The Carbon Disclosure Project
As climate change is proven to be a scientific reality rather than a figment of the environmentalist’s imagination, businesses have had to adapt to a new type of economy. Increasingly organizations are looking for ways to measure and report on their approach to climate change, emissions and other related issues. Paul Simpson from the Carbon Disclosure Project (CPD) explores the growing interest for carbon accounting.
It is unlikely to have escaped your attention that climate change has drastically risen up the political, media and corporate agendas over the last few years. There is now an overwhelming scientific consensus that climate change is real, caused by human activity and poses immense challenges to our society this century. The Intergovernmental Panel on Climate Change (IPCC) predicts an average increase in temperature of between 1.4 to 5.8 degrees celsius this century. The variance in this prediction is based on the scale of our greenhouse gas (GHG) emissions this century. This will depend largely on whether we take serious measures to reduce them or whether we carry on with ‘business as usual’.
The generally accepted view is that a warming of up to 2C will not drastically damage our way of life, anything above this is deemed to be very dangerous and may cause immense disruption to society on a global basis. The science of climate change is leading to increased regulation, a price for, and a trading market of carbon dioxide emissions credits and a changing landscape for business. The recent Stern review on the economics of climate change has focussed the minds of investors and business alike further.
It is within this context the CDP provides a secretariat for institutional investor collaboration on the business implications of climate change. On behalf of its institutional investor signatories, the CDP sends an annual request to all listed companies asking for information relating to their GHG emissions and the steps they are taking to reduce the risks resulting from climate change. The purpose of CDP is to encourage companies to measure, disclose and manage their GHG emissions and to, therefore, provide investors with information to better understand the risks and opportunities that climate change poses to the businesses.
CDP is now the world’s largest investor collaboration on climate change. In 2006 CDP was supported by 225 major investors with more than $31 trillion in funds under management - approximately one third of all the worlds invested assets. The evolution of CDP since 2003 demonstrates the increase in interest from investors and corporations in climate change. In 2003, CDP attracted just 35 investment organisations representing US$4.5 trillion in assets under management. However, this has grown year after year to US$10 trillion in 2004, US$21 trillion in 2005 and US$31 trillion in 2006.
The signatories behind CDP4 included ABN Amro, ABP, AIG Global Investment Group, Allianz, AXA BMO Financial Group, CalPERS, CalSTRS, CIBC, Credit Suisse, HSBC, Merrill Lynch, Mitsubishi Tokyo Financial Group, New York State Retirement System, Scotia Bank, State Street and UBS.
Henri de Castries, chairman of the management board and chief executive of AXA and a CDP signatory, recognises the importance of CDP commenting that: ‘Climate change and the impact that it will have on key industries such as agriculture, tourism, energy, transport and insurance, is as important as interest rate risk and exchange risk. As a major global investor, we support the CDP and value the information that it provides to help us make informed decisions on the subject.’
Historically, CDP has written to the FT500 companies, the 500 largest globally by market capitalisation. In 2006 we expanded to write to 2,100 globally and will increase this to 2,400 in 2007. This year 360 (72 per cent) the FT500 companies answered the CDP questionnaire, in total over 950 corporations provided us with this information. Each year we analyse the information from companies and produce a report outlining this, the corporations’ reports and the subsequent analysis are available from our website www.cdproject.net for free. Key findings from this year's FT500 company responses include:
Eighty seven per cent of companies that answered the CDP4 questionnaire said they consider climate change to represent commercial risks and/or opportunities- 84 per cent disclosed their GHG emissions data
- 68 per cent developed products/services in response to climate change
- 64 per cent allocated board level or upper management responsibility for climate change and related issues
- 53 per cent considered emissions trading opportunities
- 43 per cent implemented emission reduction programs with targets
As companies increasingly focus on measuring and reporting their climate impact they are seeking guidelines and standards on how to do this. Investors are calling for more standardization in this measurement and data that has been audited or verified. CDP specifically asks companies whether their emissions data has been externally audited or verified and many companies are already doing so. There is also a substantial body of work around methodologies for carbon accounting, the most prominent being the greenhouse gas protocol www.ghgprotocol.org. This is leading to suggestions that there should be a formal emissions accounting standard and the accountancy firms are showing more interest as fees from work in this area grows. On a lighter note, the triple bottom line for company reporting, often described as people, planet and profit, is inherently good for accountancy firms, as it will lead to ‘three times the audit fee’.
About the author
Paul Simpson is the project director for the Carbon Disclosure Project. For more information visit www.cdproject.net.
