How to Come Clean

"Global warming did not eat my homework," Bart Simpson wrote repeatedly on the blackboard before he launched his skateboard down the hall at the sound of the recess bell. While the TV show's writers poke fun at Bart's attempt to shirk responsibility -- and the level of humans' contributions to climate change continues to spark controversy -- more and more U.S. companies are taking the subject very seriously and voluntarily taking significant actions to curb carbon dioxide (CO2) emissions and disclose to investors their related risks to the company. CO2 is one of several greenhouse gasses (GHGs) associated with climate change.

According to the Carbon Disclosure Project, which catalogs companies' self-reported carbon emissions and energy costs for hundreds of institutional investors, the number of Standard & Poor's 500 companies that participated in this year's study registered 56 percent, up from a 47 percent response the previous year. And while electric utilities and materials companies -- the two most carbon-intensive industries represented in the S&P 500 index -- had the highest response rate, the rate increased across all industry sectors represented in the index.

Many firms that maintain that the risk carbon emissions pose to their business is not material may soon be prodded into action. Companies including Unilever, Cadbury Schweppes, and Procter & Gamble are already engaging their supply chains to report carbon footprints and climate change-relevant information such as greenhouse gas emissions data, emissions reduction targets, and climate change strategy through the CDP. "By engaging their supply chains in the CDP process, companies will encourage suppliers to measure and manage their greenhouse gas emissions and ultimately reduce the total carbon footprint of their indirect emissions," says CDP chief executive Paul Dickinson. "For many companies, it is the supply chain that makes up the vast majority of their emissions, so this initiative is vital in helping them to reduce their total carbon footprint."

And when CFOs in any sector consider the broad-based concerns relating to a carbon-constrained economy, it becomes crystal clear that the effects of carbon emissions on businesses are pervasive. "When you think about the economic consequences to individuals, the consumption of energy should be a top priority of every household, especially low-income ones," says Thomas A. Fanning, executive vice president, CFO, and treasurer at Atlanta-based Southern Company, an electric utility holding company. "So you need to think through the impact that any new U.S. policy on carbon emissions would have on everyday Americans' standards of living. Any new proposal that isn't well thought out and balanced could result in sending some manufacturing jobs overseas and impact the cost of goods in the economy."