 62% verify their data through an independent, third-party.
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