S&P warns carbon risks are set to bite

Growing numbers of firms believe exposure to rising carbon prices will have a significant impact on their business from 2012 onwards when the third phase of the EU emissions trading scheme (ETS) comes into effect, according to a new survey published by credit ratings agency Standard and Poor's.

The survey, which canvassed the views of 513 corporate issuers rated by Standard & Poor's on their current and anticipated carbon exposure, found that to date European companies' carbon emissions have had virtually no impact on their ability to raise finance and the cost of complying with carbon legislation has so far been minimal.

It also revealed that while only around 40 per cent of respondents fully integrate carbon exposure risk and carbon reporting into their funding decisions and financial statements, a similar percentage does not factor carbon emissions into any form of corporate financial calculations.

However, the poll also provided evidence that attitudes to carbon risks are shifting and exposure to rising carbon prices could soon inform firms' credit ratings.

Michael Wilkins, managing director and global head of carbon markets at Standard & Poor's, said that carbon exposure has so far created very little in the way of challenges for corporate Europe. "However, this situation may be about to change as new and more stringent climate change regulations come into force over the next two years," he said. "European companies are looking to leverage the most cost-effective solutions in the current economic downturn, and carbon management is starting to play a bigger part in this strategy."

He added that those firms that implement a carbon management strategy now may be able to "generate an opportunity for sustainable competitive advantage and potentially bolster their credit-worthiness".

"This may explain why the stewardship of companies' carbon management programs now rests with senior executives and board directors," he observed.

Wilkins analysis was supported by many of the respondents to the survey, the majority of whom said the cost of creating a carbon management strategy was trivial in comparison to its potential value in acquiring competitive advantage.