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October 08, 2008
Carbon Disclosure Project Publishes Sixth in Annual Series Detailing Corporate Emissions
    by Robert Kropp

Investors network elicits data from corporations globally and finds improved focus on risks and opportunities of climate change.


When a global network of investors with assets of $57 trillion wants corporations to quantify and disclose information on carbon emissions, boardrooms the world over increasingly accept the strategic benefits of measuring and managing carbon emissions.

The investors network in question is the Carbon Disclosure Project, a UK-based organization which has recently released the sixth iteration of its annual series of reports on corporate greenhouse gas emissions. Paul Dickinson, the organization's founder and CEO, describes CDP as "By far the largest investor network in the world."

Dickinson added, "CDP engages over 1500 corporations in its efforts to increase reporting on emissions. It also works with some of the world's largest cities to do the same."

CDP's goals in assembling the world's largest database of corporate greenhouse gas emissions are the management and reduction of emissions and climate change impacts by private and public sector organizations. Investors using CDP's reports gain a better understanding of the risks and opportunities from climate change in their portfolios.

This year's output consisted of three reports: the CDP6 Global 500 Report, which analyzed responses from 383 of the 500 largest corporations in the FTSE Global Equity Index Series; the CDP6 S&P 500 Report, which received responses from 321 of the US-headquartered companies of the S&P 500; and the CDP6 Asia Report, which sought responses from the region's 220 largest corporations.

The reports, as well as several others by the Carbon Disclosure Project, can be found on the organization's web site.

According to the CDP6 reports, the mindset in corporate boardrooms has evolved over the past decade, from characterizing concerns over climate change as the work of an environmental fringe to a more proactive role in monitoring and, in some cases, addressing the impact of carbon emissions.

In Dickinson's view, "The single most important positive trend to emerge from these reports is that many corporations have reduced their carbon emissions.

"Global warming occurs because of human activity, and worldwide emissions continue to rise. When corporations begin to employ energy efficiencies that reduce emissions—a couple of examples are attention to supply chains and the use of teleconferencing to replace air travel—they have a positive impact, one that has grown through the years of our reports."

In its CDP6 Global 500 Report, the Carbon Disclosure Project recorded a response rate of 77% to its requests for information, a response consistent with CDP5. Leading the way was the response rate of 83% among European companies, attributed by the CDP to the "relative maturity of the climate change issue in the region."

The North American response rate, up from 76% to 82%, reflected "increasing engagement on the climate change issue," according to the report. On the other hand, only 50% of Asian Global 500 companies responded.

Among the leaders in reporting from carbon-intensive industries were BASF, Iberdrola, Nissan Motor, and Bayer. Leaders from among the non-carbon-intensive industries included Barclays, Merrill Lynch, Taiwan Semiconductor Manufacturing and Tesco.

Members of the CDP Leadership Index are the companies with the highest scores for disclosure in response to the CDP6 questionnaire.

Overall, the CDP6 Global 500 Report found an increased corporate engagement with climate change issues. As climate science has grown more unequivocal about the extent of global warming, improvements in policy and the growth of carbon markets has led companies to take more active and public stands on climate change. Increased consumer awareness has prompted companies such as Wal-Mart to focus on carbon emissions along their supply chains.

Kevin Biernacki of EMC, a Massachusetts-based high tech company whose score of 98 placed it atop the CDP Leadership Index, said, "One of the areas we found more difficult to evaluate was the emissions along the supply chain. So we went to CDP asking for help, and we've begun working with other companies in our industry—many of whom share the same supply chain companies—to gather and report accurate information about such emissions."

On the other hand, the report also found much room for further improvement. Companies seek consistent guidance from regulatory agencies in order to "define organizational boundaries and carbon accountability." For example, utility companies that are seeking to build new facilities need a predictable regulatory environment. "These facilities are used for decades. What would the financial impact be if because of regulatory uncertainty the wrong materials were used in construction?" said Dickinson.

Respondents were often unwilling to provide emission forecasts, believing them to be too commercially sensitive for publication. And while 74% of respondents reported having greenhouse gas emissions reduction targets in place, only 56% would disclose them.

The CDP6 S&P 500 Report found that 64% of North American companies responded to the CDP's requests for information, up from 47% in 2006. The number of respondents reporting greenhouse gas emissions rose to 73%. The report also found that an increasing number of companies are developing emissions target programs.

According to the report, "More companies are viewing climate change risk not simply as an environmental or public relations issue, but as a game-changing set of business imperatives." Companies displayed a growing trend away from reporting generalized risks associated with climate change, instead revealing more thoughtful conclusions about risks personalized for their specific business operations.

Biernacki of EMC said, "In order to rank as the highest-scoring company in CDP6, we spent a great deal of time assembling information in response to the questionnaire. Our goal was transparency, and to accomplish it we had to provide as much information as we could on such data as emissions rates and population rates."

Furthermore, the report found that more companies are beginning to view climate change as an economic opportunity. "Forward thinking companies are recognizing that a strategy for addressing climate change can drive significant cost savings and efficiency improvements," the report states. "Companies are also seeing new-found opportunities in the carbon-constrained economy."

Katie Keita, Senior Manager of Global Investor Relations for EMC, said, "In the past couple of years, the convergence of mainstream and social investing has accelerated and is likely to continue to do so for the next few years at least. Our policy of open dialogue with our investors—we meet twice a year with them, and sustainability issues increasingly accompany interest in profitability—place us at strategic advantage for attracting responsible investors."

However, the report also found that US companies lag behind their European counterparts in addressing the issue of climate change. Only 33% have greenhouse gas emissions reduction targets in place, compared to 74% of respondents in the CDP6 Global 500 Report. Emissions trading schemes were relatively untested in the US until the first carbon dioxide emission permit auctions were held in the Northeastern U.S. in September 2008 under the Regional Greenhouse Gas Initiative.

When asked why the US lags so far behind Europe in the application of emissions trading—a practice that originated in the US—Dickinson said simply, "The law. Cap and trade programs are mandatory in Europe. The few voluntary programs in the US are just games."

Dickinson did say that the recent auctions held in the Northeastern U.S. should lead to a more widespread practice. "Regulations making such programs mandatory at the federal level have to be passed for the programs to be effective," he said.

Among the US leaders in reporting from carbon-intensive industries were PPG, Exelon, FPL and Consolidated Edison. Leaders from among the non-carbon-intensive industries included EMC, Merrill Lynch, Comerica and ProLogis.

Despite a relatively low response rate to the third version of the CDP6 Asia Report, the CDP nevertheless detected several heartening improvements. "The findings highlight the extent to which Asian companies critically affected by climate change are moving rapidly from a basic understanding of the issues to the implementation of practical corporate policies," the report states.

Companies have begun to view the risks from extreme weather as a function of climate change, a change in focus probably due to the recognition of the implication for corporate operations of such events. Additionally, global brands have encouraged Asian supply chain companies to begin reporting on carbon emissions.

Among the countries involved in the study, Taiwan had the most respondents—44 percent of the companies from which the CDP requested information. Korea followed, with 33 percent of companies responding (Japan was not included in the CDP6 Asia Report).

Overall, the report found that as market capitalization increased, so did the pressure to improve reporting on emissions. The report theorized that shareholder pressure was largely responsible for this phenomenon. An exception to this trend was China, where "relatively few large Chinese companies currently possess the systems or management commitment needed to address climate change issues at the company level."

Dickinson believes that improvements in corporate reporting over the years of the CDP studies give cause for cautious optimism. He stated, "Companies that do not address climate change as a force behind decision-making will only get poorer and poorer. Those that do will find opportunities to get richer and richer."

 

 
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