Businesses' carbon "stretch goals" fail to go far enough

Even the most ambitious carbon emission reduction goals being set by industry are unlikely to avert "catastrophic" temperature increases of more than four degrees centigrade, according to a major new study assessing the potential commercial risks and opportunities associated with climate change.

The report from the Carbon Trust and management consultancy McKinsey & Co claims that even the " stretch goals" set by many firms attempting to cut carbon emissions are insufficient to avert potentially dangerous levels of climate change.

"Most of the targets out there put us on track for [atmospheric concentrations of carbon dioxide] of 700ppm, which equates to a [temperature] rise of about four degrees," said Bruce Duguid, head of investor engagement at the Carbon Trust. "These targets are much better than the business as usual scenarios that would result in concentrations of 1,000ppm, but they are still nowhere near enough."

The report argues that delivering the deep emission cuts that are required to avoid dangerous levels of climate change will result in numerous commercial risks and opportunities, many of which investors are failing to take account of.

The study mapped out four different scenarios for the low carbon economy designed to deliver a rise in temperatures of less than three degrees above industrial levels and based respectively on carbon markets, greater regulation, technology breakthroughs and changing consumer demand.

It then assessed how each of these scenarios would affect cashflow for firms in a range of different industry sectors over the next 20 years and analysed the likely performance of those firms that embraced climate change best practices and those that continued along a business as usual trajectory.

It found that those companies that developed comprehensive climate change strategies could see their value increase by up to 80 per cent, while those that failed to respond could see as much as 65 per cent of their value wiped out.

The study also showed a wide range of variation across different sectors with the best performing car firms likely to see their value increase by 60 per cent, while the best performing oil and gas refineries are only likely to see their value increase by seven per cent.

"Many sectors were as expected, for example, oil and gas is facing far more risks than opportunities," observed Duguid. "But there were also some surprises. Consumer electronics for example, you'd expect to see a lot of risk as regulators clamp down on energy profligate products, but in fact, the sectors ability to adapt means it is well positioned to take advantage of new areas such as smart grids and teleconferencing."

He added that with up to a trillion dollars of company value likely to change as a direct result of climate change, there was an urgent need for investors to take the issue more seriously when assessing risks and opportunities.

"Too many investors are still just paying lip service and we need to see climate change performance become a key driver for their company valuations," he said. "They can't just look at a company's carbon emissions strategy, they need to look at how they are strategically developing products to take advantage of the low carbon economy."