Climate Change Risks Company Reputation

The 2017 Eco Pulse study, an annual survey which takes the temperature of consumer spending and behaviour, shows that the percentage of people who said they had stopped buying a product based on the environmental reputation of a company has jumped up dramatically in the last 12 months – from 11% to 33%. “That’s pretty significant, especially when you consider this same question has been asked for nearly a decade and the percentage has always been around 12%, give or take a few percentage points,” says Jim Lyza, a research analyst with Shelton Group, the organisation behind the survey.

Fueled and aided by advances in technology and access to social media, an ever-growing community of consumers has woken up to the issue of global warming and its likely impacts.

It is no wonder that maintaining a licence to operate continues to dominate corporate priorities; increasingly environmentally aware and enlightened consumers, coupled with strong NGO campaigning and activism, has made it even harder for companies to claim ignorance over the greatest threat to civilisation in a generation.

Licence to operate

There are many examples where companies have lost their social license to operate. Communities in the Niger delta hit by oil spills continue to pursue legal action against Shell, despite the £55 million settlement awarded to 15,600 people in Bodo, Nigeria in 2015. Meanwhile, BP is still counting the cost of its restoration efforts in the wake of the 2010 Deepwater Horizon accident.

Volkswagen’s (VW) decision to cheat its way free of carbon regulation will no doubt haunt the business for decades to come. Right now, trust in VW is at an all time low and the $14.7 billion settlement figure designed to appease owners of the 475,000 cars affected in the US is not likely to go far enough in rebuilding VW’s reputation as a great manufacturer of cars.

Increasingly, business leaders recognise the need to be on the right side of history in the climate change narrative. Just as there is zero social acceptance among thrill-seeking SeaWorld customers for killer whale circus acts, interacting with organisations responsible for pumping environmentally destructive gases into the atmosphere is increasingly intolerable.

Data is king

Accurately and transparently reporting ESG data alongside financial metrics encourages organisations to ask tougher questions about where carbon risk exists within their business, what impacts they are really having on society and the planet, and to think proactively about how they use their data to effect positive change.

More companies are realising that voluntarily reporting carbon data to CDP is not about compliance and auditing of impact, rather it is a key mechanism to support investment decision-making, resource allocation and improving overall business performance.

In an era of intense stakeholder scrutiny of business performance, this situation presents a reputational risk through either being caught out for a lack of proactivity, or being overlooked for not being able to reflect proactivity within reporting.

Better reporting

Fortunately, the 2015 introduction of dual scope 2 reporting within the Green House Gas Protocol Corporate Standard has eliminated this risk by allowing businesses to report on scope 2 emissions using both ‘location based’ emissions factors, and ‘market based’ emissions factors that separate renewable energy sources (using supplier specific emission factors) from those derived from fossil-fuel sources (using residual emissions factors).

In short, dual reporting ensures businesses are correctly apportioned reputational credit for their efforts to source renewable energy, and are able to directly influence the transition to a low carbon economy as reported renewable energy must come from a proven and intentionally selected source.