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Climate Strategy

Climate Strategy

20-09-2018 | Article
The global climate is changing in ways that affect the planning and day-to-day operations of businesses around the world – and thus their financial performance. RobecoSAM has enhanced the “Climate Strategy” criterion in its annual Corporate Sustainability Assessment (CSA) to better gauge the extent to which companies integrate both short- and longer-term climate change impacts into their risk management and other strategic planning activities.
  • Climate Strategy criterion in RobecoSAM’s annual Corporate Sustainability Assessment now applied to all industries
  • New question on the use of climate-related scenario analysis to assess how future-proof companies’ business strategies are in regard to climate-related risks and opportunities
  • Enhanced questions on internal carbon pricing and measurement of Scope 3 GHG emissions to reflect industry best practices and account for climate regulation risks

Companies and investors struggle to understand the potential effects of climate change on their businesses and financial performance as the most significant effects of climate change are likely to emerge over the medium to long term, and their timing and magnitude remain uncertain. To better assess companies’ ability to anticipate and address these risks – and opportunities – RobecoSAM has extended and updated the “Climate Strategy” criterion in its annual CSA.

In line with the methodology updates to the 2018 Climate Change questionnaires of the Carbon Disclosure Project (CDP) and the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), we now apply the climate strategy criterion to all industries; we have updated five of the questions, and we have added a new question on the use of climate-related scenario analysis for 28 of the 60 RobecoSAM industries.

Scenario analysis

To perform well on our new “Scenario Analysis” question, companies must apply a quantitative approach to climate-related scenario analysis that informs their business strategy. This should take the form of a recognized approach to scenario analysis or an analysis containing a series of critical parameters and assumptions that define the key drivers and development pathways over the scenario’s timeframe. These can include macroeconomic variables as well as policy changes, technology development and deployment, the energy mix, the price of key commodities or inputs, geographical tailoring of transitional and physical impacts, and the timing of potential impacts.

Internal carbon pricing

Our updated “Internal Carbon Pricing” question reflects the fact that carbon pricing has become standard operating practice in business planning as a means of testing the vulnerability of strategic assumptions to increasingly stringent climate-related regulations and the broader emergence of a cost of carbon. We ask companies in 31 industries to specify their objective in implementing an internal carbon price; their approach to carbon price setting; the type of internal carbon price they use, and whether the established internal price of carbon is applied company-wide.

Scope 3 GHG emissions

With the “Scope 3 GHG Emissions” question, we assess the extent to which companies consider Scope 3 emissions in their value chain as quantifying and reporting on these remains a greater challenge for companies than reporting on Scope 1 and 2 emissions, which result directly from companies’ activities. We ask companies to identify and explain the relevance of the three most relevant sources of their Scope 3 emissions, as well as to specify the amount of metric tons of CO2e from each source along with the coverage of emissions per source and a brief description of the calculation method used.

Figure 1: Companies using climate-related scenario analysis to inform business strategy

Most companies that respond to the Scenario Analysis question either already use climate-related scenario analysis to inform their business strategy or expect to do so in the next two years.

Figure 2: Percentage of companies with an internal carbon price

The percentage of companies applying internal carbon pricing differs quite significantly between sectors, from almost 70% in the utility sector to less than 20% in the real estate industry. We expect this figure to increase as climate regulation risks continue to materialize.
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