WRI Stories Feed: ENVEST: Environmental Intelligence for Tomorrow's Markets

Big Business on the Sustainability Offensive

Kirsty Jenkinson — Thu, 08 Mar 2012 15:04:33 -0500

This piece originally appeared in Ethical Corporation.

There is a growing trend for big…

Aqueduct Brings Improved Water Risk Framework to World Water Forum

Paul Reig — Wed, 07 Mar 2012 10:45:55 -0500

We are only a few days away from the world’s largest meeting around water: the World Water Forum. The Forum will take place this month in Marseille, France, with some 24,000 participants from the…

Aqueduct Will Feature in World Water Forum’s “Village of Solutions”

Robert Kimball — Fri, 17 Feb 2012 10:28:29 -0500

Last week Aqueduct was selected to be featured in the “Village of Solutions”, a collection of innovative new concepts in the world of water management that will be on display at the World Water Forum…

Aqueduct News Roundup: India, Trading on Water, Shareholder Challenges

Robert Kimball — Wed, 01 Feb 2012 09:50:10 -0500

If you are a regular reader of news related to water risk, you may have seen data and observations from Aqueduct in several venues during the month of January. This is the first of a series of updates on news related to Aqueduct and the subject…

Aqueduct Partnership to Map Water Risks in Africa's Orange-Senqu Basin

Paul Reig — Wed, 02 Nov 2011 12:21:36 -0400

Snaking across multiple international boundaries and supporting everything from villages and farms to industry and cities, the Orange-Senqu River is one of the most important natural resources in southern Africa. The complexity and significance…

The Coca-Cola Company Donates Extensive Water Risk Database to Aqueduct

Kirsty Jenkinson — Mon, 19 Sep 2011 11:06:12 -0400

This piece, co-authored by WRI’s Kirsty Jenkinson and Coca-Cola’s Joe Rozza, originally appeared on The Guardian…

How U.S. Federal Climate Policies Could Affect Chemical Companies’ Credit Risk

Robert Kimball — Tue, 22 Feb 2011 09:09:12 -0500

New analysis from WRI and rating agency Standard & Poor’s looks at impacts on businesses and credit quality.

Last week, analysts from WRI and Standard & Poor’s, the world’s foremost provider of credit rating, unveiled a new analysis examining how U.S. federal climate change policies could impact the credit ratings of companies in the U.S. chemicals industry. The report is a first of its kind by focusing on the credit (rather than equity) implications for companies.

In How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk, experts from WRI and S&P helped demystify the potential impacts of federal climate policy by providing analysts and investors with important information on how company creditworthiness could be affected.

The report finds that the impact of federal climate policy on credit risk will likely be modest for most of the chemical subsectors. Depending on the exact nature of the policy, actions taken by companies, and other variables (like gas and oil prices), many companies could see only minimal credit impacts from policy action.

Understanding Credit Ratings and Risk

This report analyzes how different climate change policies could impact a company’s credit rating. A credit rating is an assessment of a bond issuer’s willingness and ability to pay off the interest and principle associated with its borrowings in full and on time. While an investment grade credit rating is not a guarantee that a bond will be repaid (or vice versa), leading rating providers like Standard & Poor’s inform and guide investors. If climate policies were to positively or negatively impact a company’s credit rating, it could influence the cost of borrowing for the company and its ability to raise capital.

An Innovative New Approach

How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk represents a new approach to analyzing and understanding how environmental policies can impact businesses and investors. First, it focuses on credit quality and second, it relies on two detailed policy scenarios:

A market based, economy-wide, greenhouse gas reduction policy (such as “cap and trade” legislation)
Regulation of greenhouse gas emissions by the Environmental Protection Agency

WRI applied its policy and environmental expertise to the process, and turned to S&P to benefit from its world-renown experience in assessing credit risk. Bringing different perspectives of each organization allowed for an evaluation of the potential impacts of different climate change policies on factors that would influence creditworthiness.

