The report, entitled Accelerating low carbon growth, analyzed disclosures from 396 of the world’s largest companies[2], which revealed 68% have climate change at the heart of business strategies, compared with 48% in 2010. There was also a marked rise in the number of companies reporting reduced greenhouse gas emissions as a result of emissions reduction activities (45%, up from 19% in 2010).

A correlation was also established between higher stock market performance over time, and representation on CDP’s Carbon Performance Leadership Index (CPLI) and the Carbon Disclosure Leadership Index (CDLI). Companies with a strategic focus on climate change provided investors with approximately double the average total return of the Global 500 from January 2005 to May 2011.

Paul Simpson, CEO of the Carbon Disclosure Project, said: “The improved financial performance of companies with high carbon performance is a clear indicator that it makes good business sense to manage and reduce carbon emissions. This is a win win for business – the short ROIs many emissions reducing activities have, can help increase profitability. Companies yet to take action on climate change will have to work hard to remain competitive as we head towards an increasingly resourced constrained, low carbon economy.”

Alan McGill, partner, sustainability and climate change, PwC said: “Historical financial performance is being exposed by climate change as an outdated model to assess long term business profitability and growth, when you consider the much wider range of financial and non – financial risks associated with business today. Today’s investors have different information needs, which are leading to tougher verification regimes, more emphasis on executive and staffing responsibilities and incentives, and much more unforgiving examinations of the contribution of business to society. We are accelerating towards newer reporting models that better balance financial and non – financial performance.”

Rising oil prices, energy supply risks and growing recognition of the commercial returns on investments in emissions reduction activities contributed to the growth in importance of climate change as a boardroom issue. Over half (59%) of reported emissions reduction activities delivered payback in three years or less according to company submissions. These include energy efficiency projects (building fabric, building services and processes), low carbon energy installations and staff behavioural change. Employee incentives to reduce emissions are now offered by 65% of companies, compared with 49% in 2010.

Steve Waygood, head of sustainability research & engagement at Aviva Investors, the asset manager, said: “We believe that the external costs of greenhouse gas emissions will become internalized into company cash flows and profitability. Managing greenhouse gas emissions is therefore essential to delivering sustainable shareholder returns. There still remains huge potential in companies for achieving cost effective emissions reductions. This is why we are founding signatories to the Carbon Action initiative.”

The Carbon Performance Leadership Index and Carbon Disclosure Leadership Index are revised annually based on company submissions and present the leaders of the Global 500 in carbon performance and disclosure respectively. The top 10 best performing companies on both measures this year are:

USA: Bank of America, Cisco Systems

Japan: Honda Motor Company, Sony Corporation

Germany: Bayer, BMW, SAP

United Kingdom: Tesco

Netherlands: Philips Electronics

Australia: Westpac Banking Corporation

There are 14 new entrants to the 2011 Carbon Performance Leadership Index, which counts just 29 companies due to more demanding criteria applied by CDP. These are:

USA: Air Products & Chemicals, Lockheed Martin, Morgan Stanley

Japan: Honda Motor Company, Sony Corporation

Germany: SAP

France: AXA Group, Schneider Electric

Italy: ENEL, FIAT

United Kingdom: British American Tobacco, BG Group, Glaxo SmithKline

Switzerland: Novartis

“We are honored by the inclusion of SAP in both the Carbon Performance Leadership Index and the Carbon Disclosure Leadership Index this year,” said Peter Graf, chief sustainability officer, SAP. “We have not only helped our customers to reduce their energy use and related carbon emissions through our software, but also used it ourselves to avoid EUR 185 million in cost as we reduced our footprint by 25% since 2007.”

David North, global climate change champion at Tesco, said: “At Tesco we are passionate about tackling climate change. We have been cutting emissions for years, and as a result have reduced our energy costs by more than Ã??200m annually – a win-win for business and the environment. We plan to be a zero-carbon business by 2050 and put a priority on reducing emissions in our supply chain and galvanising consumers to lead a revolution in green consumption. We’re delighted that this year’s CDP results recognize our progress.”

Other key findings from CDP’s Global 500 report

74% of Global 500 respondents reported emissions reduction targets, up from 65% in 2010
The majority of respondents (93%) reported board or senior executive oversight for climate change (up from 85% in 2010) demonstrating the importance of climate change as a management issue
Over 30 new companies targeted by CDP’s Carbon Action request* (see notes to editor) have now set reduction targets, implying growing recognition by companies of the commercial benefits of emissions target setting
Utilities is the sector with the best average climate change performance (band B)
Telecommunications is the only sector not represented in the CPLI this year; a surprising finding given expectation that this sector will support emissions reduction activities
The Energy sector lags others sectors with the lowest proportion of companies setting targets (55%) and underrepresentation in both the CDLI and CPLI
Just 37% of respondents currently verify their emissions to acceptable standards, despite the importance of providing investors with validated climate data
The Global 500 report will be launched later today today at the CDP Global Forum, an international gathering of business, financial and political leaders to drive discourse and share transformative best practice for forging sustainable, profitable, business growth. Speakers include Christiana Figueres (UNFCCC), Alan Brown (Schroders) and Ian Cheshire (Kingfisher) from telepresence studios in over ten cities across five continents. Visit the CDP website for a full list of participants.