Thursday, June 18, 2009

Tracking climate change management in Asia

Investors recognize the challenges that climate change brings to the global economy. As a result, they are keeping their eye on Asian companies. As their economies continue to grow, so too do the responsibilities Asian companies have to manage carbon and protect the environment.

Experts in Responsible Investment Solutions (EIRIS), a global provider of independent research into the environmental, social, governance and ethical performance of companies, has produced a study of the 300 largest cap global companies. It has also released a regional update, focusing on Asian companies listed on the FTSE All World Developed Index, which compares Asian companies with their global peers and examines the implications for investors.

In terms of corporate governance of climate change, Asian companies lag behind the global average. 88% of companies with significant exposure to climate change have corporate-wide climate change commitments compared with 93% worldwide. Only 5% have long-term greenhouse gas (GHG) emission reduction targets (compared with 32% globally) and only 1% have linked GHG emission reduction strategies (or equivalent strategies) with board and/or senior management remuneration; the global number is 23%.

The EIRIS paper also notes that Japanese regulations and initiatives have had a positive impact on companies’ performance against global peers and other Asian countries. Overall, however, EIRIS suggests that Asian companies should improve their carbon management performance, including further disclosure and engagement with stakeholders.

The paper makes three main recommendations for investors:

1. Identify risk in your portfolio and integrate carbon risk factors in your company analysis. Understand the carbon profile or footprint of your portfolio. But be sure to look beyond emissions intensity and look at how the company is responding to the challenges of climate change.

2. Include best practice companies in your portfolio. Increasing the proportion of best practice companies in carbon-sensitive sectors is a more practical measure against climate change than divestment in these sectors, the EIRIS paper says. It’s also an incentive for companies to enhance carbon management and disclosure.

3. Engage with laggard companies. Engagement, among other initiatives, could redirect the climate change policies of Asian companies and would greatly contribute to the mitigation of climate change risk on a global level.

To read the full EIRIS report, visit Climate Change Tracker: Asia.

Jennifer Holloway is an environmental business journalist based in Ajax, Ontario.

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