Modest Credit Impacts

WRI and S&P’s analysis found that the impacts of the federal climate policy scenarios would be modest for most chemical manufacturing subsectors. The chemical sector as a whole produces approximately $724 billion in products (according to Bloomberg) and accounts for approximately 5% of US greenhouse gas emissions.

The report also found that within these subsectors some energy-intensive companies could see negative impacts—especially among the highest emitters. In WRI’s view, these findings highlight the potential advantages that companies could gain from acting quickly to improve their energy efficiency and reduce their emissions versus their less efficient peers. Although the report did not look at opportunities, there are also clearly benefits that some companies will gain by reducing their emissions, such as being “first movers” toward increased energy efficiency.

The report provides a clear indication to investors and companies trying to measure and manage their exposure to credit risk that environmental issues should be considered as part of their analysis.

Challenges and Opportunities for the Future

While How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk provides an exciting look at the potential impacts of climate policy on credit quality, it is only a first step.

The report analyzed an important sector of the economy – chemicals – and provided a clear analytical framework that can be applied beyond this industry. However, ultimately more work will have to be done to fully understand climate policy impacts on the credit for different industries. Among the unknowns, it is unclear what approach the United States will take to address climate change. Clearly, with federal legislation tabled for now, the EPA is moving toward regulations that would cut carbon pollution from the largest industrial emitters—but with each new policy choice comes with its own set of risks and opportunities for businesses.

While the issues are complex, this analysis shows how leaders in the financial and environmental communities can work together to find answers. The analysis conducted in How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk shows that it is possible to develop a more meaningful and objective understanding of the real risks and opportunities that companies face in light of future action.

Ultimately, in WRI’s view, much of the world is already moving toward a lower-carbon future, and analysis like this can help provide a smoother transition for businesses and investors alike.

Minding the Sustainability GAAP

Janet Ranganathan — Thu, 26 Aug 2010 11:38:22 -0400

Limited transparency around corporate sustainability risks can lead to investments that are bad for the environment, and investors’ bottom lines.

Yesterday BP abandoned its hope of bidding on a potentially lucrative exploration license in Greenland. The implication is that its tarnished reputation is undermining its ability to compete for projects. Across the Atlantic, the Tennessee Valley Authority has lost nearly $50 million in power generation during this summer’s heatwave, because the Tennessee river is too hot for the nuclear plants’ cooling towers to function.

What do these two stories have in common? They are both examples of how environmental degradation can hit home for companies. The global environmental crisis, including climate change, water scarcity and ecosystem degradation, isn’t just a problem for “greens.” It also creates significant financial risks for companies and their investors.

Environmental Risks Alter Balance Sheets

Such risks vary from sector to sector but include: potential liability for environmental accidents; the physical impacts of climate change on supply chains; and growing water scarcity in many parts of the world.

BP’s recent crisis generated by the mammoth Gulf of Mexico oil spill is an extreme example of environmental risk. It turned the company’s anticipated net income of $5.6 billion for the second quarter of 2010 into a record $17.1 billion loss.

But in a resource-constrained and warming world, there are many other risks that may significantly alter the balance sheet. For example, research suggests that consumer goods companies could face a loss of earnings if they do not respond to environmental pressures in their supply chains, including physical climate change impacts and public policy responses to them. Specifically, the World Resources Institute (WRI) report Rattling the Supply Chains indicates that such businesses could face a 13-31 percent reduction in earnings before interest and taxes as soon as 2013, rising to 19-47 percent in 2018.

Certain sectors will be heavily impacted by specific risks in vulnerable countries or regions. For example, 79% of planned new power plant capacity in India will be built in water scarce or stressed areas. Since thermal and hydroelectric power plants depend heavily on water for cooling and energy generation, uncertain water supply creates significant risks for domestic power companies.

A Gap in Financial Accounting Standards

Worldwide, current financial accounting standards and generally accepted accounting principles (known as GAAP) fail explicitly to address such risks, which often derive from unsustainable business strategies. They can also miss the opportunities that such challenges create. Superior environmental performance by corporations can translate into lower costs from improved energy and resource efficiency and higher revenues from product innovation and enhanced brand recognition. General Electric’s Ecomagination™ product line is one compelling case in point.

