CDP logo   March 2014

CDP NEWSLINE: the latest research, announcements, events

Carbon asset stranding a risk to capital markets
Paul Simpson, CEO

Stocks are plummeting in response to fears that China’s property bubble is bursting. Economists are speculating that Australia will follow suit. There is concern that UK house prices are rising once more at an unsustainable rate. These are timely reminders of the wide-reaching and enduring negative impacts of the last US housing crash, the fragility of our economic systems and the need to transform the way we do business.

There is another bubble that appears to be greatly inflated, concerns over which are being vocalized with increasing frequency. Speculation on this one exists in the form of risk to company valuations and wasted capital expenditure, but there is an opportunity for policy makers, companies and investors to act now and prevent another economic catastrophe. I’m referring to stranded assets as a result of the carbon bubble, so clearly highlighted by the work of the Carbon Tracker Initiative and discussed by a group of investors, companies, central bankers and NGOs at a roundtable I recently took part in at Davos.

International policy makers have agreed that global warming must be limited to two degrees if we are to avoid the disastrous affects of dangerous climate change. The Intergovernmental Panel on Climate Change is the leading international body for the assessment of climate change. It was established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988 to provide the world with a clear scientific view on climate change and its potential environmental and socio-economic impacts. It has stated that global carbon emissions must not exceed 1,000 billion tonnes if the two degree target is to be met. Just over half of this 1,000 billion tonne budget has already been emitted and any chance of keeping within the remainder demands a substantial amount of fossil fuel reserves remain unburned. The total carbon assets held by public and private sector companies, if burned would exceed the remainder of the carbon budget by a factor of five.

The implications for the valuation of those reserves are significant. Likewise for the valuation of the fossil fuel companies, their investors and businesses depending on fossil fuel at any point along their supply chain. New capital expenditure in fossil fuel exploration risks being wasted. This potential write down of carbon asset valuations poses a systemic risk to capital markets, warns Joan Walley MP, Chair of the UK Parliament's Environmental Audit Committee in their latest report.

The business and finance community are calling on policy makers to send clear policy signals on how we accurately quantify the location and scale of the risk. The United Nations Environment Programme warns of the risk of policy shocks as the realities of climate change become clearer. Clear policy will help guide the markets to ensure the smooth transition from a carbon intensive economy to a low carbon one. Further, some 75% of fossil fuel reserves are owned by state companies. It is incumbent on governments to assess the risk of their assets becoming stranded.

There are some though who continue to deny the risk of the bubble – rather like the property brokers, mortgage companies and governments who continue to state that the price of housing is not unsustainable, whilst the public look on in disbelief – some oil, gas and coal companies continue to believe that their business model is sustainable, that they should keep throwing investors' cash into finding more fossil fuels and that investors shouldn’t worry about potential regulation.

Some early movers are already acting to reduce exposure to stranded carbon assets. Asset owners such as Storebrand and Norges Bank Investment Management (NBIM) have divested from a number of fossil fuels companies but there is a critical need for more information in the global marketplace.

The Governor of the Central Bank of Korea believes that central banks should “wake up” and has offered to assist in educating the financial system on the significance of this risk, while the Bank of Japan is calling for investors to calculate the carbon footprints of their investments.

The appetite for information and data on the risk of stranded assets is clear. Companies must improve their measurement, management and disclosure of their exposure to stranded assets risks. Mandatory requirements from market regulators for increased corporate disclosure would be a step in the right direction but it is encouraging to see the private sector taking action now. At the debate in Davos, Neeraj Sahal, President of rating agency Standard & Poor’s, stated his firm’s commitment to stress testing companies on their stranded asset risks.

We have a clear choice with climate change and the carbon bubble; do we stand with the dirty fossil fuels that are the greatest source of emissions and air pollution globally or the ecological system that the global economy and life depends? The choice is stark and we must clearly leave much of the fuels in the ground whilst embracing a transformation of our energy systems which in itself will create new jobs and opportunity.

What is now required is for policy makers, companies and investors to work together and move beyond recognition and statements of commitment, to taking action that will avoid economic and sociological disaster.

