New tools are allowing investors to see how countries and cities are preparing for environmental change, as Sarah Murray reports
As investors start to focus on how environmental issues affect their portfolios, a growing number of measurement tools are available to show them not only where they might face the biggest risks but also where potential opportunities lie. It is not just climate change - other environmental indicators are also being measured and compared across countries, sectors and even cities.
Yale University’s Environmental Performance Index ranks countries on 25 indicators that are tracked across 10 policy categories and presents an overview of how successfully governments are meeting their environmental policy goals. Top scorers in the 2010 ranking – which rated some 163 countries – were Iceland, Switzerland, Costa Rica and Sweden, while coming last were Angola, Mauritania, The Central African Republic and Sierra Leone.
Another new index rates the way countries create economic value through clean-tech and low-carbon products and services. The Climate Competitiveness Index (CCI) assesses 95 countries and focuses on two areas – climate accountability (whether a country has a clear climate strategy that is supported by relevant stakeholders) and climate performance (nations’ capabilities and success in achieving climate goals). It also correlates the two, noting that countries with strong climate performance tend to have higher levels of climate accountability.
There is much to celebrate in the 2010 results. Almost half (46 per cent) of the countries assessed have improved their climate accountability since the 2009 Copenhagen Climate Change Conference, while improved climate competitiveness was noted in 32 countries.
Measuring risks posed by climate change is one thing but a more complex challenge is the increasing stress on global water resources
CCI also reveals that activity on the environment is not all policy driven. The 2010 report highlights, for example, the fact that the South Korean government allocated more than 80 per cent of its $38 billion economic stimulus package to green investment.
By contrast, in the US – where climate change is the source of fierce political debate – much activity comes from civil society organisations, which are joining forces to lobby government for more robust climate change legislation.
While much of the data in the CCI assesses how countries are capitalising on climate change to build stronger economies and create green jobs, the Global Adaptation Index (GAIN) measures countries’ exposure to climate change and how well prepared they are to adapt to this. In the 2010 ranking, Denmark emerges as the least vulnerable country and the third most ready. However, as well as ranking countries, the index also aims to encourage the private sector to make investments that will shore up national climate resilience.
On the vulnerability side, 24 indicators assess factors that drive human wellbeing (food, water and health) and infrastructure (coastal, energy and transport). Meanwhile, 14 indicators – measuring economic, social and governance readiness – help judge whether private sector investments can increase climate resilience and meet environmental challenges such as resource scarcity.
But if measuring risks posed by changing temperatures and rising sea levels is one thing, a more complex challenge is the increasing stress on global water resources – an issue that some argue is more pressing than climate change.
While carbon emissions can be accounted for using a standard measure of weight, water has a different value depending on where it is located, whether in a desert, an urban environment or a water-abundant mountain region. Water risk is therefore inherently a local issue.
Nevertheless attempts are being made to provide a global overview of the risks posed to countries and companies by water scarcity and deteriorating water quality. In the US, the World Resources Institute is working with Goldman Sachs and General Electric to develop a Water Index that will assess water risks in different regions and sectors using a standard methodology that can be adapted and replicated across different parts of the world.
Increasing attention is also being paid to the environmental performance of cities. More people now live in cities than outside them, and they are thought to generate more than 70 per cent of global climate emissions, consume billions of gallons of water and eat up more than two-thirds of the world’s energy.
The Economist Intelligence Unit’s Green City Index, produced for Siemens, has an online interactive map allowing users to compare performance on everything from waste management and sanitation to air quality and land use.
More indices are likely to emerge as governments, business, citizens and investors seek to assess the dangers of everything from waste generation to the scarcity of rare earth metals.