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Global warming: companies that do not listen will be left behind

“Companies drag their heels on addressing climate change because many managers believe that for the planet to win, profits must fall. Others believe the issue is not as relevant for their customers.” But Deutsche Bank’s report (the first report in their new research product suite*) found “the opposite using evidence from both stockmarket returns and our own primary research into the unexpected shift in customer purchase habits over the last 12 months.” This report by Deutsche Bank’s Luke Templeman and Jim Reid is an important piece of work and has implications for all types of business.

The research findings

Deutsche Bank carried out two major pieces of work:

  1. Analysed the stock market impact of climate change* and found that:
    • companies that experienced positive press and announcements on climate change saw share price outperformance of 1.4 percentage points per year over the MSCI World index – outperformance of 26%
    • bad press results in underperformance and it was not the energy, materials, and utility sectors that were the most affected
    • It is technology, consumer staples, and healthcare 
  2. Commissioned an exclusive survey that analysed data from 1,100 customers in the US and UK which showed:
  • the historic ‘gap’ between green purchase intentions and actual purchase behaviour has suddenly shrunk
  • in the UK: over the last 12 months, twice as many customers have actively purchased more products from companies that address climate change compared with those who have not 
  • in the USA: middle-income groups frequently lead the way, not the wealthy, while the urban/rural divide largely determines whether a customer shuns a product and how long it takes them to forgive the company and repurchase
  • Those stocks most sensitive to improvements in newsflow are utilities, consumer staples, and industrial
  • Stocks most sensitive to a deterioration in climate change news and announcements over the preceding 12 months include those in the technology, financials, and real estate sectors. 

Conclusions

The big question, the authors believe, is whether climate change will maintain the attention of customers, investors, and the public at large. They believe that:

  • history suggests it will. Once social movements hit a tipping point, they have proved very difficult to stop 
  • government regulation on the issue will continue to increase.

As a result of this work they conclude that:

  1. climate change mitigation will become a normal part of doing business
  1. Customers have spoken, investors have spoken. Those companies that do not listen will certainly be left behind. 

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* “Climate change and corporates - Past the tipping point with customers and stockmarkets”, see.


CTMfile take: Deutsche Bank is to be congratulated on carrying out this work. The results show that company strategies, policy and behaviour on climate change now really have an impact on their customers and their investors. Templeman and Reid are spot on when they say that, “companies that do not listen will be left behind” (CTMfile, "And flooded.").  


This item appears in the following sections:
Strategic Treasury
Operational Risk Management
Climate Change

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