Bulletin
Investor Alert

London Markets Open in:

Nov. 20, 2019, 8:05 p.m. EST

Climate risk is hitting earnings — and more reasons company boards can’t ignore ESG factors

Ceres report aims to help corporate boards embrace ESG responsibility

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    PepsiCo Inc. (PEP)

or Cancel Already have a watchlist? Log In

By Rachel Koning Beals


Getty Images
Tech workers and others arrive as Amazon Employees for Climate Justice lead a September 2019 rally at the company's Seattle headquarters to demand that leaders take action on climate change.

Some 73 major U.S. companies recorded material hits to earnings from extreme weather events in one year, while supply-chain disruptions from climate change jumped 29% over the past six years.

Those are just two of the handful of findings from nonprofit sustainable-investing advocate Ceres in a report Wednesday that urges corporate boards to care more about environmental, social and governance issues or face increasing risks to financial performance.

The report, meant as a best-practices guide for boards and steered by Veena Ramani, Ceres’ senior program director for capital markets systems, stressed the responsibility that boards hold for multiple constituents, including shareholders and the company employees.

The pool of potentially impacted investor funds from ignoring ESG is nothing to take lightly, Ceres reports have shown. A separate study of 500 large global companies estimated that potential financial implications from climate change-related factors could put nearly a trillion dollars at risk.

In the U.S., shareholder support for climate-related resolutions at the companies they invest in hit an all-time high of 30% in the latest proxy filing round, but whether companies are fully responding to investor-driven ESG demands remains a mixed picture at best.

Earlier this month, the Securities and Exchange Commission proposed two long-anticipated rules that seek to limit shareholders’ influence over how companies address contentious issues such as climate change and executive compensation.

Read: Companies are too slow with shift to carbon neutral, say investors with $35 trillion at stake

Beyond the regulatory climate, ESG-linked uncertainties and opportunities are likely to persist and boards must prepare; already 1,000 corporate lawsuits related to climate change impacts have been filed in the U.S., Ceres said.

Areas of recommendation in Wednesday’s report include formalizing ESG efforts rather than employing loose goals toward this end, and adhering to complete disclosure in financial filings of material ESG risk.

The report offered evidence that some boards have already accepted their evolving responsibility. Prudential Financial, an insurance and financial services company, for instance, has included expertise in environmental/sustainability/corporate responsibility in its board selection matrix. In another example, PepsiCo /zigman2/quotes/208744353/composite PEP +0.75%   incorporates environmental sustainability criteria into its capital-expenditure filter, which is applied to all capital expenditure requests over $5 million.

Read : Meat companies are the worst at managing water risk — and it’s costing them, study finds

The ESG report also stressed statistics that point to renewed attention on a younger workforce (86% of millennials would consider less pay to work at a company whose mission aligns with their values) and the changing demands of socially-conscientious consumers (47% of consumers walk away from brands that don’t align with their beliefs).

Don’t miss : Global GDP will suffer at least a 3% hit by 2050 from unchecked climate change, say economists

/zigman2/quotes/208744353/composite
US : U.S.: Nasdaq
$ 137.36
+1.02 +0.75%
Volume: 3.22M
Dec. 6, 2019 4:00p
P/E Ratio
15.67
Dividend Yield
2.78%
Market Cap
$191.54 billion
Rev. per Employee
$242,172
loading...

Rachel Koning Beals is a MarketWatch news editor in Chicago.

This Story has 0 Comments
Be the first to comment
More News In
Industries

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.