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September 13, 2012
CDP Releases Annual Reports on Corporate Carbon Management
    by Robert Kropp

Responding to more than half of the world's invested capital, large companies increasingly view climate change as a current business concern, but too little is being done at present to avert a climate crisis.

For ten years, the Carbon Disclosure Project (CDP) has issued simultaneous reports on the carbon management efforts of companies in the Global 500 and, in the US, the S&P 500.

The CDP recently published this year's surveys, which are now conducted on behalf of 655 institutional investors representing $78 trillion in assets in management. In a press conference announcing the publication of the reports, Paul Simpson, CEO of the CDP, said, "Over the last ten years we've seen an eighteen-fold increase in investor interest in climate change. More than half the world's invested capital is asking for this information from companies through CDP."

Much of the information included in both reports point to improvements in corporate attention to climate change. In spite of the lingering economic crisis, the Global 500 report found that "96% of respondents report that they still have board or senior executive oversight of climate change." Most companies also report that climate change has been integrated into their overall business strategies.

The percentage of companies in the Global 500 reporting that the physical risks of climate change have become a current concern has nearly quadrupled since 2010, the CDP found, reflecting the marked increase in extreme weather events recorded over the past two years. And, the report notes, "Analysis…suggests that companies achieving leadership positions on climate change generate superior stock performance."

In the US, the S&P 500 report notes that climate change disclosure by companies has increased in the aftermath of Securities and Exchange Commission (SEC) guidance on the issue, and the average disclosure score is now on a par with that of Global 500 companies.

"In some cases, the S&P 500 is narrowing the gap with the Global 500," the report states. "In the absence of global or national regulation, business is stepping into the leadership vacuum and embracing climate change as a business imperative."

Despite the improved attention to climate change by corporations, however, the pace of mitigation and adaptation is not nearly enough at present to avoid an impending climate crisis. "By 2020, countries are going to need to reduce emissions by about four percent in order for us to achieve the two degree target that governments have set," Simpson said at the press conference. "If we look at what corporations are doing, the ambition isn't high enough. The average long-term targets are only around one percent, which shows a real chasm between what is needed to avoid a climate crisis."

"If we don't internalize the costs of climate change and resource scarcity into business decisions and investment decisions, then nature will do it for us. That will be far more costly and far harder to plan for," he continued. "Clearly, what's needed is an increase in the pace and the scale of action from governments, investors, and businesses."

PwC co-authored the report, and at the press conference, Malcolm Preston of the professional services firm observed, "Emission intensity per dollar of GDP is increasing again, as the global economy begins to recover from the recession."

Stating the reality in even starker terms, Fatih Birol, Chief Economist of the International Energy Agency (IEA), said, " In 2011, carbon emissions reached a record high, despite the slowing down of economic activity. This put us perfectly in line with a temperature increase of six degrees Celsius, which puts us on a very dangerous path."

The 2011 World Energy Outlook published by IEA warned that if business as usual—including government subsidies for consumption of fossil fuels, which surpassed $400 billion in 2010—is allowed to continue, global temperatures will rise by 6°C.

The last time global temperatures rose by 6°C was at the end of the Permian period, which occurred about 250 million years ago. The event led to the extinction of 95% of the planet's species, according to Mark Lynas, the author of Six Degrees: Our Future on a Hotter Planet.

Furthermore, "The attention of governments is more and more focused on the financial crisis, and the importance of climate change is sliding down," Birol continued.

The Global 500 report acknowledges the insufficient pace of the business approach to climate change, stating, "Emissions remain closely tied to economic activity. Unless businesses make wholesale changes to their business models, emissions will rise again once the economy recovers."

The S&P report, on the other hand, focuses largely on the progress made by US corporations in the absence of meaningful government action. CDP's executive chairman Paul Dickinson said of the findings, "The powerful American corporation is responding to a growing market demand and increasingly understands that transparency and action on climate change is a business imperative. Failure to act could result in a competitive disadvantage."

But at least one speaker at the press conference addressed the role of the US as by far the leading consumer of natural resources in an era of increasing resource scarcity. Referring to "a thousand-pound gorilla in the room," Alan Brown, a Senior Adviser at Schroders, a UK-based asset management company, said, "There are over a billion Chinese aspiring to consume like Americans, another billion Indians aspiring to consume like Americans, and there's a lot more in other developing countries. The developed world has no moral authority to say they can't consume in the way we do. And frankly, if we don't get leadership from the United States to change the way Americans consume, we're not going to get to where we need to be."


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