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May 19, 2004
Carbon Disclosure Project Report and Greenhouse Gas Protocol Release Second Editions
    by William Baue

Climate change initiatives get a significant boost this month with the release of two revised editions of a report and a protocol for addressing global warming.

Today in London and Hong Kong, the Carbon Disclosure Project (CDP) is releasing its second report on how companies in the FT500 Global Index are addressing climate change, greenhouse gas (GHG) emissions, and the shift to a carbon-constrained economy. Earlier this month, the World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI) released the second edition of their Greenhouse Gas Protocol, which has become the most widely used global standard for corporate accounting of GHG emissions. Taken together, these two developments represent a significant step forward in facilitating corporate mitigation of climate risk.

Investor and corporate attention to climate risk has heightened since the first CDP report (CDP1) was released in February 2003. Membership in the CDP since then has gone from 35 institutional investors representing $4.5 trillion in assets to 95 groups with over $10 trillion--the equivalent of the 2003 US Gross Domestic Product. And while less than half (47 percent) of FT500 companies responded to the CDP1 questionnaire, significantly more than half (59 percent) responded to the questionnaire for the second report (CDP2). Of the respondents, a "clear majority" considers climate change as a business risk and a business opportunity.

"Investors are saying that climate change can impact shareholder value both positively and negatively, and the market needs information to assess and value the issue," said James Cameron, CDP chair.

CDP2 includes the Climate Leadership Index (CLI), a list of 50 companies determined by report author Innovest Strategic Value Advisors, a global sustainability research firm, to have best addressed a wide range of climate change issues in their sector. Factors assessed included emissions management, reporting, and trading, and the establishment of emissions targets. Climate Leaders include AEP (ticker: AEP), BP (BP), BHP Billiton (BHP), Citigroup (C), Dow (DOW), Ford (F), International Paper (IP), Swiss Re (TUKN.SW), Unilever (UN), and UPS (UPS).

CDP2 also offers examples that provide a stark contrast on how companies in the same sector are approaching climate change.

United Health Care Group (UNH) replied that "our mission is to facilitate and advance health . . . As such, impacts from climate change would be indirect or non-existent." Other companies, such as Bayer (BAYG), Microsoft (MSFT), and Sara Lee (SLE), responded similarly, revealing an ostrich-like strategy of sticking their heads in the sand.

On the other hand, Baxter (BAX), another healthcare company, replied that it "views climate change as one of the most significant environmental challenges facing mankind today" and that it "uses the WBCSD GHG Protocol . . . to calculate all GHG emissions." GE (GE) similarly responded that it uses the WBCSD/WRI GHG Protocol, and CDP2 noted that the use of such standardized emissions measurement systems is on the rise.

One of the strengths of the GHG Protocol is the fact that is serves as a model or basis for so many other emissions reporting, reduction, and trading programs. These include the Global Reporting Initiative (GRI), the US Environmental Protection Agency (EPA) Climate Leaders Initiative, the Chicago Climate Exchange (CCX), and the European Union Emissions Trading Scheme (ETS). The International Organization for Standardization (ISO) has also signaled its intent to be compatible with the GHG Protocol.

"The widespread adoption of the protocol contributes significantly to the standardization and harmonization of GHG accounting and reporting frameworks worldwide," said Björn Stigson, president of WBCSD.

Changes to the revised edition of the GHG Protocol Corporate Accounting and Reporting Standard, as it is officially known, include the addition of more case studies, annexes, and guidance. In response to company requests, the revised edition also includes an entire new chapter on how to move from developing emissions inventories to setting credible GHG reduction targets.

The GHG Protocol Corporate Standard stipulates that it should not be used to quantify reductions from GHG mitigation projects, as the WRI and WBCSD intend to release the GHG Protocol Project Quantification Standard for this purpose.


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