For cleantech companies, climate change has been a big deal for some time. But it’s officially become a major mainstream business issue, according to a new PricewaterhouseCoopers report, “Capitalizing On a Climate of Change,” that says energy and climate policies are influencing the way all companies report their finances, raise capital, and value merger and acquisition deals.
In other words, climate change is evolving from a scientific and public policy issue to a business concern. “Until recently, the impact of climate change on the deal market was barely on the radar of most businesses,” PricewaterhouseCoopers said in the report released Tuesday. “However, national policy action on greenhouse gas emissions is requiring companies in virtually every industry to think about the impacts on energy and climate policies on their business.”
That’s good news for those developing and selling products to help businesses go green and comply with ever-changing energy and climate regulations. And PricewaterhouseCoopers expects climate change to become increasingly important to investors and to companies’ valuations.
In the report, the firm recommends that companies prepare for higher energy costs and consider their climate-change-related risks, including any greenhouse gas emissions that might end up costing money in the event of a federal carbon cap-and-trade program or other carbon legislation. “Regardless of the ultimate policy design, the fact remains: When greenhouse gases are regulated at the federal level, the cost of carbon will have a measurable impact on business transactions,” the report states. “In this context, companies can no longer sit on the sidelines of the climate-change discussion.”
Companies should also get ready to disclose their climate-change risks to investors, the report suggests. Nearly half of the businesses on Standard & Poor’s 500 index already are reporting greenhouse-gas emissions to their investors in some way, and a number of investors, state officials and environmental groups have petitioned the Securities and Exchange Commission to require public companies to disclose their financial risks from climate change. But companies are far from ready to adequately meet reporting requirements; according to another report from the not-for-profit Investor Responsibility Research Center Institute and research company Trucost, a good 66 percent of companies on the S&P 500 do not publish adequate data on direct greenhouse gas emissions from operations and “could therefore be unprepared for mandatory reporting requirements.”
Climate change is likely to gain more weight in evaluating acquisitions, too, especially in heavy-emitting industries such as power generation, chemicals, industrial products and automobile manufacturing. In fact, it already is playing a role in mergers. PricewaterhouseCoopers pointed to German power company E.ON‘s (s EOAN) purchase of wind developer Airtricity‘s U.S. assets for $1.4 billion in 2007, as well as Porsche‘s (s PSHG) decision to take the majority stake in Volkswagen (s VOW) last year to help it develop more efficient vehicles (and offset its higher-emission vehicles with the more efficient VW line).
Overall, companies that develop “sound” climate-change strategies and reporting capabilities stand to gain the most, the report says. Of course, if the evolution occurs as Pricewaterhouse Coopers predicts, cleantech companies that can help other businesses do this will also benefit.