Growth of investor interest in natural capital gains momentum

As extreme weather continues to impact economies around the world and climate change regulation accelerates the risk of stranded assets, 2014 sees an unparalleled number of investors ask 5,550 of the world’s largest listed companies to use CDP’s respected global environmental disclosure system.

The number of investor signatories to CDP’s climate change, water and forests programs has grown significantly, further demonstrating investor understanding of the increasing financial impact which natural capital has on global capital markets:

{ Carbon Action, a CDP initiative to accelerate carbon reduction has driven companies in high emitting industries to implement emissions reducing projects that generate positive return on investment. The latest results demonstrate a 33% return on investment, creating a net present value of US$15.1 billion. Investor participation in the Carbon Action initiative has increased by 34% since last year and now stands at 254 signatories with US$19 trillion in assets;
{ 30% increase in the number of investors gaining insight on exposure to forest risk commodities, with 240 investors representing US$15 trillion becoming signatories to the forests program. CDP’s forests program was first pioneered by the Global Canopy Programme, which remains a prime funder for the program and acts as the principal advisor on forests and forest risk commodities to CDP;
{ Continued recognition of water as a critical business issue with the 8% increase in signatories to CDP’s water program, reaching 573 representing $60 trillion; and
{ The highest number of signatories in the 12 year history of CDP’s climate change program: 767 signatories, a 6% increase, with US$92 trillion in assets.

Visit our new webpages to understand how investors use this vital data to guide their decisions.

A view from Davos: climate change action snowballs at the World Economic Forum, Paul Simpson, CEO

Davos! Big debates, big brains, big names,” announced the United Nation Environment Programme’s Executive Director Achim Steiner during the World Economic Forum (WEF). The annual event united 2,500 delegates from over 100 countries for four days in the picturesque Swiss mountain resort of Davos to discuss and debate a range of global issues. Climate change was high on the agenda with no fewer than 23 dedicated sessions, reflecting the latest WEF report findings that four of the 10 biggest risks to the global economy are linked to climate change. Of these four risks, water crises was ranked the highest in the group, placing it third overall behind the risk of financial crises to key economies and high structural unemployment.

This focus was praised by the Secretary General of the United Nations Ban Ki-moon and the UN's top climate official Christiana Figueres, as they welcomed a renewed sense of momentum in advance of September's UN Climate Summit in New York and the November Conference of Parties (COP20) in December. If a new global climate deal is to be agreed by government leaders it is imperative that a strong agreement is drafted by COP20 or shortly after. Designing a fair framework requiring all major emitters to cut greenhouse gas levels from the year 2020 onwards is a considerable task, but one that is critically important. Countries are due to submit their national targets in early 2015. Hopes are somewhat optimistic. According to Christiana Figueres, “climate change is now right back up there among the top concerns of business and political leaders”.

Perhaps one of the reasons for such focus on the climate crisis is the increasing understanding, supported by strengthening scientific evidence, that there can be no “climate bailout”. An important part of the heavy lifting necessary to avoid this and achieve a global deal is communicating the message that addressing climate change is a good investment. The launch of the CDP Supply Chain Report 2014 while I was in Davos highlighted that collaboration is key to achieving truly sustainable business models, but that regulatory uncertainty was halting the necessary investment.

Similarly, if government leaders are to introduce effective policies for a global deal, they need a clear voice from the business community. Many leaders are becoming more vocal in their support for such policy. Just last week, Ben Goldsmith, a CDP trustee and founder of WHEB, led a transatlantic center-right coalition including Sir James Dyson, former Marks & Spencer boss Sir Stuart Rose, Arnold Schwarzenegger, UK Education Secretary Michael Gove, former New York Mayor Michael Bloomberg and UK Environment Secretary Owen Paterson in a motion calling on the British Government and Conservatives worldwide to improve their policies to realize the business and political benefits of environmental action.

If policy-makers play their part in guiding us to achieve sustainable economies, then businesses must also step up to the mark. As Ban Ki-moon said in his opening statement at Davos

[companies must] ensure that the goals of the trade associations you join are consistent with your sustainability objectives. Let us make sustainability the most powerful lobby.

