Companies with sophisticated and comprehensive climate change strategies have financially outperformed their competitors over the last three years, according to a major new report from investment research firm Innovest.
The Carbon Beta and Equity Performance study of 1,500 companies found that there is a "strong, positive, and growing correlation between industrial companies' sustainability in general, and climate change in particular, and their competitiveness and financial performance".
It also concluded that the investment premium attained by those companies with the best climate change strategies was growing as regulatory regimes tighten.
"In the longer term, the out-performance potential will become even greater as the capital markets become more fully sensitised to the financial and competitive consequences of environmental and climate change considerations," the report predicted.
The findings are likely to be welcomed by green business leaders as vindication of those firms that have invested in greener business models on the assumption such initiatives will help bolster their competitiveness and attractiveness to investors.
However, the report found that despite the correlation between environmental and financial performance, there was still huge variation - both between and within different industry sectors - in businesses responses to climate change. It also argued that current corporate reporting of environmental initiatives remained largely inadequate and as a result investors were finding it difficult to identify those companies with the lowest "climate risk".
"Disclosure information is notoriously unreliable, inconsistently reported across companies and over time, and generally not validated by independent third parties," the report argued. "Emissions data alone provides less then 25 per cent of the information a sophisticated investor requires."
Matthew Kiernan, founder and chief executive of Innovest, said that with more than $40 trillion of institutional investor assets now concerned about climate change, it was time for investors to demand more sophisticated tools for assessing the environmental performance of companies.
"It is increasingly critical that performance-driven investors move beyond simply pressing for greater company disclosure," he said. "We are now seeing them begin to demand the sorts of investment tools, research and products they need to turn mere information into superior investment decisions and performance."
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