Cash for climate

Betting on Mother Nature

Glacier in Austria. Source: action press
Investing in Austrian glaciers perhaps?
  • Why it matters

    Why it matters

    Profitability and a clever business plan may not be all investors are looking for in the future.

  • Facts

    Facts

    • Climate change starts playing an economic role as well.
    • 5000 companies worldwide said they will integrate climate change risks into their business plans, according to a survey conducted by The Carbon Disclosure Project.
    • Investors are wary that unpredictable weather changes such as flooding could cause production losses.
  • Audio

    Audio

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It’s not just governments that need to tackle climate change these days. Companies need to have a plan, too.

Growing awareness of climate change among institutional investors has altered the way many German companies think about their own carbon footprint.

Companies that don’t address climate change risk losing funding. Investors are increasingly worried that the risks from increasing natural disasters, as well as the regulatory costs associated with a heavy carbon footprint, could hurt a company’s bottom line.

“The world lives beyond its means. We have to change the way we do business, and we have to do it fast.”

Michael Otto, Supervisory chairman of the mail-and-order company Otto Group.

“The  number of investors who want to know how companies deal with climate change risks is steadily growing,” said Susan Dreyer, who leads the Germany operations of The Carbon Disclosure Project, or CDP, a British nonprofit organization that helps companies and investors cooperate in the battle against climate change.

Nearly all companies say they now integrate climate change risks into their business plans, according to a survey of 5,000 businesses, which was conducted by CDP on behalf of 767 institutional investors with assets of €92 billion, or $114 billion. More than half of the companies even named specific targets they set for themselves to achieve in a certain period of time.

“The world lives beyond its means,” said Michael Otto, the supervisory chairman of the mail-and-order company Otto Group, based in Hamburg. “We have to change the way we do business, and we have to do it fast.”

More and more companies in Germany such as Otto Group have realized that they need to make their value chain more environmentally-friendly to accommodate both investors and governments.

 

Lower Emissions in Germany

 

More government regulations could be on the way. Diplomats from 196 countries are working on a draft climate agreement at the global climate summit in Lima, Peru, that could require every nation to further reduce its carbon emissions. An agreement is expected on Friday.

Many investors argue that climate change issues increasingly affect not only the environment. Companies are also potential victims to unpredictable weather changes, such as flooding that could cause production losses.

“There are hardly any investors left that are not looking for companies to focus on sustainability and what they plan on doing about this in the future,” Ms. Dreyer said.

Sabine Nallinger of the Berlin-based Stiftung 2 Grad, a foundation run by a group of company boards and family businesses advises the government on how to reduce Germany’s carbon footprint. “Investors are asking more and more for transparency regarding production goods, supply chains and resources,” Ms. Nallinger said.

Companies that keep ignoring their carbon footprint and refuse to change their business plans and supply chains in a more environmentally-friendly fashion may be punished by investors.

“We see it as our fiduciary commitment to discuss controversial topics with companies,” and reducing the carbon footprint is one of these topics, according to Michael Schmidt, a board member at Union Investment, one of Germany’s largest asset managers for private and institutional investors and part of DZ Bank Group, based in Frankfurt.

 

Source: Ute Grabowsky/photothek.net
Michael Otto of Otto Group says companies have to change their ways. Source: Ute Grabowsky/photothek.net

 

Investors are taking a realistic approach. Most are aware of the fact that the majority of businesses can’t shift their supply chain from fossil fuels to clean energy sources from one day to the next, Ms. Nallinger said.

The asset manager Meag, a subsidiary of Munich-based reinsurer Munich Re, also signaled caution when it comes to investments that may lead to higher risks and regulatory costs in the long run.

“Carbon footprint is one of these things that can have a negative effect on operations, because it is subject to regulation and tariff measures,” a spokesperson at Meag said.

 

Silke Kersting has been reporting from the Berlin since 2004. Her coverage areas include consumer protection, construction and environmental policy. To contact the author: kersting@handelsblatt.com

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