The secret is that major corporations, even in the United States, are voluntarily signing up and reporting their carbon.

Organizations like the Carbon Disclosure Project and the Global Reporting Initiative are tracking corporate emissions at the request of companies. CRD Analytics, which has a leading index of the Sustainability 100, noted that these companies outperformed the majority of financial index benchmarks like the S&P 500, the Dow Jones and the NASDAQ composite.

Growing Board Responsibility

According to a poll taken by the Global Reporting Institute, 46% of the Fortune 500 have a board member responsible for climate change. Graham Noyes, Of Counsel in the Energy and Telecommunications practice group at Stoel Rives LLP in Seattle, noted that carbon is becoming increasingly critical to successful companies. When asked about a recent SEC clarification of rules for reporting on climate risk, he said,

“It’s a sign of the times. Carbon matters to shareholders. Five years ago the SEC announcement wouldn’t have happened, but the center point has moved over time.”

Climate Risk-It’s a technical term

What is climate risk? According to the SEC bulletin, risks can be broken into four groups:

* Impact of Legislation and Regulation on company

* Impact of International Accords like Cap & Trade

* Indirect Impact of Regulation Business Trends resulting from legal, technological, political or scientific developments that may create new risks or opportunities for companies relative to their competitors

* Physical Impacts of Climate Change or the actual or potential material impacts of environmental matters and how it affects the company’s ability to do business.

Of these factors, a Global Reporting Initiative poll showed that companies see more regulatory opportunities and physical risk. Although SEC Chairman Mary Schapiro declined to be drawn into the climate change debate, the poll suggests that changes in climate worry companies.

In terms of coping strategies, the same poll showed that most industries are actively looking to reduction. Japan, which may fear restaints on industry, favored emissions trading. With the exception of companies reporting from Russia, most were also engaging with policy makers, especially in Europe, Australia and the US. Since many large, industrialized companies feel themselves ahead of the carbon game, they may well be looking to keep their competitive edge by supporting standards that favor their approach to carbon mitigation.

Strategies of the Most Exposed

While all this maybe true of industry, what of the most exposed, utilities and petroleum companies like American Electric Power (AEP) and Public Service Enterpise Group (PSEG)? Both of these large utilities have seen it coming and have been developing strategies for some time.In 2004, an independent subcommittee of AEP’s board of directors reported to shareholders about the impact of proposed federal legislation and regulations for reducing regulated emissions and carbon dioxide. The report reviewed the actions available to control those emissions, provided economic analysis of the various control scenarios, and recommended actions for going forward.

PSEG’s Ronald Drewnowski, the Director of Environmental Strategy and Policy, noted that transparency is critical, and has been an advocate of reporting standards—especially a national one that will level the playing field for utilities inside and outside of current state and regional regulations, such as RGGI (Regional Green House Gas Initiative). PSEG has also invested over a billion dollars in energy efficiency and renewable energy, including nuclear the possibilities of nuclear.

Lessons learned

As it stands now, regulation is a patch work of regional, state and agency rules and regulations. Since the Supreme Court recently mandated the EPA to regulate emissions from transportation, some federal oversight is coming. While large companies admittedly have the resources to be first leaders, they are smart to be taking steps now that put in place the tools that will keep them competitive in the future. Learning before the fiscal carrots and sticks are in place can lead to a much smoother transition.

For those who are climate change skeptics, it’s not about climate. It’s about business and staying competitive. As SEC Chairman Mary Schapiro remarked:

“We are not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics. Today’s guidance will help to ensure that our disclosure rules are consistently applied.”

Reprinted with permission from The Green Economy