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September 21, 2005
Third Carbon Disclosure Project Survey Finds Increasing Action on Climate Change
    by William Baue

CDP3, now sponsored by 155 institutional investors with more than $21 trillion in assets, also reveals some significant footdragging by the Financial Times 500 companies.

Last week, the Carbon Disclosure Project (CDP) released the results of its third survey (called CDP3) of how Financial Times 500 (FT500) companies are responding to climate change. The survey revealed heightened activity in many areas compared to the second survey (2004's CDP2). For example, response to the survey increased to 70 percent, up from 59 percent in CDP2, and the number of companies flagging climate change as a risk as well as an opportunity doubled from 45 percent in CDP2 to 90 percent in CDP3. CDP signatories have significantly increased from CDP2, when 95 institutional investors representing $10 trillion in assets signed on, to 155 signatories with $21 trillion in assets in CDP3.

"Wall Street is waking up to climate change risks and opportunities," said CDP Chair James Cameron. "Considerably more of the world's largest corporations are getting a handle on what climate change means for their business and what they need to do to capture opportunities and mitigate risks."

"This all points to a continued elevation of climate change as a critical shareholder value issue for investors," Mr. Cameron added.

Since CDP2, heavyweight institutions such as the California Public Employees Retirement System (CalPERS--the largest US public pension fund) and the California State Teachers Retirement System (CalSTRS--the third largest) have come onboard CDP.

The past year has also seen companies coming around on the issue of climate change. For example, Cinergy (ticker: CIN), which is merging with Duke Energy (DUK), answered a shareholder resolution by issuing a report on its responses to climate change, as well as including stakeholder interviews on climate change in its 2004 annual report.

"The world is warming, and human activities have contributed to that warming--what the impacts will be I don't think we yet fully understand," said Jim Rogers, CEO of Cinergy and CEO designate of Duke, at a press conference for the release of CDP3. "Paul Anderson, the Duke Energy chairman, has been out there talking about a carbon tax--now, I tend to go more in the direction of cap and trade, but the thing that we share the most is the notion that we will live in a carbon constrained world in the future."

Both carbon taxes and emissions trading are market based tools for effecting carbon emissions reductions. Carbon taxes are "price-based" policy instruments that set a fixed cost on carbon emissions to increase price as a means of decreasing demand. Emissions trading, on the other hand, sets a fixed amount of total carbon emissions, thus allowing trading to set a market value on emissions so that they can be traded as an incentive for reduction. Examples of emissions trading are the Chicago Climate Exchange (CCX) and the European Union Greenhouse Gas Emission Trading Scheme (EU ETS).

Mr. Rogers advocates simplicity ("simple is good, simple is practical") in government responses to carbon constraints.

"I want Congress to deal with greenhouse gases now for practical reasons," he stated, implying that doing so would level the playing field between first movers and laggards. "As a practical Midwesterner--with a Kentucky accent, of course--I need to know now what environmental requirements we need to meet, and when we need to meet them."

At the conference, UK Secretary of State for Environment, Food, and Rural Affairs (DEFRA) Margaret Beckett said that she is very optimistic that the world is beginning to understand the implications of global climate change. "Slow, peak, reverse" is the trend she sees in climate change mitigation. She applauded investors for asking companies to disclose information on their responses to climate change.

"It's your investment power that encourages businesses to take action," she said.

CDP3 finds evidence of some action. For example, 86 percent of the 354 responding FT500 companies reported allocating management responsibility for climate change, and 80 percent disclosed emissions data. Almost two-thirds of respondents (63 percent) are taking steps to assess their climate risk and institute strategies to reduce emissions of greenhouse gases (GHGs), the primary pollutants associated with climate change.

On the other hand, CDP3 also reveals significant inaction when it comes to actually implementing changes. While just over half of the FT500 reported GHG emissions in CDP3, less than 50 FT500 companies made GHG emissions reductions in the last year. A little over half (51 percent) of respondents have implemented emissions reduction programs, and less than half (45 percent) have established emission reduction targets. And only about a third (34 percent) have taken early action in emissions trading.

CDP3 recognized a number of "best-in-class" companies "Climate Leadership Index." This list includes industrial conglomerate General Electric (GE), Duke, and American Electric Power (AEP) in the utilities sector, Citigroup (C) in finance, Bristol-Myers Squibb (BMY) in pharmaceuticals, Ford (F) in autos, and UPS (UPS) in the transport and logistics sector.


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