Climate change poses both risks and opportunities. Recent shareholder resolutions recognize that climate change is both a material risk and a commercial opportunity. Of necessity, investors are required to improve their knowledge base, including an understanding of the implications of the groundbreaking Carbon Disclosure Project (CDP).
In response to interest and concern regarding the release of the Carbon Disclosure Project Fourth Report (CDP4) on September 18, 2006, here are answers to frequently asked questions on the CDP.
The Carbon Disclosure Project (CDP) is an initiative of the world’s largest consortium of institutional investors, collaborating on the business implications of climate change. The project currently includes 211 signatories, representing over $31 trillion in investment capital.
Since its inception in 2003, the investor signatories have used the CDP to survey 500 major international companies, requesting the disclosure of potential risks and opportunities relating to climate change. The CDP questionnaire is sent out annually (every February) requesting corporate accountability on issues related to corporate climate change policy, carbon dioxide emissions, energy costs, use of energy-efficient technology, and supply chain management.
The CDP was developed to increase voluntary disclosure of corporate involvement in mitigating climate risk, so that investment decisions could include consideration of a company’s climate change management strategy, including the potential risk associated with undervaluing the implications of climate change on business operations. The magnitude of investment capital represented by the CDP is unprecedented. The CDP represents a sea change in investment thinking, demonstrating that climate change now constitutes a significant economic risk, which must be addressed by all sectors. Investors are actively engaging the business community on this issue.
Each September, the results of the annual questionnaires are reported to participating institutional investors and the general public. These reports are also available to anyone through the CDP website. Each corporation has the option of allowing its individual responses to be made public; these are compiled in the CDP’s searchable online database. The data is used by a variety of end-users including the investment community, financial analysts, insurance and re-insurance companies, government agencies and policymakers, scientists, non-governmental organizations, and environmental researchers.
The CDP honors 60 top companies who present as ‘best in class’ on the Climate Leadership Index (CLI). Many of the companies listed on the CLI are also represented on the Dow Jones Sustainability Index. Previous leaders include Suncor, Scottish Power, Citigroup, BMW, Toyota, Alcan, and Alcoa. Six criteria are used in the evaluation: strategic awareness, management accountability/responsibility, emission management and reporting, emissions trading, programs in place, and establishment of targets. Climate Leaders are also selected based on response depth, completeness, sophistication, and a professional assessment completed by Innovest Strategic Value Advisors (commissioned by the CDP).
Yes! Many more companies have been participating. Initially, only the Financial Times 500 (FT500) companies were included. In 2006, 1800 companies were surveyed: the FT500, US 500, Electric Utility 265, Canada 300, Germany 200, Japan 150, Australia 100, New Zealand 50, France 120, United Kingdom 100, Brazil 50, Asia 40, FTSE 250, and others. It is not necessary to be included in these classifications in order to participate.
If your corporation elects to be included, it is advisable that corporate responses to the CDP questionnaire demonstrate a clear understanding of the issue, and present your corporate commitment, through policies and ongoing programs, to minimize the risk that climate change poses to the organization, and to the investment community that it serves. Failure to respond, or presenting a limited response, sends a clear message that can have damaging economic ramifications.
For further information, including consultation, please contact:
First Environment Inc.
770 L Street, Suite 950
Sacramento, CA 95814