Carbon disclosure slips into the mainstream

A clear majority of the world's largest companies are now engaging with the issue of climate change, according to the latest report by the Carbon Disclosure Project - an initiative backed by investors wielding funds worth $10 trillion.1 More US firms are reporting on carbon emissions - but other work by analysts Trucost suggests that the quality remains "generally inadequate".2

The CDP is a not-for-profit body set up by some of the world's leading fund managers to focus the investment community's engagement with climate change issues.

The project is now backed by 95 signatories representing assets of over $10 trillion - up from 35 investors with funds of $4.5 trillion last year. Europe still dominates the list, with 59 signatories, but North America now provides 26 signatories and Japanese and Asia Pacific investors also feature.

Last November, the CDP wrote to the biggest 500 companies in the world - those on the FT500 global index - asking for information on how they are managing climate change issues. It also asked for data on greenhouse gas emissions from companies' activities, and from supply chains, products and services.

The CDP2 questionnaire received a considerably better response than the first survey, which took place a year earlier (ENDS Report 337, pp 3-4 ). The response rate rose from 47% to 59% - and a further 5% of companies say they will respond in due course. The numbers declining to participate (15%) or failing to respond (14%) fell sharply.

A clear split between North American and European businesses remains apparent (see table). UK-based firms performed well, with 35 (92%) of 38 responding. InterContinental Hotels failed to respond, catering group Compass submitted other information and Kingfisher promised to respond by the end of May.

In contrast, only 42% of US companies responded, suggesting that many feel protected from carbon risks by the Bush administration's stance on the Kyoto Protocol. Notable successes for the CDP include a first-time response from ExxonMobil - notorious for its sceptical stance on climate change - and a 40% increase in responses from North American utilities.

However, the 148 non-respondents include familiar names such as Boeing, Honeywell International, Caterpillar, Safeway and Interbrew. The failure to respond is particularly surprising for the dozen companies in which CDP signatories hold more than 10% of stock.

"Companies failing to respond or providing weak responses to those that own a significant share of their business will invite particular scrutiny from the investment community," warns CDP chairman James Cameron. "Investors now have ample understanding and opportunity to reallocate assets to reduce climate change risk and invest in companies offering solutions."

A new feature of this year's report, compiled by analysts Innovest, is a "climate leadership index" (see list). This highlights the 50 firms whose responses "best addressed the breadth of climate change issues", including emissions reporting, target-setting and strategic positioning. BP wins a special mention as the only company to give responsibility for climate change to its chief executive.

In general, Innovest says, companies' responses are "more sophisticated in content" than in CDP1. Two-thirds of companies in "high-impact sectors" are now measuring and reporting emissions, up from 51% in CDP1. ChevronTexaco - a first-time reporter - is highlighted for a detailed response setting out how the company now integrates an assumed cost for carbon in all major capital projects.

However, Innovest highlights "some worrying trends....Many firms remain firmly 'behind the curve'," it says, with many responses lacking sufficient data or simply restating the previous year's response. Response rates from the "high-impact" transportation and oil and gas sectors remain surprisingly low.

Moreover, "approaches to supply chain questions are muddled, with little consensus on how to account for emissions while avoiding double-counting." Other problem areas include assessments of life-cycle emissions from products and planning for investments in the absence of regulatory certainty. Some of these problems may be eased by the adoption of national and international principles on carbon accounting which, the CDP says, now "appears likely".

One major driver for the increased engagement is the imminent EU emissions trading scheme (see pp 41-44 ). A significant minority of FT500 companies have facilities covered by the scheme, but many others will be affected by increased electricity prices. Two-thirds of European power companies responding to the CDP expect wholesale prices to rise by up to 20% - while a fifth expect an increase of 20-40%.

Even so, there is evidence that European utilities - perhaps the most exposed sector - remain worryingly slow to get to grips with the scheme. A recent survey by Pricewaterhouse Coopers found that only 45% of major utilities had implemented a climate change strategy either partially or fully - while 22% had no strategy at all.

  • Disclosure in the US: A rather bleaker picture of US corporate engagement is painted by Trucost's analysis of climate change policies among America's biggest firms, those on the S&P500 index.

    Trucost found that only 40 companies disclose their emissions - although they tend to be the biggest emitters, accounting for 53% of total estimated emissions from S&P500 companies.

    The emissions profile is dominated by large utilities, with just five companies accounting for 27% of S&P500 emissions. The 36 biggest emitters accounted for 75% of the total. Several companies have been the focus of shareholder actions in the past year. As a result, the largest emitter AEP, and other big players such as Cinergy, TXU and Southern Co, have agreed to report on the potential impacts of climate change legislation.

    Nevertheless, Trucost says, efforts to encourage disclosure in the US "have met with limited success to date." Moreover, reports are "generally inadequate", leading to "growing concern over the quality and usefulness of the figures that are disclosed." Trucost says that the data should be comprehensive and contemporaneous with financial reports.

    Much will depend on the progress of greenhouse gas controls at federal, state and voluntary level. Trucost quotes Susan Tomasky, AEP's chief financial officer: "We don't expect Kyoto timeframes to be enforced in the US but we do expect international consensus on this issue to prevail in the US."

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