The Carbon Disclosure Project is unique among CO2-reduction initiatives. By using the power of capital markets it fores corporations to take responsibility for emissions caused by their business.
 | The Carbon Disclosure Project Report 2006 covers CO2-emissions from 225 companies that manage some 31 trillion dollars (Photo: CDP) |
The numerous effects of accelerating climate change are turning into major corporate risks with implications for the value of investments in corporations worldwide. This makes it necessary for investors – asset managers, banks, insurance companies – to improve their understanding of how climate change will affect a company’s business activities, earnings and value.
According to Joachim Faber, CEO of Allianz Global Investors, climate factors play an increasingly important role in financial analysis.
“As an investor, we want to know whether the companies we are investing in are taking sufficient account of climate-related risks,” says Faber. “However, the data is often not available, sometimes not comparable, or of poor quality.”
 | Picture Gallery (click on the image to start)Carbon offsetting companies promise to neutralize greenhouse gas emissions. Does it work? (Photo: Reuters) |
In 2002 Allianz stepped forward as a founding member of what has become the largest institutional investor initiative on climate change to date: the Carbon Disclosure Project (CDP). It emerged from the conviction that the commitment of both corporations and investors could be a key to tackling climate change.
“When the CDP first approached us four years ago, the issue had barely made a ripple in the financial world; there was almost no coverage in the financial press, and investors and managers saw it as a fringe issue,” recalls Peter Teague, Director of Environment Programs at the Nathan Cummings Foundation, another CDP founding partner.
“From an American perspective, we can see now that Wall Street is waking up to climate change risks and opportunities.”
31 trillion dollars under surveillance
Today, the initiative consists of a force of 213 investors that manage a total of 31 trillion US dollars. Each year, the CDP launches a new campaign asking the world’s largest corporations to reveal their greenhouse gas emissions and other data relevant to climate change. In February 2006, the questionnaire was sent out to the 2,000 largest companies in the world, the results will be published in the CDP4 report in September.
The goal is clear. “We want to force companies to list the true (but often hidden) liabilities they may face from global warming among their financial disclosures,” says CDP Coordinator Paul Dickinson.
Many companies still behind the curve
CDP3, the Project’s last report from 2005, revealed that many companies still remain well-behind the curve, and display a large gap between awareness and action. Certain greenhouse gas emissions-related management tasks, including the integration of carbon costs into management accounting, are proving troublesome.
Just over half of the FT 500 reported their GHG emissions, but less than 50 FT 500 corporations actually reduced them over the last year. Only 51 percent of the respondents have implemented emissions reduction programs and 45 percent have established emissions reduction targets.
Nevertheless, the report also reveals many encouraging trends. More than 90 percent of the 350 FT 500 companies that responded identified climate change as either a commercial risk or an opportunity for their business. Not surprisingly, the companies that are most aware are those that have the greatest exposure to climate risks, e.g., electric utilities, auto manufacturers, and oil and gas companies. More than 85 percent reported that they had allocated management responsibility for climate change.
“Through our work we have discovered that CDP is very powerful in prompting conversations and debates inside corporations on climate change,” explains Paul Dickinson. “Through meetings with many companies, we have learnt that even where the management fails to respond to our request, they have often initiated internal discussions about establishing policies on climate change mitigation.”
Long-term goal: a clean energy economy backed by investors
The number of leading institutions that support the CDP demonstrates that the mainstream investment community is now seriously considering the strategic and financial implications of responding to climate change. It seems that their clients welcome this interest.
“We have not had a single client say, we’re not interested in this, stick to your spreadsheets,” says Allianz Global Investors CEO Joachim Faber.
The rapid rise in the number of investors supporting the Project from CDP3 to CDP4 shows how the project is broadening its relevance to investors. The CDP has the attention of corporations and investors, and is spurring many of them to action they may otherwise have postponed.
CDP Chairman James Cameron is confident that the climate-related aspects of corporate performance will play a crucial role in future long-term investments: “We are strongly convinced that appropriate leverage of this significant quantity of investment capital can contribute to catalyzing the development of a sustainable clean energy economy, and as a result make an important contribution to mitigating the potentially catastrophic impacts of climate change."
editor: Julia Leuffen
publishing date: March 29, 2006
