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February 05, 2009

Report on Climate Risks Targets Largest Consumer and Technology Companies
    by Robert Kropp

Fourth report from Ceres and RiskMetrics finds some progress in addressing the business challenges of climate change, but too many companies still ignoring the issue. -- The first comprehensive analysis of efforts by 63 of the world's largest consumer and information technology companies to mitigate the effects of climate change has been commissioned by Ceres, a national network of investors, environmental organizations and other public interest groups, and written by RiskMetrics Group, a leader in risk management, corporate governance and financial research and analysis.

SRI Mutual Funds GuideLeading institutional investors associated with the Investor Network on Climate Risk (INCR) requested the report in order to determine which consumer and technology companies have the best management systems in place to address climate risks before they become liabilities.

The report, entitled Corporate Governance and Climate Change: Consumer and Technology Companies, is the fourth in a series dating back to 2003 that addresses the issue in various business sectors. Previous reports have analyzed the strategic approaches of emissions-intensive sectors and 40 of the world's largest banks to the challenges and opportunities posed by climate change.

On February 4, a webcast highlighting the major points of the report featured Doug Cogan, Director of Climate Change Research for RiskMetrics, and Anne Kelly, Director of Corporate Governance Programs for Ceres. The webcast is scheduled to be posted on RiskMetric's website on February 5.

"The survey is meant to cover the largest publicly-traded companies in eleven industry sectors," said Cogan of RiskMetrics. "From beverages to big-box retailers, and from computer makers to real estate developers, these sectors are huge consumers of energy and water, which makes them vulnerable to regulations that add carbon to the price of energy."

The diverse group of industries represented in the report share important characteristics. As the report points out, "With manufacturing sites and vast real estate portfolios around the world, these companies are major energy consumers." The companies in all the sectors analyzed in the report are compelled to address the carbon footprint located in their supply chains. Furthermore, "Emerging demand for product alternatives is transforming the marketplace and enhancing the role of companies with compelling "green" credentials."

"For example," said Cogan, "A company the size of Wal-mart is so large that its operations emit the same amount of greenhouse gases as a power company serving an entire state or one of our metropolitan areas."

Of the eleven industry sectors analyzed in the report, the technology, pharmaceutical and semiconductor sectors had the best average climate governance scores. The beverages and personal & household goods sectors were relatively strong performers as well. The apparel sector, grocery & drug retailers and big box retailers had lower average scores, despite opportunities to maximize energy efficiency, market climate-friendly products and engage suppliers on climate change standards. The travel & leisure, real estate and restaurant sectors had the lowest average scores.

"Climate change is a threshold matter in terms of governance framework," said Kelly of Ceres. "Unfortunately, only eight of the 63 companies have board-level oversight of climate change. And we have yet to see a company that has linked executive compensation to climate change performance. Companies with leadership from the top down are doing well in terms of climate governance, and financially as well."

In 2007, the INCR petitioned the US Securities and Exchange Commission to require publicly held companies to assess and fully disclose material financial risks and opportunities from climate change.

"We need more robust disclosure across the board," said Kelly. Only 16 of the companies surveyed in the report mentioned climate change in recent annual securities filings.

Emission reduction targets are a key factor in the activity of corporations in support of climate change. The report found that half the companies surveyed had established such targets, and one-third had set absolute emissions targets as opposed to targets that utilized relative data based on metrics such as number of employees or market capitalization.

"Energy efficiency is becoming the low-hanging fruit of the climate change agenda," said Kelly. By employing an aggressive energy efficiency strategy, IBM was able to save $19.3 million in 2007 alone, saving 77,000 metric tons of CO2 and conserving 3.8% of total energy consumption.

Another area into which companies have extended climate mitigation efforts has been product design and promotion. The report found that 30% of the companies reviewed, including at least one company in every sector, have identified climate change-related commercial opportunities for their products or services.

A critically important area addressed in the report is the carbon footprints in corporate supply chains, where for many large companies the largest percentage of their greenhouse gas emissions is found. While only three companies included in the report measure supply chain emissions as part of their emissions inventories, ten others are beginning to do so and many more are taking some action to minimize their supply chain emissions.

Kelly ended her webcast presentation by saying, "Many sources have said that water will be the first major climate crisis." The report references a 2007 finding by the Pacific Institute, which points out that with few exceptions, even beverage companies, where water risk is clearly a material factor, have limited disclosure on water. The Ceres report mentions Molson, Coca-Cola and Anheuser Busch as beverage companies with well-defined plans for water usage.

While the report did find that several companies do have water conservation programs, few have set reduction targets for water consumption or wastewater generation.

Among the recommendations included in the report are elevation of climate-change to a board-level governance issue, linkage of executive compensation to the establishment of emissions reduction and other climate mitigation measures, and increased attention to supply chain management of greenhouse gas emissions.

Using a 100-point scale, the three highest scoring companies were IBM, with 79 points; Tesco, a UK-based grocery retailer, with 78 points; and Dell, with 77 points. More than half of the 63 companies scored under 50 points, with a median score of 38 points.

The lowest scoring companies were Burger King, with 6 points; Tim Horton, a donut maker, with 4 points; and Abercrombie & Fitch, the apparel company, which scored a zero.

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