Ban Ki-moon, Secretary General,
United Nations

The might of the corporation will be most effective if those at the top respond to the UN Secretary General’s charge. A recent report by the Union of Concerned Scientists based on CDP data demonstrates that many companies are a long way from achieving that consistency - some perhaps through lack of focus on this topic and some intentionally. Similarly, the joint Guide to Responsible Corporate Engagement in Climate Policy report sets baseline expectations for companies to provide proactive, constructive input for governments to create effective climate policies. It helps companies to connect the dots between sustainability commitments, such as emissions reductions across their value chains and efficiency improvements, with their corporate policy positions.

To summarize the Davos discussions on climate change this year, it is a conference of the powerful and influential, the fact that climate change is once again rising up the agenda can only be a good thing. It demonstrates the increasingly wide acceptance of the problem and the accelerating desire for action. There were some excellent sessions in Davos, one on short lived climate pollutants - where BG Group announced an ambitious goal to limit methane leakage to 1% across their natural gas value chain. Others covered avoiding deforestation in supply chains, climate finance, cities and carbon asset stranding as a risk to capital markets. Despite this very positive progress there is still a chasm between the clear need for action and the implementation of the transformation required. Perhaps at best a quarter of the people in Davos have climate in the top five of their agenda items this year, what is needed is a continued and concerted effort by the UN, WEF, national governments and leading companies to change that to 75% over the next two years. Only by governments and companies working in unison toward common objectives will we be able to maintain the momentum of Davos, achieve long-term business resilience and a sustainably profitable future for all.

Want to know more? Watch a short video of Paul Simpson and Accenture's Global Managing Director of strategy and sustainability, Bruno Berthon, being interviewed by the Guardian’s Jo Confino in Davos.

Corporate reporting in the new age of transparency by John D. Wiebe, President and CEO of GLOBE Group

Much has been written of late about the growing importance of corporate reporting, particularly in what many describe as the ‘new age of transparency’. Corporate disclosure of environmental and sustainability related data has grown exponentially over the past decade, and its importance in demonstrating that superior performance on climate change and resource efficiency correlates with improved financial performance cannot be overstated.

Having pioneered the only global platform for corporate disclosure on the environment, CDP drives more sustainable investment, enables companies and cities to increase efficiency, realize monetary savings, and capitalize on commercial opportunities from the better management of climate related vulnerabilities including energy, water, and the use of forest products in direct operations or across supply chains. There are those, however, that are yet to realize the full benefits of environmental accountability, so how can this be achieved?

The value of transparency

The value of voluntary disclosure of performance data in these critical areas, and the sharing of more general information on corporate perspectives and strategies on sustainability, has been repeatedly proven from a competitive position angle, but also in terms of raising the level of public awareness and acceptance. Both will be increasingly important priorities in the new age of transparency.

What is less well understood, particularly in certain sectors, is a full appreciation of the concept of transparency, and the associated questions of what information should be shared, how much should be made available, and how accurate must this information be, which touches on the issue of verification.

The first and most important fact corporate leaders must understand and accept is that transparency is not an option. It is a reality that permeates every aspect of society, which is more than evident if we look at words that did not exist a decade ago, or which had totally different meanings: Twitter, Instagram, Facebook, and Social Networking. Whether released voluntarily or not, information has a way of becoming public knowledge, and the only real choice open to managers is how to turn disclosure into an asset that has value in the investment community, the marketplace, and on the shop floor.

As noted by Susanne Stormer, Vice President of Corporate Sustainability at Novo Nordisk, a company renowned for its proactive engagement strategies, “In the long term, not being transparent is really not an option. You can say that truth, like pregnancy, cannot be hidden for long. And even now, your stakeholders will find out one way or another, and you can no longer control the communication that’s coming in and out of your organization.

To make disclosure a corporate asset, one must first accept the fact that corporate information is a resource quite different from all tools available to managers in that it can't be contained, has a propensity to leak, is highly valued, and must be totally accurate.

Turning transparency into a competitive advantage

Are there limits to transparency? Not really. Are there acceptable limits to disclosure? Yes; but delay, deceit, and obfuscation are not assets in this regard. They are liabilities that have a way of coming back to bite in the most uncomfortable places, and invariably, lead to costly and time-consuming diversions such as countering rumors, denying cover ups, coping with conspiracy theory hyperbole, or engaging in costly legal proceedings.

