Companies that fail to reduce carbon emissions could see a difference in their bottom lines

Photo (c) iamnoonmai - Getty Images

A new study suggests that stock prices and financial security are at stake

Reducing carbon emissions has countless benefits for our society. Not only would it improve the environment, but consumers would also see a noticeable difference in associated health risks.

Now, a new study conducted by researchers at the University of Waterloo shows how even the economy is affected by a failure to take climate change into consideration.

The researchers found that if companies -- particularly those that produce the most emissions -- don’t make a change and try to reduce their carbon footprint, consumers can expect to see a downward trend in the stock market in less than a decade.

“Over the long-term, companies from the carbon-intensive sectors that fail to take proper recognizable emission abatements may be expected to experience fundamental devaluations in their stocks when the climate change risk gets priced correctly by the market,” said lead author Mingyu Fang.

“More specifically for the traditional energy sector, such devaluation will start from their oil reserves being stranded by stricter environmental regulations as part of a sustainable, global effort to mitigate the effects caused by climate change.”

Far-reaching effects of climate change

The researchers analyzed stock returns from 36 publicly traded companies from both North America and Europe, many of which were some of the biggest carbon-emitting offenders. The study found several ways that carbon emissions are affecting these companies’ bottom lines.

The researchers found just 25 percent of the companies involved in the study were utilizing carbon pricing -- a method that charges for carbon dioxide emissions. The extra charge is favored by many environmentalists and economists, as it may encourage decision-makers to think twice about their carbon emissions.

Additionally, climate change often puts pressure on environmental agencies to enforce stricter regulations. This then leads to an increase in both carbon pricing and other emissions taxes, both of which were found to negatively affect many companies.

Because of this, the researchers are urging companies to take their carbon emissions and the evolving state of climate change into careful consideration moving forward, as the impact is more far-reaching than many initially thought.

“It is in the best interest of the companies in the financial, insurance, and pension industries to price this carbon risk correctly in their asset allocations,” said researcher Tony Wirjanto. “Companies have to take climate change into consideration to build an optimal and sustainable portfolio in the long run under the climate change risk.”

Companies going green

Many companies have already taken steps to become more eco-friendly, though it may not be for economical reasons. Earlier this year, both McDonald’s and Starbucks announced plans to make their stores greener.

By 2030, McDonald’s plan to reduce greenhouse gas emissions by 36 percent. By using LED lighting, switching to sustainable packaging, and making the kitchen more energy efficient, the fast food chain is hoping to prevent 150 million metric tons of emissions.  

On the other hand, Starbucks is working to develop a cup that is fully compostable and recyclable. Starbucks is investing $10 million into the project in an effort to do better for the environment.

Dunkin Donuts made a similar move, announcing it will switch from styrofoam cups to paper cups to effectively remove one billion foam cups from landfills each year. The switch was set to begin this spring and will be in all stores by 2020.

Late last month, General Motors announced plans for a zero-emissions vehicle program. The program, which could have over seven million long-range electric cars on the road by 2030, could potentially save 375 million tons of carbon emissions.

The State of California is looking to eliminate all emissions statewide. By 2045, Governor Jerry Brown is looking to have a state free of all greenhouse gas emissions. Brown also signed a clean air bill that would also make California’s electricity emission-free in the same timeframe.

Take a Home Warranty Quiz. Get matched with an Authorized Partner.