
“Financial analysis of climate change business issues is in transition” said Verdantix Director, David Metcalfe. “Apart from the utilities sector there is no consensus among analysts covering the same firms and the same sectors on how to incorporate climate change into financial models. For example, some oil and gas analysts are in complete denial while others view climate change regulations, risks and strategy as intrinsic to financial valuation.”
The survey is based on the The Verdantix analysis’s in-depth interviews with 50 equity analysts. They are of 13 different industry sectors and 22 investment banks including ABN AMRO, Goldman Sachs, Morgan Stanley and UBS.
That is not the only finding of the research. According to the SourceWire there are information and knowledge gaps in analysts.
32% - covering industries as diverse as food production, basic resources, retail, oil, gas, media and banks said they “didn’t know” if firms provide sufficient data on greenhouse gas emissions. Half of the respondents see no need to verify greenhouse gas emissions.
If followed by regulations, they rank highest among climate change factors:
42 %, Verdantix survey - industrial goods, oil, gas, travel and construction, conducted research into climate change regulatory impacts.
32% of analysts had changed a profit forecast due to an energy or fuel efficiency initiative,
8% did so due to a commitment to reduce carbon emissions
6% made an adjustment because a firm committed to buying the majority of energy from renewable sources.
42 %, Verdantix survey - industrial goods, oil, gas, travel and construction, conducted research into climate change regulatory impacts.
32% of analysts had changed a profit forecast due to an energy or fuel efficiency initiative,
8% did so due to a commitment to reduce carbon emissions
6% made an adjustment because a firm committed to buying the majority of energy from renewable sources.
According to the issue actuality 80% of the equity analysts interviewed consider that firms they cover will enhance their brand image with their climate change initiatives. 42% of the analysts consider the industry leader on climate change would achieve a differentiation advantage relative to its competitors in 2008.
“Over the next 18 months firms have the opportunity to shape analyst perceptions of the link between valuation and climate change” said Metcalfe. “Analysts need more guidance from firms on how they incorporate climate change factors into their own financial forecasts and financial analysis. The “do nothing” option for corporates is quickly disappearing”
Among the best practices for climate change financial communications, Verdantix report identifies that CFOs and investor relations teams should:
1. Draft a company position on climate change.
2. Benchmark climate change reporting capabilities.
3. Launch a climate change financial analysis project.
4. Design climate change communications around analyst receptivity.
“The business impact of climate change is going through a period of diminishing uncertainties” said David Metcalfe, author of the report. “By 2010 we expect to see a consensus in each industry on financial valuation and climate change.”
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