February 05, 2007
S&P 500 Lags on Climate Disclosure, Electric Utilities Burning Economic Value Into Carbon
by Bill Baue
Two recent reports use findings of the 2006 Carbon Disclosure Project to assess limits of
transparency on climate risks and opportunities and drag on value creation at electric utilities.
Last week saw a flurry of activity on climate disclosure, or corporate reporting of greenhouse gas
(GHG) emissions data--primarily carbon dioxide (CO2). Two key reports based on responses to the
2006 Carbon Disclosure Project (CDP), the
fourth annual 10-point questionnaire sent to the biggest corporations in the world, were released.
commissioned by Ceres, a coalition of investors
and environmentalist groups, and Calvert, a
socially responsible investing (SRI) firm, assesses how S&P 500 companies address the four points of the Global Framework for Climate Risk Disclosure
in their CDP4 responses. The other report,
commissioned by California's two huge pension funds (CalPERS for public employees and CalSTRS for teachers) and the World Wildlife Fund (WWF), examines if electric utility companies are
adding or detracting economic value after factoring in carbon emissions.
Framework upon which the Ceres-Calvert report is based was first introduced in October 2006 by a
coalition including CalPERS, CalSTRS, CDP, and Ceres as well as the Global Reporting Initiative (GRI) and the Universities Superannuation
Scheme (USS). The Framework covers four
elements: total GHG emissions, physical risks, regulatory risks, and strategic analysis.
"The report's overwhelming conclusion is that disclosure practices among the nation's 500
largest companies are severely lacking," states the report. "Less than half [47 percent] of S&P
500 companies responded, and the responses received fell far short of the standards set by the
The US response rate compares poorly to the global rate--almost
three-quarters (72 percent) of the FT500, a listing of the largest companies in the
world, responded to CDP4. Likewise, S&P 500 companies provided only about a quarter of the
information covered in the Global Framework in their CDP4 responses. Entergy (ticker: ETR), the company
with the most complete disclosure, provided 64 percent of the information covered in the Global
"Companies provided more information about qualitative measures such as
corporate governance than they did about quantitative measures such as emission reduction goals or
the impact of regulations that would impose a cost of carbon," the report states.
Exacerbating these low levels of disclosure is the relatively high level of refusal to share
this information publicly, as nearly a third of the respondents designated their responses
"confidential," thus making it available only to CDP4 signatories.
underscores the need for the SEC to take action to include climate risk as part of their
'materiality' standard for corporate reporting, and for the companies of the S&P 500 to take heed,”
said Howard Rifkin, deputy treasurer of
the state of Connecticut, a leading activist on climate risk.
The report makes ten
recommendations to companies to improve climate disclosure, including creating a climate management
team with board oversight and setting absolute GHG emission reduction goals and deadlines with an
action plan for achieving results. For investors, it recommends incorporating climate risk and
opportunity into investment analysis and selection, and addressing these issues through active
The electric utilities report reflects a similar response rate as the
S&P 500 report, with 112 of 265 global power companies responding to CDP4. The electric utilities
report focuses on quantitative data, with UK-based SRI research firm Trucost applying the TRUEVA methodology it devised with Yale
University Professor Bob Repetto that
integrates environmental externalities into "economic value added" (EVA) calculations.
Unfortunately, only 25 companies disclosed sufficient quantitative data for a TRUEVA analysis.
Of these 25, only six added value, while the remaining companies detracted value from the economy
once their carbon emissions were factored into the equation. Pacific Gas & Electric (PCG) scored highest
with a TRUEVA measure of $395 million after the damages it produced were subtracted from surpluses
generated. Coal-burner American Electric Power (AEP) had the lowest TRUEVA measure of
a negative $3.3 billion based on a cost of $21 per ton for carbon emissions--the price set under
the European Union Emission Trading Scheme.
"This study shows investors that the true
value of utilities is considerably less once the utilities' environmental costs have been
incorporated into the analysis," said Russell Read, chief investment officer of CalPERS. “As this
analysis demonstrates, it is imperative for utilities to disclose the environmental data required
by investors so they can more accurately assess a firm's true value and associated risk."
Bookending the release of these two reports were a couple of other significant developments on
climate disclosure. The week before these publications saw the launch of the Climate Disclosure
Standards Board (CDSB) at the World Economic Forum (WEF) in Davos, Switzerland. The CDSB gathers under
one umbrella all the key players on climate disclosure--including the California Climate Action Registry, CDP, Ceres, the Climate Group, International Emissions Trading Association, WEF Global
Greenhouse Gas Register and World Resources Institute (WRI.)
The CDSB seeks to harmonize carbon disclosure in
company annual reports around the four key points of the Global Framework, raising the profile and
relevance of this information to all investors and stakeholders (instead of just those who already
understand the importance of climate risk.)
"It's time to raise the bar on corporate
disclosure of carbon emissions reporting," said Jim Rogers, CEO and chair of Duke Energy (DUK). "Adopting
this standard is key to addressing the climate issue."
Capping off the activity was the
February 1st announcement by the CDP of its dissemination of the 2007 questionnaire to 2,400 of the
largest quoted companies in the world to gather data for CDP5. The number of signatories is up from 225 for CDP4 to 284
in CDP5, with assets under management increasing from $31 trillion last year to $41 trillion