Thus, if transparency and accurate corporate reporting are the new realities of business, the only real question is how to turn both into a competitive advantage.

Be Accurate, Honest, and Complete
The first rule of thumb is to ensure that what is disclosed is accurate, honest, and complete. Disclosing volumes of incomprehensible data is not the “yellow-brick road” to success. More important are honesty, clarity, and forthrightness. These have a value in the marketplace that are almost beyond measure.

You can manage information, but you cannot manage the truth. Ultimately, everything is revealed. The first rule of corporate reporting in the age of transparency is to be honest, open, and forthright, or be forced to disclose uncomfortable information by government decree or by public pressure.

If there is an uncomfortable truth lurking in the background, deal with it honestly and openly engage everyone in the efforts to resolve it. In this regard, corporate size is not a saving grace.

Giants in the food industry have learned this lesson and are responding accordingly, voluntarily improving processing practices, changing recipes to deal with the dangers of trans fats, funding public education campaigns, and pushing reduced-fat products to regain public acceptance.

Clothing manufacturers are also beginning to realize that low prices do not justify shoddy and unsafe working conditions, or the use of child labor in developing countries. Tragedies in Bangladesh are painful and avoidable stimuli for businesses to engage in long-term strategic planning that transcends profit and commands better stakeholder engagement and more responsible supply chain management.

Energy giants have also learned the painful lesson that honesty and upfront acceptance of responsibility for errors or omissions is a far better strategy for dealing with disclosure than denial, finger pointing, or governmental oversight.

Make sure information is standardized and credible
Secondly, make sure the information you report is standardized and credible. This is a tough one, because the process of environmental sustainability performance assessment can be complicated and time consuming, and is generally not easily understood by the general public.

This is where programs such as those offered by CDP can be of great value. They provide the metrics that go beyond the measurement and disclosure of carbon emissions, water use or deforestation – important as that may be – but also provide the framework for self-assessment and metrics for sectorial comparisons of performance.

The availability of a standardized, industry-wide framework for information disclosure makes the task of reporting not only achievable but also useful, both to corporate managers and to other stakeholders.

Not only does this assist companies in responding to growing stakeholder expectations, it also gives companies the opportunity to view risks and opportunities for future business strategies through industry-wide standards.

That is why sharing information within a sector is so critically important. It places understandable and credible standards into the public domain and raises the bar in terms of performance measurement.

Indeed, as noted in a recent Ernst and Young report, a study of industries with significant environmental impacts (utilities, metals and mining, oil and gas, pulp and paper, and chemicals) determined that voluntary sustainability disclosure by firms in these industries allows investors more information than government-regulated transparency alone and that disclosure was positively correlated with return on assets and cash flow from operations.

In the age of growing transparency expectations, employees, consumers, and investors want to know they are dealing with good corporate citizens. As Don Tapscott and Anthony Williams point out on their excellent 2003 paper on Value and Values in the Age of Transparency, over time the commitment to transparency and the disclosure of credible information “reinforces the notion that a company’s commitments are reliable and that its behavior consistently aligns with the values and images it projects in the marketplace.”

Take control and ownership of externalities
This leads to my third and perhaps most important point with respect to corporate behavior in the age of transparency. That is the need to take control and ownership of externalities before they take ownership of you.

Externalities, or what economists often refer to as side effects, can include the uncomfortable realities associated with a company’s operations noted earlier, that have a way of surfacing when least expected or desired. But they are realities that must be dealt with openly and objectively.

In the context of sustainability, they can include environmental impacts arising from standard operations, or from catastrophic breakdowns, or from totally unexpected impacts not previously understood, such as the long-term impacts on eco-systems from the end of life disposal of products or packaging materials.

As noted, denial is not an effective strategy. Nor is seeking to avoid responsibility or obligation for the consequences of what happens beyond the factory gate. Taking ownership of an issue before it becomes explosive is the most tangible example of leadership that exists in the corporate world, and the ultimate model of excellence in the age of transparency.

This is far more than good public relations. It is hard-headed management in a world where everything is ultimately transparent, and the prize will go to those who recognize that indeed, honesty is the best policy.