Current financial accounting standards and generally accepted accounting principles fail explicitly to address environmental risks, which often derive from unsustainable business strategies.

Corporate sustainability reports can help fill information gaps on some risks. But sustainability reporting standards, such as the Global Reporting Initiative, remain largely voluntary, and as a result, their uptake is limited. Another recent WRI report Undisclosed Risk, for example, found that developing markets have particularly lagged behind in producing corporate sustainability reports. What’s more, stand alone reports all but guarantee that sustainability remains at the periphery rather than the mainstream of financial and investment decisions. A 2008 KPMG International Survey of Corporate Social Responsibility, for example, found that only three percent of annual financial reports had corporate responsibility information fully integrated into them.

The failure to integrate sustainability as a strategic business issue in annual financial reports means that businesses and investors continue to make investments that are bad for the environment, society and ultimately their own bottom line. As a result, environmental trends continue on a downward trajectory, creating even greater risks for companies, especially those that have not embraced sustainable business strategies.

The Movement for Integrated Reporting

A solution may finally be on its way. A coalition of businesses, regulators, accountants, securities exchanges and not-for-profit groups recently launched an International Integrated Reporting Committee initiative to “create a globally accepted framework for accounting for sustainability.” Jointly convened by HRH Prince Charles’s UK-based Accounting for Sustainability Project and the Global Reporting Initiative, the committee includes participants from the International Accounting Standards Board, U.S. Financial Accounting Standards Board, International Organisation of Securities Commissions, the Big Four auditors - Price Waterhouse Coopers, Deloitte, Ernst & Young and KPMG - and NGOs including the World Resources Institute. The committee intends to present a framework, which brings together financial, environmental, social and governance information in a single “integrated” reporting format, at the G20 intergovernmental summit in France in 2011. The G20 already backs the formation of a single set of reporting standards, and G20 support for broader rules will be crucial to their introduction.

Moving sustainability from the periphery to mainstream investment is an essential next step in preparing the corporate sector to deal with environmental risks. The move won’t be easy. But given worsening environmental trends and the fact that today’s investment decisions will either sustain or degrade the earth’s environment, integrated reporting is both sorely needed and long overdue.

Linnea Laestadius is an intern with the Office of the Vice President for Science and Research at WRI. She is a PhD student in Health and Public Policy and a CLF Farming the Future Fellow at the Johns Hopkins Bloomberg School of Public Health.

New Website and Survey Look Behind-the-Scenes at Ecolabels’ Environmental Claims

Jeff Rodgers — Thu, 01 Jul 2010 16:59:32 -0400

Ecolabelindex.com allows consumers and companies to compare green certifications side-by-side.

As consumers and companies become increasingly aware of their environmental impact, a surge of ecolabels have flooded the marketplace. Today, hundreds of ecolabels worldwide compete to tell us which products are best for the planet. These colorful stamps on labels declare products to be “carbon neutral”, “forest safe”, “fairly traded”, or any number of standards of sustainability. But in the self-regulated ecocertification industry, how can consumers and institutional buyers really know what these stamps of approval mean?

The 2010 Global Ecolabel Monitor

Enter the 2010 Global Ecolabel Monitor – a collaboration between the World Resources Institute and ecolabelling.org founders Big Room Inc. that gives a behind-the-scenes look at how different ecolabels certify their products. We invited 340 ecolabels in 42 countries to participate in a survey of their performance, organizational structure, and verification systems. The results are housed at ecolabelindex.com, a web resource that gathers ecolabels onto a common platform to make it easier for consumers and institutional buyers alike to interpret and compare them.

Visit ecolabelindex.com

The survey covers questions such as how the ecolabels’ rules were created and how they are funded. It also asks how the ecolabel is enforced, for example via site visits, audits, and/or third party verification.

