1. BUSINESS: Firms risk losses by failing to prepare for low-carbon economy -- study (ClimateWire, 09/22/2008)

Nathanial Gronewold, ClimateWire reporter

NEW YORK -- Companies and investors that fail to prepare for a low-carbon economy risk missing out on huge gains, and could be exposing themselves to painful losses, according to a new study released today by a U.K. climate advocacy group.

The report from the Carbon Trust found that firms that adjust now for a future based on sustainable energy sources stand to reap huge financial rewards, with some increasing their net enterprise values by as much as 85 percent. Those that don't will miss economic opportunities, risking up to 65 percent of company value and losing competitiveness.

"Climate change has not featured as a key investment theme in most mainstream business sectors or as a major strategic driver for most businesses," the authors found. "Current assumptions of industry analysts and experts across the individual sectors we studied are not consistent with a transition to a low carbon economy."

Bruce Duguid, head of investor engagement and one of the principals behind the report, "Climate Change -- A Business Revolution?" called the findings a "call to action" for investors who lose out by backing companies that are not preparing for a shift toward a low-carbon economy. The report is backed by an analysis from McKinsey & Co.

With the exception of power generators in some countries, companies worldwide are not preparing for the new business atmosphere that tighter regulations will bring as governments race to meet greenhouse gas reduction targets necessary to battle climate change, analysts found.

The United Nations' Intergovernmental Panel on Climate Change (IPCC) found that greenhouse gas concentrations in the atmosphere must be kept below 550 parts per million carbon dioxide equivalent (CO2e) in order to limit a long-term global average temperature rise to 2 degrees Celsius. But current business practices show that the market is assuming concentrations of over 700ppm CO2e, according to the Carbon Trust report.

In their study, researchers assessed the climate change business and risk potential of six key industrial sectors they estimated to be valued at roughly $7 trillion: aluminum manufacturing, the automotive industry, beer production, building materials production, consumer electronics, and oil and gas exploration, production and refining.

Building industry could come out a winner, beer a loser

They then estimated the potential business cash flow of companies in these sectors against a range of future scenarios in which governments and consumer society begin shifting toward a low-carbon economy.

Their results suggest that the building materials industry has the most to gain. According to the report, companies can boost their value as much as 80 percent by preparing for emissions targets at which many governments are aiming. Conversely, they risk losing 20 percent of value by not adapting.

The auto industry also stands to become a big winner by embracing low-carbon technologies, especially electric vehicles, which will likely become mainstream by 2015, report authors said. By assuming that governments will enact stringent limits on the amount of carbon their vehicles can emit, and investing accordingly, car manufacturers can take advantage of efficiencies and technology enhancements that could boost a company's net value by a maximum of 60 percent.

But if they don't act, carmakers will likely become victims of climate change regulations, risking as much as 65 percent of their value.

"If you can capture the market and sell vehicles at the lower price range and make greater margins, then you could make absolute upsides," Duguid said. "Conversely, if you get it wrong and you don't get some of the breakthroughs in technology, you get higher costs and you sell fewer cars as a result, and you can see that much value destroyed."

Most industries -- with the exception of the beer industry -- stand to increase in value by figuring climate change into their future growth and investment strategies and adopting low carbon technology. Oil and gas exploration and production would not gain any net value in adjusting, even though burning oil and gas is responsible for about 30 percent of CO2 emissions, but refining operations could boost their net values by 7 percent by adopting cleaner ways of doing business.

"If you are going to deal with climate change, it means we're going to sell less oil and less gas, and quite possibly at a lower price because of lower demand. So this isn't good news for the industry," Duguid said.

But by doing nothing, oil and gas companies would likely see their valuations plummet by 30 to 35 percent, according to the report.

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