Carbon Disclosure Project Expands Corporate Reporting
By David Beck, Carbon Insider
When large investors speak, corporations tend to listen. Over 300 of the largest institutional investors in the world, with collective assets under management of over $57 trillion, have indeed spoken. They want firms to provide them will reliable information on the business risks and opportunities emerging from climate change.
But how best to collect this vital data? Through an association? Government agency? Private data firm? The task has fallen to a small, not-for-profit firm based in the UK called the Carbon Disclosure Project (CDP). The organization has certainly made its impact felt around the corporate world as there are now over 3,000 of the largest companies filing reports on their carbon emissions and what they intend to do about lowering them.
CDP claims that its website, www.cdproject.net, is “the largest repository of corporate greenhouse gas emissions data in the world.”
“Investors are very worried about climate change. It gets more important to them every day,” Paul Dickinson, CEO of the CDP tells the Carbon Insider in an exclusive interview. Investors include many of the best known firms in the world such as Goldman Sachs, Merrill Lynch, Allianz and HSBC.
For the past few years, CDP has sent their climate change questionnaires to an ever growing list of the world’s foremost firms. While most of the data in the reports are designed to let investors know what companies are doing about climate change and how it affects their bottom lines, the data is for the most part open to the public. Firms have the option of not opening the lid on proprietary information in their reports to CDP.
Firms Need To Discover Ways to Profit From Climate Change
“Companies answer about the risks and opportunities,” says Dickinson. They answer about the amount of emissions they’ve got, about their technologies and about who is responsible.” Investors also want to know how companies plan on taking advantage of for-profit businesses in climate change. “You also have to learn to make money out of it or you are doomed,” comments Dickinson.
It usually takes four months for CDP to gather the information beginning early in the year. Data is published in September. Last year’s main summary report was downloaded 8,000 times in 10 days, according to Paul Dickinson.
Besides serving the data needs of investors, CDP wants to raise awareness within the business and governmental communities of the risks and opportunities of climate change. The firm is funded by private donations as well as by governments including, UK, France, Sweden, Netherlands, Australia and the U.S. Environmental Protection Agency.
The data in these reports could become crucial to investors if the U.S. moves to some kind of cap-and-trade program as the EU has. Currently all three presidential candidates and many in Congress support a cap-and-trade program and are committed to some kind of climate change regulation in the near future. The CDP reports will reveal which firms are likely to have to pay for credits because of large-scale emissions and which may be in position to profit from selling credits and developing emission control or energy reduction material or equipment.
Paul Dickinson is constantly evaluating new ways to expand the CDP’s reach and mission. This year the group will send questionnaires to China’s 100 largest firms. Expansion is also on tap into Latin America, Korea, and Spain. He is also planning to eventually set up reporting in 15 other countries including Mexico, Russia, Ukraine, Poland and Israel.
Supply Chain Initiative
Another major initiative launched last year by CDP is the “Supply Chain Leadership Collaboration (SCLC) This group is designed to help large firms assess greenhouse emissions through their chains of suppliers. Among the large “purchasing” organizations involved in the SCLC are: Dell, Hewlett Packard, L’Oreal, PepsiCo, Cadbury Schweppes, Nestle, Procter and Gamble, Tesco, Unilever and Imperial Tobacco.
The Supply Chain Project initially began as a partnership between CDP and Wal-Mart which aimed to engage its supply chain to report on climate and energy reduction activities. Wal-Mart wants to measure the amount of energy used to create products throughout its supply chain including the procurement, manufacturing and distribution processes. The goal is to make its supply chain energy efficient.
“By bringing together the purchasing authority of some of the largest companies in the world CDP will encourage suppliers to measure and manage their greenhouse emissions,” says Dickinson. “This will enable large companies to work towards managing their total carbon footprint, as the first step to reducing the total carbon footprint is to measure its size.”
Another project for the CDP is the development of standardized environmental reporting formats with the big four accounting firms and seven other organizations. The Climate Disclosure Standards Board starting up about a year ago and is going strong.
Among the organizations participating: the California Climate Action Registry, Carbon Disclosure Project, Ceres, The Climate Group, International Emissions Trading Association, World Economic Forum Global Greenhouse Gas Register and World Resources Institute.
CDSB member organizations have agreed to align their core requests for information from companies in order to ensure that they report climate change-related information in a standardized way that facilitates easier comparative analysis by investors, managers and the public. The focus will be on the disclosure of the following key climate issues in company annual reports and other related documents:
Total emissions
Assessment of the physical risks of climate change
Assessment of the regulatory risks of climate change
Strategic analysis of climate risk and emissions management
“Climate change and the implications on business process and disclosure are finally becoming the topic of discussion that they deserve to be. Ernst & Young and PricewaterhouseCooopers are enthusiastic and supportive participants in this dialogue,” said Paul Ostling, Ernst & Young Global Chief Operating Officer, and Willem Brocker, PricewaterhouseCoopers Global Managing Partner.
Is CDP Having An Impact?
Is there any evidence the CDP is having an impact on climate change, we asked Paul Dickinson. His response: We have very specific climate problems. We have put about 200 billion pounds of carbon into the atmosphere and the Earth is getting much hotter now. The North Pole is melting. The glaciers are melting and the sea level is rising. The problem is getting worse. We have to cut down dramatically the amount of carbon dioxide we put into the atmosphere.”
He believes by pushing large firms to measure emissions, he is in effect forcing them to take action.
“There is a saying,” points out Dickinson, “‘what gets measured, gets managed.’ Before we stared measuring these emissions, no one knew or cared what was going on. Now about 25% of all corporate and human initiatives in climate change are reported through our website.”
According to CDP’s 5th Annual Global Report, issued last September, 95% of companies that believe climate change poses a commercial risk institute a GHG (greenhouse gas) reduction program with specific targets and deadlines.
In addition, 76 percent of responding companies reported implementing a GHG emissions reduction initiative compared to 48 percent in the prior year’s CDP4 report. Eighty percent of respondents see climate change as presenting risks and opportunities to their business.
Many leading U.S. companies are devoting more resources to climate change and developing response strategies, but they have not made as much progress as the international FT500 firms. More of the U.S. companies view climate change as posing commercial risks rather than opportunities. Only 29 percent of those surveyed have implemented greenhouse gas reduction programs with specific targets and timelines.
These numbers might well change in the 2008 report as many more U.S. companies have bought into the notion that climate change sensitivity is being demanded not just by investors but by customers, employees and other stakeholders as well.
“Increasingly, investors view good carbon management as a sign of good corporate management,” said Paul Dickinson. “Our investors are using the quality of the disclosure as a very useful tool to assess how seriously a company is taking the issues of climate change. As CDP data plays an increasingly important role in informing investors on a company’s approach to climate change, the pressure is increasing on companies to respond. And by moving CDP data collection into company supply chain management, CDP’s reach will grow enormously.”
The CDP also created a Climate Disclosure Leadership Index made up of 68 FT500 companies that show distinction in their responses to the CDP survey based on their reporting of greenhouse gas emissions and assessment of climate change strategies.
Among the firms with leading disclosure practices highlighted in the CDLI include Hewlett Packard, Citigroup, Coca Cola, Wal-Mart Stores, Inc., Royal Bank of Scotland, Allianz and Unilever. The S&P500 report rates companies under the Climate Governance Index on disclosure, emissions reductions and strategy, with leaders including DuPont, General Motors, Consolidated Edison, Alcoa, United Technologies and 3M.