Increasing Transparency and Accountability in Green Certification

The Global Ecolabel Monitor illustrates that there is clearly scope for improvement in ecolabel transparency and accountability. Over half of the ecolabels we invited to participate were unreachable or unwilling to share information about the metrics underlying their certification. Additionally, less than 30% of the ecolabels surveyed recognized, or were recognized by, any of their fellow labeling organizations, making it impossible to know for certain if one ecolabel’s interpretation of “green” would pass muster with their peers.

More than a third of US consumers say they are willing to pay a premium for eco-friendly products. But ecolabels, like nutritional labels on food, are only helpful when they are clear, transparent, and consistent from product to product. Imagine if one cereal box only had calories listed and another had only protein content; and both measured their nutritional content in different ways. How would you make an informed decision about which box was healthier?

From environmentally-conscious individuals shopping for themselves and their families, to institutional buyers stocking the shelves of multi-billion dollar retailers, purchasers of all sizes need transparent, concise comparisons to decode the ecolabels on the products they are choosing between. Improving transparency in the ecolabel marketplace is an important first step to reduce consumer confusion and increase credibility. Ecolabelindex.com will continue updating and tracking the developments of ecolabels, making it easier for consumers and companies to identify and select the ecolabels that are credibly, transparent and effective.

NEWS RELEASE: Ecolabel Confusion Sorted Out on New Website

Jessica Forres — Thu, 01 Jul 2010 09:47:24 -0400

The World Resources Institute (WRI) and Big Room Inc. have released the 2010 Global Ecolabel Monitor–a report and searchable online database to help companies and consumers navigate the “green” claims of different environmental certifications and labels for food and consumer products.

“Demand for products with ecolabels is growing, there is still confusion about which products are truly environmentally responsible,” said Jeff Rodgers, an associate at WRI. “By identifying and comparing the many different standards, the Ecolabel Monitor makes it easier for companies and consumers to reduce their environmental impact.”

In November 2009, WRI and Big Room Inc. invited more than 340 ecolabels in 42 countries to complete a survey of 66 questions ranging from certification criteria to funding sources. More than 113 ecolabel programs participated in the survey while more than half, including some prominent labels, could not be reached or elected not to participate when asked about certification requirements.

“Some ecolabels are regionally specific while others are global, and some have stricter criteria than others,” said Trevor Bowden, co-founder of Big Room Inc. “There is a real need for improvement in transparency and accountability along with high quality information that’s standardized and comparable worldwide.”

Credibility is a constant concern for companies and products entering the green marketplace. A lack of transparency about an ecolabel can cause consumer confusion or even backlash. According to one European study, marketing and competing claims on what makes a product green have caused low market penetration for some ecolabels.

Many ecolabels employ different strategies to ensure credibility. For instance, 92 percent of the programs surveyed require some verification before they award the ecolabel, compared to those requiring registration but no certification up front. Of those requiring certification, 66 percent require third-party certification in order to avoid perceived or real conflicts of interest.

The analysis also reveals that programs run by non-profits generally have more rigorous requirements, such as site visits, audits and third party certifications. Organizations, such as the ISEAL Alliance, have implemented codes of good practice for standard setting, measuring environmental or social impacts and performance as well as compliance verification. The establishment of these practices emphasizes the need and desire for increased transparency and accountability in the green marketplace.

Of growing concern is whether an ecolabel’s claim as environmentally or socially beneficial is accurate. Less than a third of the ecolabels surveyed regularly monitor environmental and social impacts of their certification, while more than 21 percent of ecolabels have developed plans to study impacts for the first time. This trend is expected to grow as companies become more concerned about the credibility of the certifications they seek.

Rodgers added, “Several large companies and government agencies have recently announced or improved their green or eco-purchasing policies. In order to meet their policies, these large-scale institutional purchasers need standards, detailed information, and proof that a product is green.”

The findings and the 340 targeted ecolabels are searchable on www.ecolabelindex.com. The website expands on www.ecolabeling.org.