Carbon Disclosure Project (CDP)

The Carbon Disclosure Project (CDP) recently released the responses to questionaires sent to some of the world's largest companies about their carbon dioxide emissions. Increasingly, investors are more likely to consider potential regulatory risks in their investment portfolios and companies are more incited to take steps to manage potential climate risks. According to the executive summary "the cost of carbon may erode annual income by as much as 45%, depending on carbon prices, compliance periods and individual circumstances".

The project is a collaborative effort by a group of 95 institutional investors who control 21 trillion dollars in assets. The questionaire was sent to the FT500 ("Financial Times 500"), the largest global companies by market capitalization. The total emissions reported was 2,994,834,887 metric tons of C02e, which represents about 13% of anthropogenic global greenhouse gas emissions (GHG).

In its third year, the CDP has attracted greater company participation as a result of the increased attention to global warming, the ratification of the Kyoto Protocol, the EU Emissions Trading Scheme (EU ETS) as well as other imminent agreements. The first year 35 investors participated with $4.5 trillion dollars in assets and less than 50% of the companies questioned participated. This year over 71% of the companies participated.

The report drew a lot of data from a fairly simple questionaire but reading through the individual company responses is revealing. For many companies, as would be expected, this a marketing opportunity as much as an emissions survey. With a rapt group of investors the questionaire becomes an opportunity for corporations to expound not only on their efforts and conscientiousness around global warming but also their products. For example GM takes the opportunity to write that "in the U.S GM offers the largest number and proportion of fuel-efficient cars and trucks on a model-to-model comparison basis."

Some companies finessed their answers, particularly to the question that asks for a specific calculation of total carbon emissions. Mitsubishi Japan, explains that their company:

" a trading and investment company (sogo shosha) active in virtually every industry, including energy, metals, machinery, chemicals, food and general merchandise - although it is not a manufacturing company. Given the complexity of our business operations, our answer to this question [what are the total emissions for your company?] is therefore limited to the office activities of our head office in Tokyo and MCUK in London."

It is also obvious from the responses and this report's interpretation that responsibility is motivated by government regulations and market conditions. In all the sectors some companies were clearly ahead of the game in anticipating how global change could effect their business and taking steps to reduce their exposure.

Gas is more expensive in Europe - so accordingly cars are more fuel efficient. Many companies provided data if it was already required by another government agency, or answered that they would be motivated to take further actions when the business climate was ripe for that or when law required.

In keeping with impressions gleaned from a quick reading of the questionaires, the report reveals that although over 90% of the companies that responded thought that climate change posed commercial risks and/or opportunities to their business, only "51% implemented emission reduction programs; only 45% had established emission reduction targets."

However since 71% of the companies responded, those who "Declined to Participate" stick out from the list. Some of these "non-participants" are: Apple Computers, Best Buy US, Capital One US, Clorox US, Direct TV, Electronic Arts, Fannie Mae, Fedex, Fox Entertainment, Gannett, Harley-Davidson, Morgan-Stanley, Prudential, Symantec, Time-Warner, Walmart US.

As well some companies chose not to respond. "No Response" was indicated by AT&T Wireless Service/Cingular, Accenture, Aflac, Allstate, Amazon, Al Rahji Banking & Investment Corp Saudi Arabia, American Express, Amgen, Berkshire Hathaway, Bridgestone, Carnival, Cendant, China Mobil, Charles Schwab, Clear Channel, General Dynamics, Home Depot, Genentech, Oil & Natural Gas India, St. There are more. The report notes that some companies who didn't respond:

"despite CDP signatories holding more that 20% of their outstanding an era when the capital markets increasingly value disclosure and climate change is quickly rising up the agendas of major pension funds...the lack of responsiveness to the CDP information request does not reflect well on these firms..."

Overall, despite the worthy and wordy intentions, only 13% of companies that provided data in CDP2 (2004) and CDP3 (2005) actually reduced emissions, but importantly, this investor group and others are paying attention. The report as well as the individual companies responses are very interesting and the growing response rate to these questions is welcome.

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