The role of the private sector

Summing up, why is this important? Simply put, notwithstanding pronouncements at the highest level of government on the importance of corporate reporting on sustainability (such as the 2012 Rio+20 Conference Outcome Document agreed to by all UN Member States), the private sector is the most important player in the pursuit of sustainability.

It drives the workforce, fuels innovation, and influences every facet of life from the production of essential goods and services, to the pursuit of research and development, to the formulation of technical standards that integrate national economies.

That is why integrity and honesty in voluntary corporate reporting are such important issues going forward in this new age of transparency.

Engage with CDP and industry at GLOBE 2014

Coming back to the importance of reporting through CDP, it allows for peer-to-peer comparison of corporate environmental risk and provides the basis for informed discussion by the general public and other stakeholders of corporate action on sustainability, which ultimately is the key to retaining the social license to operate.

This is a message we have stressed over and over again on the past quarter century in all our activities at the GLOBE Group. And it will be the core message at GLOBE 2014, the next in our celebrated series of conferences and trade fairs on the business of the environment, taking place on March 26th - 28th in Vancouver, Canada. Close to 10,000 participants from more than 50 countries will converge for GLOBE 2014.

Nigel Topping, Executive Director of CDP, and Tom Carnac, President of CDP’s operations in North America, will be joining many other industry leaders and sustainability experts at GLOBE 2014 to share strategic insights, develop collaborative partnerships, and participate in more than 45 conference sessions and workshops dedicated to sustainability and enhancing corporate performance.

I invite you to download the GLOBE 2014 Conference Program and join us for what is shaping up to be another critical event for identifying the business opportunities around today’s greatest environmental challenges.

Improving supply chain reporting

CDP and The Sustainability Consortium® (TSC®) have signed a memorandum of understanding that will see the two organizations work together to improve the effectiveness of global corporate sustainability and natural capital reporting within supply chains.

The aim is to provide companies and investors with the data to quantify and communicate the sustainability of products and suppliers. This approach will drive better understanding, standardization, and informed decision making. In turn this will lead to increased value for businesses through the introduction of new initiatives and identification and reduction of risk.

CDP and TSC will identify common questions across both reporting platforms and align the questions, where possible and relevant. Improved coherence, consistency and comparability will lead to improved effectiveness in sustainability reporting. This will increase clarity of disclosure and ease the reporting process for responders globally.

Please visit www.sustainabilityconsortium.org and www.cdp.net for further information.

Climate change, extreme weather and business opportunities driving major US companies to factor a carbon price into investment decisions

On 17th February the Climate Disclosure Standards Board (CDSB) will release Edition 2.0 of its Reporting Framework for integrating environmental information into mainstream corporate reports for public consultation. This draft expands the subject matter of the Framework to include reporting requirements on environmental information related to climate change. Based on CDSB’s existing Reporting Framework (originally released in 2010), the draft broadens the subject matter for reporting to include fossil fuels, water stewardship and forest commodities. The Reporting Framework may be used as a stepping stone for integrated reporting. CDSB is a global consortium of business and environmental NGOs, managed as a special project of CDP, working to promote disclosure of environmental information in mainstream corporate reports.

Visit www.cdsb.net/consultation to download the draft and respond to the consultation. The deadline for responses is 12th May 2014. Join a briefing webinar to find out more about the changes and how to respond. For further information contact Jarlath.Molloy@cdsb.net.

Are you looking for support to improve your climate change management?

In 2014 CDP will be holding a series of webinars with our gold software partners designed to give you valuable insights into how sustainability management software can help your organization and featuring case studies with CDP responding companies. In this first webinar, "Beyond compliance: Monitoring, managing and reducing your emissions" learn how software can support not only the annual CDP response, but also help you gather and analyze the information you need to manage your operations day-to-day, deliver carbon initiatives and implement reduction projects. Find out more and register.

CDP’s software partners can help companies with their sustainability data collection and analysis. We are delighted to announce that Ecova and Manage CO2 will continue as silver software partners for 2014. Both of these organizations offer their sustainability management software services to companies disclosing worldwide.

CDP’s consultancy partners can provide sustainability guidance and support to CDP responding companies and we welcome Antea Group, Energetics, Institute RSE and Offsetters as new silver consultancy partners in the US, Australia, France and Canada respectively. Continuing as consultancy partners in the US, we are pleased to announce, are Brown Flynn, Cadmus, Environ, and WSP, alongside Corporate Citizenship and GP Strategies in the UK.

