Correlations between Corporate Climate Change Management and Financial Performance:
A Case Study of Japanese Automobile Manufacturers
131
Table 6. Climate change performance index: emissions re-
duction activity.
Topic Detail
Weighting
factor
Emissions reduction activities 0.37
Emissions avoided through use
of goods and services 0.36
Emissions
reduction activity
Emissions offsetting 0.27
Table 7. Corporate climate change performance index:
communication.
Topic Detail
Weighting
factor
Disclosure in annual report 0.34
Disclosure in corporate social
responsibility or environmental report 0.36
Communication
Engagement with policy makers 0.30
tween these factors.
The selected topics were 1) governance and strategy, 2)
risks, 3) opportunities, 4) emissions accounting, 5) emis-
sions reduction target, 6) emissions reduction activity,
and 7) communication. Governance and strategy 1) in-
cludes the factors of climate change strategy, respons-
bility for climate change within the company, and me-
chanisms for reviewing status and progress on climate
change (Table 1). A corporate business strategy that was
directly related to climate change mitigation or adapta-
tion received a high numerical rating and additional
points if the strategy was likely to achieve significant
emissions reductions. A company received points for the
responsibility factor if it managed climate change issues
on a company-wide level, by a board committee, a spe-
cific designated department, or by the CEO or other sen-
ior executive. Similarly, an established review mecha-
nism for climate change management, progress, and
status received points. After rating the three items (strat-
egy, responsibility, and mechanism) for all samples, we
performed principal component analysis. In the analysis
we used a correlation coefficient matrix, calculated ei-
genvalues corresponding to the contribution ratio and
eigenvectors for each eigenvalue, and derived principal
component scores for each eigenvector. In the case of
these three items, the first principal component score was
considered to represent the relative strength of the cor-
poration’s climate change strategy and governance of its
implementation. The eigenvector for the first principal
component was used as the weighting factor for govern-
ance and strategy.
Tables 2 and 3 show the various factors considered in
the identification of climate change risks and opportuni-
ties, with subcategories of regulatory, physical, and other.
We used survey data on corporate processes for assessing
risks and opportunities, the frequency and the respons-
bility for them, and related factors to evaluate how well a
company recognizes risks and opportunities, estimates
their impact, and tries to manage them. Even if a com-
pany faces serious risks, they are rated highly if they
recognize the risks and the impact and introduce appro-
priate risk management. The same analytical method as
described above was used to obtain the first principal
component, which represents the relative degree that a
company tries to assess and manage risks and opportuni-
ties.
An emissions accounting score (Table 4) was derived
from available survey data on monitoring Scope 1, 2, and
3 emissions and emissions intensities, and whether each
is verified or assured by a third party. The actual values
of emissions amounts and intensities were not considered
relevant; instead, we considered simply whether they
were assessed by timely and reliable methods. Separate
ratings were given for domestic and foreign corporate
operations.
Emissions reduction target (Table 5) was evaluated by
whether a company sets a target for Scope 1, 2 and 3
emissions.
Emissions reduction activity (Table 6) scores whether
a company introduces emission reduction activities for
Scope 1, 2 and 3 emissions, whether customers can re-
duce their own emissions by using the company’s goods
and services, and whether a company originates or pur-
chases offsetting carbon credits.
The communication component of the index (Table 7)
represents corporate disclosure and engagement with
policymakers. Points were given if a company discloses
their climate change information such as reduction tar-
gets or number of emissions in their annual report or in
some other voluntary report, such as a corporate social
responsibility report. A company also was given points if
it engages with policy makers on climate change taxation,
regulation or carbon trading through direct discussion or
participation in national committees.
2.2. Corporate Financial Performance
We analyzed corporate profitability, growth potential,
and the enterprise value (EV) of companies with refer-
ence to their financial statements and share prices. As
indicators of profitability we used the return on turnover,
return on equity, return on assets, and return on invest-
ment. We used sales growth rate and the profit growth
rate as indicators of growth potential.
3. Analysis of Correlation between
Corporate Climate Change Management
and Financial Performance
We analyzed the correlation between corporate climate
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