Mapping Carbon-Financial Risk Exposure

The 2014 “Carbon footprint” report ”Mapping Carbon-Financial Risk Exposure in the FTSE” follows on from the previous report ’Accounting for carbon risk in the FTSE 100 Reinforcing disclosure’ which account for carbon emissions in the FTSE100 and suggest alternative and innovative carbon-material stakeholder disclosure practices.

In this new report we are concerned with mapping carbon risk exposure. For example, regulatory changes forcing a reduction in carbon emissions will damage the financial viability of carbon-intensive business models such as energy supply, raw materials extraction and other carbon intensive business models including: telecommunications, big-pharma and mixed retail.

Our benchmark group is the FTSE61. This is the group of companies continuously listed in the FTSE100 (2006-2013) and for which we have Scope 1 and 2 carbon emissions. These first two scopes comprise direct emissions (scope 1) from combustion-based activities, and indirect emissions (scope 2) from purchased services such as electricity, district heating etc. Scope 3 or other indirect emissions that are described by the Greenhouse Gas Protocol as an optional category and embedded in purchased supplies (World Resources Institute and World Business Council for Sustainable Development, 2001). We have not included disclosed scope 3 carbon emissions in the analysis for this report because very few FTSE100 companies disclose a scope 3 carbon emission.

There is also the need to modify corporate behaviour and change managerial incentives. Managerial incentives could include targets set for absolute and relative carbon emissions where carbon metrics become a material element in executive remuneration packages.These changes are necessary if the UK is to lead the way on meeting statutory carbon reduction commitments under the Kyoto Protocol and as part of the EU commitment to reduce carbon emissions.

The second Carbon footprint” report was written together with Professor Colin Haslam, Dr Nick Tsitsianis, Dr John Malamatenios, Mr John Butlin, Dr Ya Ping Yin, Dr Edward Lee and associate professor Glen Lehman. ffffffffffff