Monday, April 18, 2011

Follow the Money: The Carbon Disclosure Project (by Neil Fairhead)

Following the positive reception of this last post, "Turn Signals," guest blogger Neil Fairhead returns with a look at the Carbon Disclosure Project and what we should take away from its role in the climate debate.  

Two weeks ago, the Carbon Disclosure Project (CDP) held its first workshop in Canada. Who? What? Why should I care?

The CDP is a small NGO based in England that provides questionnaires on carbon consumption and emissions (employing an accounting framework created by the Greenhouse Gas Protocol Initiative and adopted by nearly every GHG standard and program in the world) to the largest corporations in the world.  Moreover, it openly states that the CDP will publish the results, not anonymously but by name. The surprising thing is that these large companies are actually responding! A majority of the Dow Jones index and the S&P 500 have taken the survey! The CDP's 2010 survey achieved an 82% completion rate by the Global 500! How on Earth?

The answer is money. The CDP's request for information is supported by institutional investors representing very substantial funds. Back in 2006 the CDP had 225 investors involved. This year they have 551 institutional investors representing over US$71,000,000,000,000 of assets under management and yes that is the right number of zeroes - $71 trillion. To put it in a Canadian perspective, that is thirty times the total market capitalization of all the 1516 companies listed on the Toronto Stock Exchange at the end of March, and is rivals the figures for global economic output. So why do these investors support this NGO?

Because people with a lot have a lot to lose. They focus significant attention on risk identification, reduction and management. Now I do not claim to read minds but let's try to read between the lines. I suggest these institutional investors back the CDP because they are concerned that there is a significant probability that climate change is real and that we will have to reduce carbon emissions with a resulting reduction in the value of carbon emitting corporations. Their actions suggest further that they believe that the combination of probability and impact (how much they will lose if carbon reduction become necessary) is big enough that they want their investments to measure and to state publicly how much carbon they are emitting.

     "The Carbon Disclosure Leadership Index is a very important metric: the more transparent the company, the less risk to discover additional CO2 emissions (and costs) moving forward" stated Thierry Bros, Senior Gas Equity Analyst, Société Générale

Because institutional investors also have a lot to gain, they are increasingly recognizing that good performance in the environmental, social and governance space is a predictor of good financial performance as well. As noted by Seb Beloe, Head of SRI Research, Henderson Global Investors, "By enabling direct comparisons between companies, improvements in the quality of company strategies and performance in this area will undoubtedly accelerate."

Of course the link to financial performance should not come as a surprise. Carbon dioxide is a waste product. Every bit of it that is emitted is associated with consuming fossil fuel - and fossil fuel (unlike sun, wind, waves or falling water) has to be paid for. Minimizing fuel consumption per unit of production is not only good for the environment, it is also good for the bottom line. It is a proxy for efficient operations processes.

If you read my last entry, you will know that I am interested in getting below the surface and identifying actions that signify a real shift in attitude and behaviour. Over the last year we have witnessed continued doubt being cast on the reality of climate change, or to be precise anthropogenic global warming. To be fair some comments demonstrate the duty of doubt that every scientist owes - but many more are driven by other agendas. When I hear or read about them, I reflect again on these institutional investors, of their knowledge, their resources and of what they have to lose and gain. Guess to whom I give more weight?  That's right, the actions of those with $71 trillion to protect and grow.

(Ed.: Recognizing the importance of emissions information to Canadian investors, the Ontario Securities Commission released CSA Staff Notice 51-333, which provides significant guidance to reporting issuers on the type of environmental, including climate, information they are required to disclose. This Notice was developed with helpful input from the Climate Change Lawyers Network, which provided the OSC with a significant submission on carbon disclosure rates among Canadian issuers.  Read more about the submission here.)

In a post-Kyoto world, institutional investors may be the most effective route to achieving the changes we need to sustain and pass on a good world. The remarkable achievement of the CDP is to provide a focal point for their attention and, I hope, resulting action. 

Other Resources:

Other carbon initiatives relevant to Canadians and Canadian investors, apart from government mandated reporting, e.g. Environment Canada's Facility Greenhouse Gas Reporting requirement or Alberta's Greenhouse Gas Reporting Program, include:
  1. The Climate Registry:  A nonprofit collaboration among North American states, provinces, territories and Native Sovereign Nations that sets consistent and transparent standards to calculate, verify and publicly report greenhouse gas emissions into a single registry. The Climate Registry Information System (CRIS) is the Registry’s online GHG calculation, reporting, and verification tool. CRIS also provides public access to the Registry’s verified emission reports.
  2. The Regional Greenhouse Gas Initiative: The first market-based regulatory program in the United States to reduce GHG emissions. Ten Northeastern and Mid-Atlantic states (CT, DE, MA, MD, ME, NH, NJ, NY, RI, VT) have capped and will reduce CO2 emissions from the power sector by 10% by 2018. The ten states participating in RGGI have established a regional cap on CO2 emissions and are requiring power plants to possess a tradable CO2 allowance for each ton of CO2 they emit. 
  3. Three major investor coalitions focused on climate change risks, the European Institutional Investors Group on Climate Change (IIGCC), the North American Investor Network on Climate Risk (INCR) and Australia/New Zealand Investor Group on Climate Change (IGCC), are launching an international survey of investment practices relating to climate change early in 2011.
  4. C40: Originally the Large Cities Climate Leadership Group and now a group of 40 very large cities, who recognise that “home to half the world’s population and growing rapidly, cities consume over two-thirds of the world’s energy and account for more than 70 percent of global CO2 emissions.” Toronto is a member of C40 and formerly held the position of Chair under former Mayor David Miller.
~ Neil Fairhead

1 comment:

  1. the Carbon Disclosure Project is doing a great job..

    ReplyDelete

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