Investors have the data. Now’s the time for actionSeptember 2011
Awareness of corporate climate impact has been transformed since the Carbon Disclosure Project was born in 2000. But its chief executive Paul Simpson tells Mike Scott that disclosure alone is not enough
For a decade, the Carbon Disclosure Project has written, on behalf of its member investors, to the world’s biggest companies asking them to say what their carbon emissions are.
This simple action has done much to raise climate change awareness, says chief executive Paul Simpson. When the CDP started, many investors were saying: “We know climate change is coming, we know it will have an impact on us and the companies we invest in but we don’t know what that impact will be.”
The CDP’s original remit, therefore, was to deliver investment-grade data that would enable investors to make better decisions and become more active share owners. Simpson recalls that it was a struggle to gather together the original 35 investors, managing $4.5tn of assets, on whose behalf the first request was sent. This year’s request was sent on behalf of 551 investors with $71tn of assets, so “a significant proportion of the world’s economy is now asking these questions”.
Investor awareness of climate change has risen significantly, he adds, but there is still much to do to translate that into a change in investment behaviour.
“Now the data exists, it is easier for investors to conduct analysis. The quality and quantity of climate change coverage has increased a lot,” he says.
“But we still need a shift to a longer term focus on how climate change will affect investors. That shift would see climate change and other factors integrated into long-term investment decisions.”
Companies, too, are much more aware now than in 2000, when very few measured or reported on climate change. But while better disclosure is important, Simpson says “disclosure without action is not enough”. So the CDP has widened its scope and now ranks companies on both disclosure and performance in reducing emissions.
It took a step further this year with its Carbon Action initiative, in which companies are asked to take actions to reduce emissions, where there is a financial case to do so. “We want companies to have set an emissions target, to have looked at a marginal abatement cost curve and to identify and carry out projects that have a reasonable payback period,” the CDP chief says.
Five years ago, the CDP launched a supply chain initiative under which companies ask suppliers for emissions information, “and we have recently started a project on cities’ carbon disclosure, looking at their emissions and how they are likely to be affected by climate change. More than half the world lives in cities [which] are responsible for up to 70% of energy consumption.”
The CDP has also launched a Water Disclosure Project, asking companies to report on their water usage “after a number that submit data said that water impacts will hit us first and hardest”. Some companies are already struggling to maintain their ‘licence to operate’ because of water issues, including mining companies in South Africa and Coca-Cola in India.
But while disclosure is a limited driver of change, Simpson says “measurement leads to management. And markets need to act on it, too.”
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