Despite challenging economic conditions and regulatory uncertainty, global executives believe that the climate change agenda will significantly impact business performance and strategy over the next few years, according to a new survey by Ernst and Young: Action amid uncertainty: the business response to climate change. Three hundred global corporate executives from 16 countries with at least $1 billion in annual revenue participated in the survey conducted during spring 2010.
The survey found that corporate executives expect to make significant investments to deliver both cost savings and revenue generation opportunities relating to climate change. Seventy percent plan to increase spending on climate change initiatives between 2010 and 2012. Nearly half plan to spend between 0.5% to more than 5% of their revenue on climate change initiatives. For a $1 billion company, this represents an anticipated spend of $5 million to $50 million annually.
"Corporate leaders are not letting the lack of global standards and regulations slow their climate change investments," said Steve Starbuck, Americas Climate Change and Sustainability Services Leader at Ernst and Young LLP. "Other market drivers, such as equity analysts' growing interest in climate change performance, are prompting a further need to act and be more transparent."
Consumers and equity analysts are two of the factors driving this investment trend. Corporate climate change activities are being driven by evolving customer demands according to 89% of survey respondents. Some sectors, including automotive, consumer products, and technology, unanimously agree that changing customer preferences have created significant drivers for action and innovation. Meanwhile, equity analysts are increasingly linking the business response to climate change and company valuations. Over 40% of the senior executives surveyed believe that equity analysts currently include climate change-related factors in company valuations.
Energy efficiency is at the top of the list as 82% of respondents plan to invest in this space over the next 12 months. About half of the respondents confirm new ventures, such as spin-offs or start-up businesses, as an area for focus. Additionally, 65% of executives intend to focus investments on new products and services.
"Executives must collaborate across internal functions to optimize investment decisions, whether they lead to new revenue opportunities, through the Clean Development Mechanism, for example, or decrease costs through a company's operational activity, such as the supply chain," said Sudipta Das, India Climate Change and Sustainability Services Leader at Ernst and Young.
Ninety four percent of respondents see national policies as important or very important in shaping their climate change strategies, although 81% recognize the importance of global or international policies.
"Keeping abreast of national climate change legislation and business incentives across jurisdictions will prove challenging, but necessary for many businesses, even those that do not traditionally regard themselves as multi-national due to the connectivity of supply chains and markets," said Dr. Lorraine Stephenson, Ernst and Young Partner and Oceania Climate Change Leader. "Businesses will need to prioritize investments to capture opportunities and mitigate risks in response to the growing number of climate change policies, in developing and developed countries, since the December Copenhagen meeting."
"Prudent executives recognize 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," Starbuck concludes.