Environmental Leader

The first step in mitigating risks associated with climate change is to calculate carbon emissions and their potential costs from direct operations and supply chains, according to a new report. The study finds that companies with more energy-efficient operations and supply chains will be better positioned during the shift to a low-carbon economy to attract investors and increase market share.

The report, Carbon Emissions — Measuring the Risks, conducted by NSF International, a public health and safety organization, and Trucost PLC, evaluates the impact of climate change legislation such as cap-and-trade programs on companies across a variety of industries and how those associated risks can be turned into competitive advantages.

The report can help companies implement sustainable business practices and verify their greenhouse gas (GHG) emissions data in preparation for the new regulations, said NSF, a global provider of environmental data and analysis.

The report examines the GHG emissions and carbon footprints of S&P 500 companies in several sectors including chemicals, food and beverage, healthcare, industrial goods and services, personal and household goods, automobiles and parts, and retail. With data on emissions from their operations and supply chains, companies can identify ways to reduce emissions, manage carbon risks, use resources more efficiently and cut costs, according to the report.

The report also shows which sectors emit the most direct and indirect operational GHG emissions and the ones most exposed to carbon costs under regulations to control emissions, which can be used to identify potential financial risk. As an example, emissions from carbon-intensive suppliers could lead to higher costs for goods and services as they try to pass on carbon costs.

The research also covers other significant environmental impacts such as natural resources for each sector, and calculates environmental costs based on the financial value of damages caused by each impact.

The study finds that over 80 percent of GHG emissions originate from supply chains, representing a serious financial exposure as costs are passed on to manufacturers, and that two-thirds of companies inadequately report their carbon emissions.

Other findings indicate that the cost of carbon may reach as high as 25 percent of earnings for some firms, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), and companies that compete with more carbon-efficient peers could lose market share.

The report is based on findings from Trucost’s study, Carbon Risks and Opportunities in the S&P 500, which assessed GHG emissions, carbon intensity and exposure to carbon costs of S&P companies using publicly disclosed information.