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investor disclosure is possible, material – and also necessary

July 2007

Fund managers should be as transparent on climate change data as everyone else, argues Nick Robins

Over the past decade, investor action on climate change has evolved in remarkable ways. Back in 1997, NPI’s Global Care team launched the first measure of corporate greenhouse gas emissions. From this have grown powerful collaborative initiatives, notably the Carbon Disclosure Project (CDP). When the initial 35 investors backed the CDP’s call for better corporate reporting on climate change in 2002, they faced scepticism from the bulk of the financial world. Five years on, a wall of money is pushing for better carbon governance and transparency, with the number of the CDP’s backers climbing to 284 and their assets under management now at $41trillion (£20.5tn). The volume of data and analysis on climate change has expanded significantly, enabling increasingly informed investment choices to be made. Much still needs to be done, but the stage is set for corporate disclosure to make the transition from voluntarity to a mandatory requirement of information backed by an authoritative accounting standard.

Yet few of today’s initiatives on climate change encourage investors to reveal what they themselves are doing. The investor supporters of the CDP have no obligation to be transparent themselves – unless they happen to be among the listed companies targeted for disclosure. Similarly, the guide produced by the Institutional Investors Group on Climate Change provides extensive guidance on how pension funds can behave as active owners, but again stops short of recommending reporting by funds themselves. Even the recent (and impressive) Declaration on Climate Change from the UNEP Finance Initiative contains no commitments on disclosure from the signatories as investors.

It is unlikely that this discrepancy will last long. As owners, investors bear the ultimate responsibility for both the financial and environmental performance of companies. Investor credibility could be tarnished if the same institutions urging companies to reduce their carbon exposure are simultaneously ramping up the emissions associated with their investments. Just as funds now routinely report how they vote on behalf of their clients, there is no reason why they can’t report on carbon as well.

Encouragingly, movement to investor disclosure has now started. In the UK, Henderson is in the third year of publishing results of an independent ‘carbon audit’ of some of its SRI funds. In Sweden, Banco has audited its funds and offset the emissions associated with two of its SRI funds.

These initiatives show that investor disclosure is possible, material and necessary. With the UK climate change minister Ian Pearson backing an initiative with the Carbon Trust to develop a standard to measure the carbon emissions of goods and services, the writing is on the wall: funds will soon be routinely scrutinized for their carbon performance.

Nick Robins is head of SRI Funds at Henderson Global Investors.



Further Information
nick.robins@henderson.com
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