CDP’s verification partners are accredited under internationally recognized standards to perform verification services and CDP looks forward to working once more with Bureau Veritas, who will continue as a global verification partner. Education and training partners can work with organizations to provide carbon management training and within this partnership program, we’re pleased to welcome Boston College Center for Corporate Citizenship in the US.

Want to know how investors use CDP data?

Visit our new webpages to find out.

CDP still number one in Rate the Raters

The 2013 Rate the Raters survey published recently established for the second time in a row that CDP’s scoring is the most credible sustainability rating system in the world, ahead of DJSI and FTSE4Good, Bloomberg and all the others.

Changes to CDP’s scoring on verification

CDP is planning to raise the bar for full points for verification in 2015, rewarding those who are doing more and incentivizing companies to verify more data. In order to do this CDP will introduce a threshold of 70% of both Scope 1 and 2 emissions verified for full points to be awarded and for inclusion in the Climate Performance Leadership Index (CPLI) in 2015. Learn more about these key changes on the verification pages of our website.

ON OUR EVENT RADAR

Stay up to date with all CDP’s training and educational webinars

Throughout the disclosure period, we are running a number of live webinars to help you:

{ Complete your CDP response;
{ Learn more about the disclosure process;
{ Understand questionnaire changes for 2014; and
{ Realize the benefits of using CDP reporting platforms.

Whether this is your first time responding, or you have responded for years, we have a webinar for you. Make sure you don’t miss out: subscribe to our dedicated webinar emails.

Money2Water - Global Water Investment Summit, 7th - 8th March 2014, London, UK

Euromoney Water Events has been created to bring together the participants in the international water industry. Compiled in collaboration with an advisory board of highly regarded industry names, Money2Water covers water from an investment, finance and innovation perspective and provides a platform for key stakeholders to network, exchange investment opportunities and explore new technologies. Register by 21st March and save £200 on the ticket price.

Head of CDP’s water program, Cate Lamb, will be speaking at this event and you might also be interested in taking part in the event’s Innovation2Water Showcase Exhibition. If you would like to promote your technology, services and innovations with a stand at this showcase, you can obtain a 20% discount off the rate card by quoting CDP. For more information on this event please contact Romain Ollichon Head of Marketing.

PE Symposium 2014, 10th - 12th March 2014, Stuttgart, Germany

CDP’s gold software partner PE INTERNATIONAL is hosting its 5th annual Best Practices Symposium, “The Maturity of Sustainability Management”, a knowledge sharing event attended by thought leaders, sustainability managers and business professionals who congregate to share how sustainability management adds real value to their organizations and the environment. CDP responding companies can enjoy a 25% special discount for the main Symposium event taking place on 11th March, 2014. To take advantage of this offer, enter the following promotion code: CDP7768, when registering online or on PE’s webpage. For more information, please contact registration@pe-international.com.

GLOBE 2014, 26th - 28th March 2014, Vancouver, Canada

Over the past 24 years, the GLOBE™ Series has become the nexus for global networking and leadership on the business of the environment. In 2014, GLOBE will once again serve as the consummate place to transform environmental challenges into lucrative business opportunities. Biennially, thousands of environmental business leaders, corporate environmental managers and sustainability practitioners come together in Vancouver, Canada to explore the mutually inclusive goals of corporate sustainability, business growth, energy and climate change solutions and urban development. CDP North America President, Tom Carnac, will be speaking at this event. Find out more.

2014 Climate Strategies Forum, 12th - 14th May 2014, Washington DC, USA

The Association of Climate Change Officers (ACCO) proudly launches its inaugural Climate Strategies Forum in conjunction with the recent publication of Core Competencies for Climate Change Officers. The Climate Strategies Forum features a number of in depth training bootcamps, as well as a variety of other educational activities including roundtable discussions, ACCO working group meetings, facilities tours and panel discussions. Registrants will be able to customize their experience using the scheduling tools provided during registration. Tom Carnac, President of CDP North America, will be speaking at the event. Please use the following code to receive a 20% discount on registration: CDP-Discount-2014 (applies after early bird registration concludes).