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Carbon Disclosure Demands on the Rise: Is Your Organization Ready?

george-ahn2Home Depot battled negative headlines in May when shareholders voted down a resolution to enforce more rigid and transparent energy efficiency measures. The resolution proposed that the organization assess company-wide energy use from its buildings, transportation and supply chain. It also urged Home Depot to set energy use reduction targets and report findings and progress to shareholders.

While the measure did not pass, it received support from the $20 billion Connecticut Retirement Plans and Trust, the advisory firm RiskMetrics Group (RMG), and other investors in the $7 trillion Investor Network on Climate Risk (INCR). Despite the outcome, the resolution foreshadows a future in which shareholders increasingly require reports on energy efficiency improvements and climate change risk. Organizations that fail to put the right systems in place today to meet these reporting requirements will suffer.

Findings from CERES, a coalition of investors, environmentalists and public interest groups, report that “the resolution filed with Home Depot is one of a record 67 global warming resolutions filed with 58 U.S. companies and two Canadian companies as part of the 2009 proxy season.” The findings confirm that companies must start to disclose risks from climate change now and provide stakeholder groups with a plan to mitigate those risks.

Further, despite the evidence that climate change disclosure will quickly transition from a proposal to an imperative, many companies have not started to track or abate their carbon emissions.

In fact, according to a 2009 report co-authored by CERES, over 76 percent of the S&P 500 fail to even mention climate change in SEC filings. This is surprising given that, according to a September 2008 McKinsey survey of 1,453 international executives, 50 percent said that environmental issues ranked among the top three areas that would most affect shareholder value in the next five years. While organizations appreciate investors’ concerns, they often lack the tools necessary to address them.

Further evidence that organizations will face more stringent demands from shareholders comes from INCR, an alliance of over 80 institutional investors and financial firms that collectively manage more than $7 trillion in assets. INCR has suggested that congress mandate climate change disclosure in SEC filings, and INCR Director and CERES President Mindy Lubber states, “climate change is a bottom line issue and investors have a right to know which companies are best positioned for the emerging clean energy global economy.”

To meet shareholder climate risk reporting requirements, organizations need technology that not only measures their current carbon footprint, but also manages abatement opportunities, facilitates emissions reduction initiatives and tracks progress and ROI. To gain a sense of where and how to start reporting, consider real estate. Buildings represent 48 percent of energy consumption and present the most significant opportunities to reduce environmental impact, improve operating costs, and demonstrate carbon reduction accountability.

With a technology framework that can identify underperforming building locations, provide a set of analysis tools to evaluate different carbon reduction options, and manage those options through to completion, organizations can address even the most exacting shareholder resolutions.

Investors will use a number of tools to determine how well companies address risks from climate change, including the Global Framework for Climate Change Disclosure, the Carbon Disclosure Project, CERES, and SEC Filings. Companies should seek out technology solutions that provide flexible reporting platforms to facilitate carbon reporting to multiple agencies. All else being equal, companies that adequately disclose and address risks from climate change will be rewarded with higher valuations and a lower cost of capital.

As your organization evaluates shareholder demands, ask yourself this: do you have the right tools to disclose your impact on the environment, or will you, like Home Depot, face climate nondisclosure backlash and risk losing shareholder support?

George Ahn is President and Chief Executive Officer of TRIRIGA. He has more than 18 years of software industry leadership.

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