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. Innovest expects taht 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.
However, the report found that despite the correlation between environmental and financial performance, there was still huge variation in businesses responses to climate change, both between and within industry sectors. 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 than 25% of the information a sophisticated investor requires.”
There are now more than $40 trillion of institutional investor assets concerned about climate change so the demand for more sophisticated data is there and, with it, an opportunity for independent research houses to deliver it.