New research from Merrill Lynch & Co. Inc. examines the willingness of companies to tackle environmental issues.

The report outlines how companies are identifying the benefits of taking a pro-environmental stance; how increased regulation may force companies to meet reduced emissions targets; how investors are demanding higher levels of carbon emissions disclosure; and how greater environmental awareness among consumers is influencing their buying behaviour.

“We believe companies will find it harder to hide behind bad environmental habits while governments impose legislative changes, investors become more engaged in these issues, and consumers demand more transparency on the supply chain,” says Zoe Knight, head of socially responsible investment research at Merrill Lynch and author of the report. “In our view, investors should value these financial and reputational risks accordingly.”

The report highlights that firms that take the lead in combating environment challenges can make operational savings, such as lower energy and transport costs, and can be innovators by identifying new market and product opportunities. Other benefits include a lower risk of supply chain and workforce disruption, and a better risk management strategy. Additionally, as curbing carbon emissions rises up the political agenda globally, companies who lead on environmental issues could be well-positioned to shape regulations and policies, it says.

In Knight’s view, the risk of severe financial penalties from carbon emissions is higher in the medium to long-term. While power generation industries emit the greatest amount of CO2 (40%), it is an issue for companies in every sector.